claim, skewed towards fiscal consolidation. stronger fiscal rules are one – albeit essential – element in a larger package that addresses real and financial imbalances and provides a safety net for countries in financial difficulties. but stronger governance cannot be effective without individual member states also fulfilling their responsibilities. here too we have witnessed a number of positive developments in recent months. the new governments in spain and italy have shown determination to address their twin challenges of fiscal and macroeconomic imbalances. the government of spain remains committed to bringing its deficit below 3 % by 2013 and taking the necessary measures to ensure a rapid and secure transition to this target from the high deficit in 2011. the latest review missions confirm that the irish and portuguese programmes are on track – with authorities in both countries strongly committed to meeting their targets and with a solid track record. it is important that observers recognise that these reforms at the national level will take time. they are addressing deep - rooted obstacles to competitiveness and growth, and the positive effects may not be visible immediately. but once realised, they will put employment and growth on a new and more sustainable track. the example of germany shows the need for patience. the structural reforms passed many years ago did not immediately feed through into higher growth and employment. but now they have, and germany is reaping the benefits and leading the way in europe. bis central bankers ’ speeches with a new governance framework in place and strong commitments from national governments, there are solid grounds for trusting that reforms will be implemented across the euro area as a whole. conclusion let me conclude. the turnaround we have witnessed since november is the result of every institution of the euro area fulfilling its responsibilities. no single institution can carry the burden of addressing a set of challenges that are simultaneously economic, financial and fiscal. everyone has played their part. but let me emphasise that the current stabilisation should not make us pause in our responses to these challenges. indeed, this is a time for continued action. the present situation provides a window of opportunity for governments to accelerate efforts to consolidate budgets, to boost employment and to enhance competitiveness – and to do so with confidence. it also creates a benign environment for banks to strengthen their resilience further – including by retaining earnings and cutting dividends and bonuses. decisive policy measures brought about the stabilisation since last november. now, further decisive policy measures are required to strengthen fiscal positions and competitiveness. these measures will lay the foundations for future sustainable and balanced growth in the

moreover, our balance sheet has grown and shrunk in the past without creating inflation – for example, this was evident over the course of both 2009 and 2010. in other words, we are constantly alert to threats to medium - term price stability. euro area citizens can be certain that our objective is delivering price stability over the medium term – and that we have all the necessary tools to achieve it. the consistent strong anchoring of inflation expectations confirms that our commitment is credible. bis central bankers ’ speeches let me address one final issue, and this concerns the debate in this country about target2 balances. it is important that this debate is framed correctly – in particular, by distinguishing between symptoms and causes. target2 is a payment system that reflects the flow of funds within the euro area. imbalances within target2 are a symptom of real and financial imbalances between euro area countries. restoring normality within target2 requires not that we address the symptom – the payment system – but that we address the cause : the underlying imbalances. this is not the task of monetary policy. it is the task of the national authorities and eu institutions that are responsible for fiscal, economic and financial policies. important progress has been made in recent months to strengthen the credibility of these policies – and this has been recognised by financial markets. this is the second explanation for the overall stabilisation we have witnessed since november – and it is something to which i will now turn briefly. policy responses at the national and eu level the signature at the last european council of the international treaty, including the fiscal compact, is an important signal of commitment to reducing deficit and debt levels. enshrining balanced budget rules in national legislation creates a new “ first line of defence ” against fiscal imbalances. like the schuldenbremse in this country, this legislation shifts the onus for enforcement away from brussels and onto national institutions. prevention is better than cure – and that is the spirit of the compact. member states have also taken important steps to strengthen euro area and global firewalls. the entry into force of the european stability mechanism has been advanced and the paying - in of capital will be accelerated to reach full lending capacity sooner than originally planned. on top of this, euro area countries have committed to providing an additional 150 billion euro to the imf. seen together, these measures represent a coherent strategy to strengthen euro area economic governance. the focus is not, as some commentators