measures to enhance the availability of collateral, were pivotal in preventing a disorderly process of lenders ’ deleveraging and a large - scale credit crunch. this action was instrumental in maintaining price stability. later in 2012, a renewed confidence crisis, in part reflecting unwarranted investor fears about the reversibility of the euro, caused a severe deterioration in financial markets. sovereign bond and bank lending rates in some countries increased dramatically, thereby impairing access to financing of the real economy. bis central bankers ’ speeches to safeguard the singleness of monetary policy and to ensure an effective transmission of the ecb ’ s policy intentions to the broad economy, in august, the governing council announced its readiness to undertake outright monetary transactions ( omt ). omts have proven to be an effective backstop against unfounded fears of reversibility. strict conditionality contains moral hazard on the side of governments. it ensures that they will adopt the reforms that are necessary to secure their solvency and to foster conditions of steady growth for their economies. as i said before, the repair of the transmission channel cannot be done by the central bank alone, governments need to do their part. let me therefore turn to the on - going adjustment in member states, and the euro area more generally. 2. the adjustment in the euro area during the past five years, a number of euro area countries have seen a significant correction of their external and domestic imbalances. in ireland, greece and portugal current account balances improved by more than 7 per cent of gdp between 2008 and 2012. a large part of this adjustment has been driven by a contraction in domestic demand, triggered by the unwinding of long accumulated unsustainable developments and by the cyclical downturn. at the same time, in ireland, spain and portugal export performance has been very strong compared with the pre - crisis period. this is a sign that a genuine structural correction is taking place and resources are being moved from the non - tradable sector to the production of traded goods. we have also seen some improvement in cost competitiveness, which has contributed to the external adjustment. between 2008 and 2012, in the three programme countries the cumulated unit labour cost growth was about 10pp below the euro area average. the adjustment has been mainly driven by an increase in average productivity, largely reflecting labour shedding, rather than by a reduction in nominal wages. the latter adjustment has been much more limited so far. this has contributed to increasing the

real cost of adjustment and the burden borne by the more vulnerable members of society. it calls for greater determination in further addressing rigidities in wage setting and increasing competition in many segments of the economy. reducing rents is not only a matter of efficiency in the adjustment process : it is also a matter of equity in sharing the burden of adjustment. 3. the outlook for emu prior to the crisis, member states did not internalise fully what it means to be part of emu. fiscal and economic policies were not sufficiently geared towards the conditions of being a member of a single currency zone. but the lessons of the crisis have been learnt. eu heads of state and government have taken action and strengthened the governance framework. the current deepening of emu is essential, in particular as regards banking union. it is of utmost importance that the legislation on the single supervision mechanism ( ssm ) is finalised before the summer break now that a political agreement has been found. this is an absolute prerequisite if we want to embark upon our preparatory work in a timely and effective fashion, so that the ssm is operational by mid - 2014. equally important is the swift set - up of a single resolution mechanism ( srm ) : it is a necessary complement to the ssm and a key element of banking union. the commission ’ s intention to put forward a legislative proposal before summer is highly welcome. in the meantime, the directive on bank recovery and resolution will hopefully be adopted and provide for a coherent eu - wide set of rules. deeper economic union means more than fixing the financial system. we therefore welcome the proposal to conduct ex - ante coordination of structural reforms initiatives, which should be implemented as a best - practice benchmarking exercise. in the same vein, reform contracts, bis central bankers ’ speeches in which member states commit to concrete reforms with specific timelines, would also facilitate the recovery of competitiveness. but new rules are only as good as the commitment to actually implement them. it is of key importance that the existing legislation is applied forcefully during the ongoing european semester : this represents a true test of the credibility of emu ’ s governance framework. i thank you for your attention and stand at your disposal for questions. bis central bankers ’ speeches