standard measures taken during the period of acute financial tensions are, by construction, temporary in nature and will be adjusted when appropriate. fiscal policies and bond markets turning to fiscal policies, fiscal deficit and debt ratios had deteriorated substantially in 2008 and 2009. in 2010 the euro area deficit to gdp ratio only broadly stabilised at a very high level, while the debt ratio continued to increase. 1 individual countries experienced extremely high deficit rates. taking a broader view, the economic recession amplified imbalances in fiscal policies that had built up gradually long before the crisis. in particular, many countries failed to implement sound fiscal policies during good economic times. temporary revenue windfalls were used to finance permanent expenditure increases and some countries failed to achieve structurally sound fiscal positions despite a long period of strong economic growth. on the institutional side, the eu fiscal framework ( which had been revised in 2005 ) was too weak and not implemented with sufficient rigour. reflecting large fiscal imbalances and a loss of investor confidence, government bond spreads increased drastically for some euro area countries and became very volatile in 2010. the willingness of investors to support government financing needs declined. greece and ireland in 2010 required financial support by means of joint eu / imf programs. portugal also asked for assistance in april. looking ahead it is essential that these three countries undertake drastic reforms. greece and ireland have to fully implement the agreed programmes and for portugal the approval of a convincing adjustment programme is now of the essence. according to eurostat ’ s press release on the spring 2011 deficit notifications the euro area deficit was 6. 0 % of gdp 2010, only slightly lower than 2009 ( 6. 3 % ) ; the euro area debt ratio rose to 85. 1 % of gdp in 2010, from 79. 3 % in 2009. bis central bankers ’ speeches more generally, all euro area governments need to achieve the consolidation targets for 2011. for the following years, consolidation targets need to be underpinned by concrete consolidation measures. the deadlines to correct excessive deficits agreed in the ecofin council need to be respected. estonia and luxembourg are the only euro area countries currently not subject to an excessive deficit procedure. in view of very high expenditure ratios in the euro area, consolidation plans need to focus on expenditure reduction. strengthening confidence in the sustainability of public finances is key, as this will reduce interest rate risk premia and improve the conditions for sound and sustainable growth. moreover, it is key to strengthen incentives for sound economic policies, notably in good economic times. i

just mention some of the enhanced features. first, the assumed macroeconomic shock is stronger than in the previous exercise. in addition, the eba has provided more rigorous guidance to banks on the cost of funding and static balance sheet assumptions. second, the capital metrics is now core tier i capital ratio instead of the broader concept of tier i capital used previously. third, a stricter peer review will be performed, with enhanced disclosure of results. finally, member states have committed to specific and ambitious strategies for the reinforcement of vulnerable institutions. in this context, it is important that appropriate backstops be in place for those banks which do not pass the test. bis central bankers ’ speeches economic governance let me finally congratulate your committee on its recent vote on the economic governance package. econ has undoubtedly taken an important step towards the much needed strengthening of economic and budgetary surveillance in the eu and the euro area. in particular, i very much welcome the fact that the automaticity of procedures has been stepped up by extending the use of reversed qualified majority voting. the room for halting or suspending procedures against those member states breaking the rules must be reduced. the strengthening of the commission ’ s role in the procedures that the approved reports propose in this context are therefore welcome. moreover, the political and reputational measures that you are proposing are necessary to foster early compliance with the surveillance framework. an earlier and more gradual application of financial sanctions within the macroeconomic surveillance framework goes in the same direction. your support in the same framework for a clear distinction between member states belonging or not to the euro area is also positive. the requirements of avoiding negative imbalances must be more demanding for members of the monetary union. this type of distinction, making full use of the treaty ’ s new article 136, has to be to be applied in different domains, drawing the appropriate lessons of the crisis for the functioning of the monetary union. finally, compliance by member states with the obligations under the stability and growth pact is facilitated by the strong national budgetary frameworks that you want to establish within the euro area by proposing several concrete mandatory features. the proposal of a financial sanction for the manipulation of data is also to be welcomed, as well as the institutional provisions for reliable, timely and accurate statistical information. at the same time, there are certain aspects of the committee ’ s position, on which we have concerns. most importantly, the stability and growth pact should not be softened by introducing further exceptions and a longer list