progress made in fiscal consolidation. nevertheless, the governing council continues to see downside risks surrounding the economic outlook for the euro area. they include the possibility of weaker - than - expected domestic and global demand and the slow or insufficient implementation of structural reforms in euro area countries. overall, the june 2013 eurosystem staff macroeconomic projections for the euro area foresee annual real gdp declining by 0. 6 % in 2013 and increasing by 1. 1 % in 2014 thanks to three main drivers : export growth, accommodative monetary policy and low inflation. bis central bankers ’ speeches 2. how can we boost growth further in the euro area? a strong fiscal stimulus obviously appears unfeasible, given the necessity to rebalance public finances. i want to stress two things here : • the euro area has very rapidly and efficiently set to work to cure its fiscal weaknesses and can today boast some of the best results among the major developed economic regions : its public deficit has been reduced from 6. 3 % of gdp in 2009 to approximately 3 % today ; by the end of 2013, the euro area should show a positive primary balance ; • while the commitment to progressively achieve sustainable levels of public debt and deficit has to be achieved ; the measures need to be designed in such a way as to limit the negative side - effects on growth. for instance, efforts need to be focused on non - productive spending. in fact, there is only one way to durably raise the growth potential of our economies, and that is by structural reforms that enhance competitiveness. it is clear that the euro area is well equipped to confront the challenges of the 21st century. with 370 million consumers and high purchasing power, it remains the biggest market in the world. it is also the most economically integrated area, with highly qualified manpower and very good infrastructures. too often, however, euro area countries are prevented from reaping the benefits of their position by the rigidities that have accumulated over time, during the periods of easy growth. now, the international environment is more challenging : new and powerful competitors have emerged and comparative advantages are shifting. there is no alternative to adjustment. in this field too, the euro area has made considerable progress over recent years, especially in the countries that had a particularly large competitiveness gap vis - a - vis the rest of the zone and which, as a result, fell deeper into the crisis than their neighbours : • we have seen a significant improvement in cost competitiveness as

measured by unit labour costs ( ulc ). between 2008 and 2012, in the three programme countries ( greece, portugal and ireland ) cumulated ulc growth stood about 12 percentage points below the euro area average. • the current account balances clearly show a strong correction. in the three programme countries, the current account balances as a percentage of gdp improved by more than 9 percentage points between 2008 and 2012. in spain, the current account deficit improved by more than 7 percentage points over the same period. most of the adjustment has been driven by a contraction in domestic demand. however, in ireland, spain and portugal export performance has been very strong compared with the pre - crisis period. in total, the euro area generated a trade surplus of more than 1 % of its gdp in 2012 compared with around zero in previous years. we expect this surplus to continue growing in the coming years. the speed and depth of the reforms underway in euro area economies is unprecedented. they have undertaken reforms in the areas most important for competitiveness, growth and the sustainability of public finances such as labour markets, products markets, social security, pension systems, etc. these reforms are a prerequisite for dynamic and sustainable growth in the future and they must be vigorously pursued. in addition to this very clear determination at the different national levels to reduce deficits and introduce the necessary reforms, europe has equipped itself with a new disciplinary framework. the heads of state signed a new fiscal compact over a year ago that fixes very strict rules and gives very extensive powers to the european commission to assess the bis central bankers ’ speeches compliance of member states. this new compact goes hand in hand with the introduction of rules for monitoring macroeconomic imbalances. it is important to understand what these institutional advances represent : in effect, they represent a new treaty creating very strong commitments for the states via rules that are far better calibrated and far more binding than those in place when european monetary union began. 3. monetary union is to be enhanced with a banking union. as well as being a year that saw a considerable strengthening of fiscal and macroeconomic discipline in europe, 2012 also saw significant progress towards a banking union. why has a banking union suddenly become such an indispensable and urgent project? simply because we are now certain that many of the problems we have experienced, could have been avoided with a banking union. a banking union is necessary for the smooth functioning of a monetary union for the following three reasons : • it breaks the