##es of 3. 5 per cent of gdp and 2 per cent thereafter. clearly the lower surpluses imply a smaller fall in the debt - to - gdp ratio and higher gross financing needs. however, the smoothing of interest can mimic the baseline high surplus case both on the path of the debt - to - gdp ratio and in terms of gross financing needs. on the basis of the definition of sustainability agreed by the eurogroup, the debt is sustainable since gross financing needs remain under 15 per cent of gdp in the medium term and under 20 per cent in the long term. this exercise is indicative of how even a mild debt relief can have significant effects on the debt profile. of course, were the interest smoothing accompanied by higher growth, as a consequence of lower primary surpluses, then the debt - to - gdp profile and gross financing needs would be even more favourable. alternatively if interest rate smoothing were to occur and the costs shared equally between greece and the esm, this would also lead to more favorable outcomes. 15 / 23 bis central bankers'speeches the euro area : steps taken to address the crisis and to strengthen the governance of emu let me now turn to the issue of the euro area and the steps that have been taken to address the sovereign debt crisis. the ecb forcefully lessened country risks in 2012 with the announcement of unlimited outright monetary transactions ( omt ) and the signal sent by ecb president mario draghi that the ecb would do “ whatever it takes ” to preserve the euro. more generally, the ecb has been addressing the severe and persistent disinflationary forces in the euro area with a broad set of standard and non - standard monetary policy measures. to a great extent, these measures have helped to improve financial conditions and boost the recovery in the euro area. macroprudential policy tools are also now available to secure financial stability. after the ad - hoc greek loan facility that financed the first greek bailout programme in 2010, the euro area set up the european financial stability facility ( efsf ) to provide financial assistance to distressed member states. the efsf was replaced by the more powerful european stability mechanism ( esm ) in october 2012. in response to the strong negative feedback loops between banks and sovereigns as well as contagion among national financial markets, european leaders, in 2012, initiated the banking union. its three pillars are : the single supervisory mechanism, the single resolution mechanism and the still - to - be completed common deposit insurance

11 / 23 bis central bankers'speeches what about the longer - term economic outlook? labour force dynamics will support potential growth in the medium term. but in the long run, growth will come from increased productivity. in this respect, structural reforms will unleash the growth potential of the greek economy, with the oecd estimating that the impact of implemented and planned reforms over 10 years would be to raise output by 13. 4 per cent. analysis done by my colleagues in the bank provides a baseline scenario for a rebalancing of the economy from the demand side that has the following characteristics. consumption as a percentage of gdp declines by around 10 percentage points, moving closer to the euro area average. investment and exports fill the gap in domestic demand. from the supply - side, i have already noted the rebalancing towards tradables, supported by the shift in relative price inflation since 2010. 12 / 23 bis central bankers'speeches the bank of greece has recently made a number of proposals in the area of fiscal policy and government debt which would go a long way to securing the performance outlined above and reducing these stock imbalances. firstly, there is the issue of the fiscal mix. to a significant extent, the overperformance of fiscal policy relative to target in 2016 was due to increases in tax rates – both indirect and direct tax rates along with social security contribution rates. this emphasis on taxation needs to be reduced since it stifles growth, increases unpaid debts of the private sector towards the public sector and encourages tax evasion and undeclared employment. rather emphasis needs to be placed on restraining and restructuring non - productive spending and making more effective and efficient use of the public sector ’ s assets, especially land. second, there is the issue of the fiscal target. according to estimates from the bank of greece, a lowering of the general government primary surplus target from 2021 onwards to 2 per cent of gdp, from the 3. 5 per cent that is envisaged now, would be consistent with debt sustainability if combined with some mild debt relief measures and structural reforms to raise potential growth. the easing of the primary surplus targets, together with the implementation of the agreed structural reforms, would put the necessary conditions in place for a gradual lowering of tax rates, with positive multiplier effects on economic growth. finally, there is the issue of what debt relief measures. the short - term measures decided at the eurogroup meeting of the 5th of december last year are