purchasing power of the citizens of the euro area. it is precisely this high credibility in reaching its primary objective that has allowed the ecb to tailor its response to the crisis in the most suitable way. and in defining the appropriate response, we must take into account the structure of our credit markets, where the role of the banks is more important than it is in the uk or in the us : in fact in the euro area about two thirds of financial intermediation go through the banking system as opposed to about one third in the uk and one fifth in the us. 2 before the crisis, banks were all interconnected and, by and large, could fund themselves everywhere in the euro area. changes in interest rates were equally transmitted through banks to all parts of the euro area economy. but a key feature of this crisis has been the fragmentation of financial markets along national borders. businesses based in stressed countries now face worse borrowing conditions than equally risky competitors in non - stressed countries. we have responded to this situation by deploying measures that are part of a central bank ’ s toolkit but go beyond adjustments to policy rates. these measures have evolved as the crisis itself has morphed. and while they were targeted at specific immediate challenges, the overriding aim has been consistently to achieve our medium - term price stability objective. let me give two examples. in late 2011 and early 2012 we launched two 3 - year long term refinancing operations ( ltros ). our ltros gave banks sufficient reassurance that access to liquidity will not be a problem over a relevant planning horizon. without these operations, banks would have defaulted on their maturing obligations or would have discontinued and withdrawn existing credit lines to companies. this refers to outstanding debt of the non - financial corporate sector. bis central bankers ’ speeches the ltros, therefore, helped to avoid a major credit crunch. similarly, my second example, the outright monetary transactions ( omts ) have been designed with a view to combatting fragmentation while preserving the credibility of the ecb ’ s monetary policy objective. the omts are aimed at eliminating “ redenomination risk ” – the unwarranted perception of a risk of euro breakup. omt interventions in government debt markets are tied, however, to an effective macroeconomic adjustment programme. this prevents them from becoming a subsidy for unsustainable national policies. it therefore safeguards the monetary policy nature of the interventions and bolsters the independence of the ecb in pursuing

the structural functioning of their respective economies. let me outline some examples. first, competition in product and service markets needs to be enhanced without regard for the vested interests that are fighting to supress it. this is necessary in its own right – but it is bis central bankers ’ speeches also important to temper the social consequences of the required adjustment in labour markets. second, narrowing the gap between labour compensation and productivity growth, also across countries, is absolutely essential for improving competitiveness in euro area countries. third, the structure of labour markets in some countries needs to be reformed to allow nominal adjustments to play out, and to avoid that the weight of more flexible labour market conditions falls disproportionately on young generations. in particular, reforms are needed to ensure inter - generational fairness by tackling the phenomenon of “ insiders versus outsiders ”. in some euro area countries, this phenomenon is driving youth unemployment to levels that threaten the very fabric of society. since the crisis started, there has been important progress in labour market reforms and fiscal consolidation in euro area countries, particularly those under an eu / imf programme. and the painful measures taken are starting to bear fruit. we see this very clearly, for instance, in the impressive improvement in export performance in ireland, spain and portugal and in the recent uptick in industrial production in the latter two countries. the role of european policies and progress towards a banking union let me turn now to my third and final theme. national policies alone are not enough to leave the crisis behind us once and for all. policies at the european level are also necessary. for one, european measures to complete the single market, especially in the area of services, are needed. and i know that this is a need that is urgently felt in this country. however, major progress has been made in defining a vision and a path towards a genuine economic and monetary union. the banking union is a major element of this effort. a first step towards establishing it has been taken with the decision to create the single supervisory mechanism, and to entrust its responsibility to the ecb. this first step is important as it will pave the way towards severing the link between banks and their respective sovereigns. it is this link that lies behind the fragmentation in the financial markets of the euro area. but to sever this link completely, it is also imperative to create a single resolution mechanism. such a mechanism, much like the fdic in the us, could give markets certainty