jorg asmussen : eurozone cross - fire : the way out of economic recession – assessment of a realist and a response to idealists and cynics speech by mr jorg asmussen, member of the executive board of the european central bank, at the bank of america / merill lynch investor conference, washington dc, 20 april 2013. * * * sylvie, laurence, ladies and gentlemen, thank you very much for inviting me to speak at today ’ s investor conference. introduction the eurozone can be difficult to understand. especially when seen from this side of the atlantic, the complexities of the macroeconomic and financial situation and of the political dynamics in europe can be baffling. to cut through the complexity and amidst fragile confidence and the “ noise ” of crisis management simple answers and “ once - and - for - all solutions ” seem attractive. unfortunately, this kind of answer is an illusion. because the crisis in the euro area is multifaceted. it is, at once, a crisis of public and private debt, a crisis of competitiveness and growth, and a crisis of trust ; in institutions, in politics and in decision - making. tackling the crisis successfully and comprehensively will require solutions for all of those. when i read the commentary, especially over here, on the crisis in europe, i often see two stereotypical responses, those from what i would call “ idealists ” and those from “ cynics ”. first, the idealists : they say the euro area is too heterogeneous and divergent. they say the euro area must integrate completely, or risk breaking up. as a solution to resolve the crisis, they allege that only a move to a “ united states of europe ” will do, with joint issuance of debt, a transfer mechanism, and “ the works ”. then there are the “ cynics ”. they accuse europeans of practising “ medieval medicine ” – bleeding the patients in a bid to cure them. they contend the “ bitter pill of austerity ” will kill the patient, and the people will not take it any longer. they say that overcoming the crisis will need more time, less austerity ; more public money, less reform. and they often call on the ecb to do more. i believe none of these caricatures reflect the reality of the response in europe. the us journalist sydney j. harris once wrote “ an idealist believes the short run doesn

’ t count. a cynic believes the long run doesn ’ t matter. a realist believes that what is done or left undone in the short run determines the long run ”. i believe it is imperative to convey, not only the short - term outlook for the euro area, but also to dispel certain generalisations regarding the ongoing adjustment in europe and the longrun vision for economic and monetary union. in this context, allow me to briefly outline what i would consider, a “ realist ’ s assessment ”. bis central bankers ’ speeches the on - going adjustment in emu the adjustment in the eurozone is underway. there is also no doubt it is painful, especially for the people in some countries of the periphery. however, let me give you some evidence of what has actually been achieved. in programme countries, we have seen a strong improvement of structural primary balances since 2009. in greece, for example, this is estimated to have improved by more than 14 percentage points of gdp between 2009 and 2012. to put this into context, in this country, the “ sequester ” calls for cuts of 1. 2 trillion dollars over ten years. the equivalent of what greece has done would have meant for the us an adjustment of 1. 6 trillion dollars over three years. in emu, this adjustment is being undertaken within a reinforced fiscal framework – a new set of rules – which strengthens the ability to prevent and correct the accumulation of excessive deficits. furthermore, a new framework for the surveillance of macroeconomic imbalances has been established. and also on this front, a very large correction of external imbalances is visible. in greece, portugal and ireland, the current account balances have each improved by more than 7 percentage points of gdp between 2008 and 2012. it is true that much of the adjustment has been driven by a contraction in domestic demand. however, in ireland and portugal export performance has also been strong, because programme countries are now reaping the benefits from their significant improvement in cost competitiveness. this is evident from the significant reduction in unit labour costs. for greece, ireland and portugal we see about a 10 percentage point improvement relative to the euro area average. the adjustment in ireland has been spectacular, and translates into about an 18 percentage point improvement between 2008 and 2012. this means that the past excesses have by and large been undone. government bond spreads now fluctuate at much lower levels compared with the peak of the crisis.