##atification. we have seen the results. the policy reforms that the euro - area ’ s crisis countries are now implementing follow an established recipe. that recipe worked for the u. s. and the u. k. in the 1980s, sweden and finland in the early 1990s, asia in the late 1990s, germany in the early 2000s, and in many other countries. that recipe stresses the need to improve competitiveness, and includes fixing social security, strengthening employment incentives, privatisation, and streamlining the public sector. some of these measures – especially those related to structural reforms – take time to work. the gains do not come overnight ; they require patience and the ability to ignore the siren calls of those who offer quick fixes. supported by the ecb ’ s policies and the strengthening of the eu ’ s architecture, that recipe is now working. • we have seen an end to the recession in the euro area. • spreads have declined sharply in peripheral countries, despite recent disturbances in emerging markets. • slowly – but surely – the monetary transmission mechanism has become less fragmented. • as progress toward banking union continues, fragmentation will further diminish. • crisis countries have gone a very long way toward eliminating their imbalances. • confidence is increasing. the case of greece perfectly illustrates the progress that has been achieved. since the peak of the crisis in mid - 2012 : • spreads against 10 - year german sovereigns have fallen by around 1, 800 basis points, to around 700 basis points. • the athens stock exchange has risen by about 85 per cent. • bank deposits have increased by 9 per cent. • reliance of banks on eurosystem financing is down by about 50 per cent. • economic sentiment has recently reached a 5 - year high. • the twin deficits have been transformed into twin surpluses. • the recent release of the pmi for manufacturing for january 2014 points to expansion for the first time in 53 months. it is now generally expected that 2014 will be the year in which growth – although very modest at first – returns to the greek economy. underlying this expectation of growth are the following factors. • the substantial progress achieved in terms of competitiveness, including the effects of structural reforms in labour and product markets, will lead to an improved export performance. • the return of confidence will help support a rise in consumption and investment. • fiscal drag will be considerably less than in previous years. nevertheless, the euro ’ s financial storm clouds have not yet completely cleared

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. c. ensuring debt sustainability a final condition for return to financial markets is to ensure debt sustainability. the ratio of general government debt to gdp is still high. in 2008 that ratio stood at around 110 %. it is now around 179 %. the debt path has been strongly affected by the so - called snowball effect – that arises from interest rates on debt being much higher than growth. indeed, from 2010 to 2016, the snowball effect is estimated at some 82 % of gdp. but whatever the causes of its rise, it is crucial that it is put on a sustainable path. in the context of the above proposals in the area of fiscal policy making, the bank of greece recently made specific proposals to ensure the sustainability and manageability of public debt. the short - term measures decided at the eurogroup meeting of december 5, 2016 are a positive step and are expected to reduce public debt as a ratio of gdp by 20 percentage points by 2060. however, to ensure the sustainability of public debt going forward, additional medium - term measures are necessary. when the debt - to - gdp ratio is above 100 %, measures that reduce interest payments on debt can improve the ratio quicker than a rise in the primary balance. slide 4 the interest burden of greek public debt is low until 2021 but increases substantially thereafter because of payments of deferred interest on the efsf loans and interest on new debt issued in financial markets. a simulation performed by the bank of greece defers interest on efsf loans, extending their weighted average maturity by 8. 5 years – option 1 in the right - hand diagram. slide 5 if, in addition to interest deferment, we assume a primary surplus target of 3. 5 percent in 2018 - 2020 and a reduction to 2 percent thereafter, we can see from the left - hand diagram that the debt path is close to that where a primary surplus of 3. 5 per cent for 10 years is assumed. this exercise is indicative of how admittedly mild debt relief measures can have significant effects on the debt profile with no cost for the creditors. however, as the right -