competitive have on average seen higher business margins, lower public debt levels, higher growth, and higher employment. this correlation suggests that closing the competitiveness gap is a key component of improving the current economic situation. closing the competitiveness gap one way to regain competitiveness quickly is to address the numerator in unit labour costs – nominal wages. another, longer - term approach is to increase the denominator – to achieve higher productivity. in my view, in the euro area today we need both. on the first count, there are already some encouraging signs of rebalancing in the euro area in terms of cost competitiveness. thanks in part to the structural reforms introduced in several countries, relative costs are adjusting where they had become misaligned in the past. for example, spanish export volumes grew by more than 20 % since 2009. over time, rising mark - ups should allow spanish firms to expand capacity and increase hiring. but let me be clear here that i do not see competitiveness as a race between euro area countries with winners and losers. that is why the longer - term challenge of raising productivity is also key. while cost adjustments increase competitiveness only relatively, productivity gains, by increasing trend growth, can be absolute and benefit all countries. so how do we raise productivity? in my view the key issue is the connection between three “ i ’ s ” : innovation, investment and incentives. as innovation and investment mostly take place within the private sector, most interesting from a policy perspective are incentives – namely, the role that government can play in encouraging these other factors. take investment as an example. total investment in the euro area is currently 17 % lower than in 2007, while in germany and france, it is still 2 % and 6 % below 2007 levels, respectively. certainly, this derives in part from macroeconomic uncertainty, and in some countries from spare capacity. but there is also a strong microeconomic dimension linked to incentives. in many jurisdictions, some regulations deter private investment and hinder cross - border projects. this makes a strong case for fully completing the single market. more generally, firms ’ incentive to invest is linked to their optimism in the business environment. this is affected by issues such as the burden of administrative procedures, or bis central bankers ’ speeches the speed and quality of the judicial system. these are areas where governments, through reforms, are in a position to make a difference. measuring progress in these areas is not straightforward, but in one indicator that measures the overall

. these market events were starting to harm the real economy. corporates in stressed countries were struggling to issue debt, and bank loans were becoming prohibitively expensive. but today, the situation is improving. borrowing costs for most governments have returned to more sustainable levels. funding for banks in countries under stress has improved significantly, even if this has not yet been fully reflected in the cost of credit. and measures of systemic risks have dropped to pre - 2011 levels. why has this happened? bis central bankers ’ speeches the role of governments the first reason is that governments are addressing their fiscal policy challenges. thanks to their consolidation efforts so far, the primary fiscal deficit for the euro area has fallen from 3. 5 % of gdp in 2009 to around 0. 5 % in 2012. this is projected to turn into a primary surplus from 2014 onwards. this improvement in public finances has helped send a signal to investors that government debt levels will stabilise and then fall in the future. this has been crucial in reassuring markets about debt sustainability. but the average public debt level in the euro area is still very high, at around 95 % of gdp. this means that consolidation efforts need to be maintained in the years to come. the role of the ecb the second reason for the improvement in markets is actions by the ecb, notably through the announcement of outright monetary transactions ( omt ). our measures have countered investors ’ fears about the future of the euro area that emerged last year. as such, they have helped restore the normal functioning of markets, and removed the uncertainty that was paralysing the economies of some countries. the impact of the omt announcement has naturally been largest in countries where the uncertainty was greatest. but its effects have been felt across the euro area. capital has started flowing back from the core to the periphery, unwinding some of the distortions in interest rates we saw last year. in germany, for example, long - term interest rates have risen significantly, despite the ecb cutting rates in that time. target2 balances have fallen by around 30 % from their peak. more generally, the risk of an extreme event in the euro area has fallen – and therefore the risk of an adverse impact on price stability. this threat to euro area price stability was the reason we had to act. we had to preserve our mandate. but i am encouraged that throughout this period, inflation expectations remained firmly anchored. this shows that markets and citizens trust the ecb to maintain price stability.