take place. unquestionably, the steps already taken by the euro area to exit the crisis have been numerous and important. but recent market developments have reminded us that there is still a tremendous need for further demonstration of the determination of all the players in the european crisis to rise to the challenges facing us. i will mention three of these challenges. bis central bankers ’ speeches 2. but challenges remain to be addressed. 2. 1. the challenge for each individual euro country : achieving strong fiscal consolidation while ensuring long - term growth the first challenge is the seeming dilemma between fiscal consolidation and long - term growth. one thing is very clear : this crisis is fundamentally a sovereign debt crisis ; hence the priority in order to exit it once and for all must be a return to a sustainable fiscal path. in fact, an impressive effort has already been made. the portuguese deficit shrank from around 10 % in 2009 to around 6 % last year. the italian deficit has been reined in from 5. 4 % in 2009 to 3. 9 % in 2011, and italy actually ran a primary surplus of 1 % last year, which is very rare among developed economies. the french deficit has been cut from 7. 5 % in 2009 to 5. 3 % in 2011. if we look at the aggregate picture for the euro area, we see that it is the economic zone that has tackled fiscal consolidation with the greatest intensity and the best results. according to the imf ( january 2012 fiscal monitor ), after peaking at 6. 5 % of gdp in 2009, the public deficit in the euro area started to decline in 2010 and stood at around 4 % by the end of 2011 ( down by 40 % ). over the same period, the us deficit was reduced from 13 % to 9. 5 % ( down by 27 % ) and the uk deficit from 10. 4 % to 8. 6 % ( down by 17 % ). these figures show not only that the absolute level of the euro area ’ s deficit is half what it is elsewhere, but also that the pace of fiscal consolidation is actually faster. while these efforts are absolutely crucial, there are concerns that too abrupt an adjustment in public finances will be detrimental to growth and, ultimately, to fiscal consolidation itself. in the current circumstances facing europe, i believe these concerns are misplaced. we have to look at the counterfactuals : delaying consolidation would expose our economies to even greater risks. at current debt levels, economic agents are very

“ ricardian ” and would react to fiscal permissiveness by delaying their own private expenditure. financial markets would continue to impose very punitive interest rates on our countries to compensate for the uncertainty in the fiscal outlook. overall, the confidence and financial benefits of fiscal consolidation far outweigh its negative effects on effective demand in the short run. in addition, everyone knows that there are ways to boost growth strongly and durably even in times of fiscal consolidation : through structural reforms. here as well, the progress already made in many countries is impressive. in recent history, european economies have never reformed so extensively in such a brief period of time. i could cite many examples : the labour market reform in spain and now in italy, the pension reforms in italy and france, privatisations, public wage decreases in ireland, etc. some positive effects from these measures are immediate, but naturally, most of the impact on competitiveness and growth will take time to materialize. in any case, such reforms are a necessary foundation for dynamic and sustainable growth in the future and they must be vigorously pursued. there is no doubt that the euro area as a whole will benefit from these national reforms that represent a significant asset for us in the global economy. 2. 2. the challenge for the banking system : continuing to ensure that the economy is properly financed while strengthening the financial sector the dilemma here is easy to understand : on the one hand, it is absolutely necessary to strengthen banks ’ balance sheets to enable them to better absorb shocks, protect public finances and re - establish normal market functioning. on the other, a disorderly deleveraging would create enormous problems and add credit constraints to the many headwinds currently facing our economies. the euro area is currently making sure that these two objectives – although sometimes difficult to reconcile – are achieved. banks are meeting their new capital requirements. the capital plans submitted to the european banking authority ( eba ) indicate an intention to exceed the benchmarks set by bis central bankers ’ speeches more than 20 %. french banks already comply with the basel 2. 5 regulations. at the same time, bank lending seems to be stabilizing, although at a relatively low level. banks are starting to assess their financial situation more positively and in many cases their willingness to grant loans is increasing. this would not have been possible without the strong support of the eurosystem. as you know, two exceptional three - year liquidity - providing operations have been decided on and successfully implemented