2014 can be explained by more people in work, with most of the rest explained by lower inflation boosting real wages. this has in turn fed further consumption growth as households have kept saving rates stable, leading to higher employment, income and spending. and as aggregate demand has strengthened, investment has also begun a cyclical recovery, which we expect to reinforce growth dynamics going forward. however, it still remains 10 % below its pre - crisis peak and well below its historical trend. importantly, domestic demand has firmed against the backdrop of improved private sector balance sheets, which is the second key feature of the recovery. for virtually the first time since the start of monetary union, spending has been rising while indebtedness has been going down. especially in formerly stressed countries, debt ratios for both firms and households have fallen substantially. and pertinent for the strength of the recovery, the drivers of this deleveraging have been changing. bear in mind that there are two types of deleveraging : “ macroeconomic ” deleveraging – reducing debt ratios through nominal growth – and “ balance sheet ” deleveraging : paying off or writing down debt. historically, the most drastic processes of deleveraging, including the post - war episodes and the recent post - crisis episode in the us, have relied on both mechanisms. but the contribution of nominal growth has always been decisive for success. in the euro area, until recently, real growth and inflation were too low to foster macroeconomic deleveraging, so balance sheet repair had to take place through the more painful channel, conflicting with the objective of macroeconomic stabilisation. rising nominal growth is now helping to reconcile those two goals. nevertheless, further efforts are still needed to work through the legacies of the crisis, especially in parts of the euro area banking sector where nonperforming loans remain high. the third important feature of the recovery is its broadness across sectors and countries – which is to say, it has not only strengthened but become more homogenous across the euro area. this reflects above all the effectiveness of our measures in narrowing financing conditions across different economies. if one looks at the percentage of all sectors in all euro area countries that have positive growth, the figure stood above 80 % at the end of last year – above its historical average of 73 % and the level observed during the 2009 – 11 recovery. similarly, the dispersion in growth rates across both sectors and countries has also narrowed significantly and both are now at

##ilateral commitment, while others aim to maintain the exchange rate much very close to the central parity. at the moment, however, none of the new member states has been participating in erm ii for the required minimum of two years. another challenge that might lie ahead for a number of the new member states relates to their substantial and persistent current account imbalances. although external imbalances are to some extent a natural and necessary part of the catching - up process, care needs to be taken to ensure that these imbalances remain sustainable and eventually decline. even though the balance of payments appears to be less relevant once a country has joined the monetary union, economic adjustments in response to such imbalances will take place at some point in the future. in this respect, it is possible that the current account deficit might “ naturally ” narrow over time as the cyclical position in the country becomes more aligned with that of the euro area countries. however, if economic policy and market structures do not facilitate the adjustment process, it is also possible that the adjustment of the economy will be abrupt and severe – another reason to emphasise real convergence and the flexibility of economic structures, as i outlined before. finally, where do we stand with regard to the fulfilment of the fiscal criteria? looking at recent fiscal developments in the new member states, the picture is very diverse ( see slides 7 and 8 ). thee two charts show the fiscal positions in the new member states and the reference values as defined in the treaty. while many of the new eu members face no major problems on that front, others exhibit large and even growing fiscal imbalances. in addressing the fiscal policy challenges faced by these countries, one aspect deserves, in my opinion, particular attention : namely that the appropriateness of the budgetary stance cannot only be judged with reference to the fulfilment of the fiscal criteria. as i pointed out earlier, fiscal policy will have to be employed as a policy instrument to help contain inflationary pressures, when other policies ( such as monetary policy ) are increasingly constrained in the run - up to euro area accession. this is especially the case in the final phase of convergence and erm ii participation, when the convergence not only of long - term interest rates, but also of short - term interest rates progressively limits the room for manoeuvre for monetary policy. moreover, as buoyant economic growth in these countries is often supported by very high credit growth, effective financial supervision