that they are difficult to redress. and it must be acknowledged that here a good deal of progress has been made over the past year. the unfolding of the crisis has shown that the governance model in place to date in the eu has been of no use in ensuring economic policy consistency or in managing crisis episodes flexibly and effectively. it ’ s now clear that public finances were not sufficiently restructured in the upturn, that macroeconomic divergences were excessive and that we need a well - designed financial aid mechanism to assist ailing countries swiftly and effectively. mindful of this, european governments and institutions have taken major steps towards correcting deficiencies in three fundamental areas : the strengthening of fiscal discipline, closer surveillance of macroeconomic maladjustments and the creation of a permanent crisis - management framework. starting with fiscal discipline, public debt levels will be more closely monitored and countries will have better incentives to comply with their commitments, through the introduction of broader and transparent sanctioning arrangements, which will moreover be applied at an earlier stage and, as far as possible, automatically. further, the reform of national fiscal frameworks is being promoted, so that budgetary policy rules and surveillance systems will be adopted that help curtail spending. moreover, a new framework for the prevention and correction of macroeconomic imbalances is being established. the aim of this mechanism is the early identification of the emergence of potentially “ excessive imbalances ”. when imbalances are considered to be too big, an excessive imbalance procedure will be initiated which will include recommendations for the adoption of corrective measures. the third key element of eu economic governance reform is the creation of a permanent crisis - management instrument, the so - called european stability mechanism, which will come into force in mid - 2013. geared to lend up to €500 billion, this mechanism will provide funds to countries with liquidity problems under strict conditionality. finally, a mention for the euro plus pact, approved in march by the euro area heads of state and of government. this pact involves a commitment at the highest political level to adopt the measures needed to attain competitiveness and employment - promoting objectives, to contribute to the sustainability of public finances and to reinforce financial stability. there ’ s always room for improvement and, at the ecb, we have called on heads of state to strengthen governance procedures further, for instance by making sanctions more automatic in cases of non - compliance so as to prevent governments succumbing to the temptation of being

purchase of highquality assets. finally, and in order to boost the confidence of depositors, practically all countries have increased the amount covered by deposit guarantee schemes and have proposed reducing the period within which such deposits must, where necessary, be returned to depositors. the spanish government has prepared a roadmap that envisages all these actions. it will be implemented not so much to alleviate solvency problems, which have not materialised in our country, as to help restore confidence and facilitate institutions ’ access to financing. the ultimate aim is to avoid institutions ’ financing difficulties being the cause of a reduction in lending to firms and households. a credit slowdown stemming from the weakening of the cycle, due to its obvious effects both on the solvent demand for credit and on the riskadjusted supply by institutions, would be another matter entirely. for their part, institutions need to assume fully the new reality in which they will have to operate in the coming years and address it intelligently and decisively. this will require an adjustment of their balance sheets, so that credit flows to the real economy while attention is paid to the greater risk of default which will have to be correctly managed. at the same time, on the liabilities side, it will be necessary to continue strengthening the deposit base as far as possible, since the capacity to finance banking activity through the wholesale markets will be more limited. this adjustment of bank balance sheets must be accompanied by strict cost controls, which are the main mechanism for limiting the impact of the new environment on bank income statements. the economies of scale offered by bank consolidation ( widely aired in the media ) is one way to tackle this rationalisation of cost structures. in any event, irrespective of the strategy that each institution may decide to adopt, the result should be one of greater efficiency. finally, if we have to face a period of slower growth in banking activity, with greater uncertainty and lower profits, banks should also endeavour to strengthen their capital base. there are various ways of doing this, but in the scenario described, it seems logical to think of retaining more profits, without forgetting capital increases, or the issuance of non - voting equity stock by savings banks. allow me to conclude by repeating what i have already said on previous occasions. governments, which have proven themselves resolute and decisive in the search for solutions to resolve the impact of the financial crisis on the economy, must also take action on the policies that directly affect the real economy. in