has affirmed its commitment to the european union and its single currency union on numerous occasions. and the leadership is working harder than ever to achieve greater coordination in areas such as fiscal policy. a more robust and resilient european union would be a welcome development for the united states. three recent developments are especially encouraging in that regard. first, liquidity concerns have eased significantly following the european central bank ’ s ( ecb ) long - term refinancing operations in december and february. through this program, the ecb provides three - year loans to european banks at low rates, accepting a wide array of collateral in return. hundreds of banks accessed the program in each operation, and the ecb lent nearly €1 trillion in total. as a result, the cost of funding throughout europe has bis central bankers ’ speeches declined since the program began, the euro has stabilized, and the sovereign bond market has improved. changes in the ecb ’ s collateral rules and reserve requirements have also had a positive impact. second, earlier this month, the greek government worked with european leaders and its largest creditors to restructure the bulk of its €206 billion of outstanding privately - held bonds. this not only reduced greece ’ s total indebtedness, it helped calm persistent worries that a disorderly greek default could become the trigger for a global economic crisis. shortly after the debt restructuring, the eu approved a €130 billion aid package for greece. together, these measures will provide key support to greek leaders as they pursue the difficult fiscal reforms that are essential over the long term. third, leaders in most euro area countries have approved a new treaty designed to increase fiscal coordination. the new rules already appear to be making a difference. both spain and italy recently completed 2012 budgets that move their deficits closer to eu targets. further, spain and italy took their fiscal actions in close consultation with finance ministers from other countries in the euro area, demonstrating a healthy ability to work together. while difficult work still lies ahead, countries in the euro area have made meaningful progress toward achieving long - term fiscal sustainability. looking to the future, the difficult work that remains also presents special risks – both for europe and the united states. if europe fails to chart an effective course forward, this could have a number of negative implications here. in particular, there are three areas of potential risk that i would like to highlight for the subcommittee today. first, if economic conditions in europe were to weaken significantly, demand for u. s

and building a business, and by building better transportation, power and telecommunications infrastructure. and they are about broadening access to and improving the quality of public education. allowing competitive pressures to operate is undoubtedly the best way to foster the investment, innovation and risk - taking that is central to raising an economy's long - run sustainable growth rate. but markets can't solve all problems, and they don't always function perfectly. this means that the policy imperative isn't simply to reduce regulation ; it is to improve the design of the regulations that are important to dealing with market failures. finally, future growth outcomes will depend importantly on the success of governments in fostering the development of the domestic financial system. this requires not only stronger financial intermediaries and better supervisors, but deeper and more liquid capital markets that provide greater access to capital for firms and greater freedom for households to borrow and to invest their savings. certain features of today's emerging economies, notably the size of current account surpluses and the high levels of reserves, tend to be seen principally as sources of comfort against future crises. but you can also look at these phenomena as measures of the incompleteness of the institutional changes achieved in the monetary and financial arena, and as a sign of the persistent ambivalence in the emerging world about financial integration. the current account surpluses are, of course, the mirror image of the high rates of savings relative to investment. there are a range of factors that affect the flows of goods and services across international borders, but the sustained outflow of funds from some emerging economies witnessed in recent years may have as much to do with the limited intermediation capacity of the local financial systems as with the scarcity of profitable domestic investment opportunities. and in this sense you can read a large current account surplus as a sign of financial sector under development rather than of financial strength and maturity. the pattern of intervention in exchange markets and the scale of reserve accumulation provides a similar perspective on the challenges ahead. policymakers in many emerging markets still reveal a substantial degree of reluctance to allow the exchange rate to adjust to market forces. part of this is aversion to appreciation, and part of it aversion to variability in the exchange rate. in this sense, the high level of reserves today could be read less as an indication of fundamental strength than as an indication of the need for more progress toward completing the transition to a modern monetary policy regime. even though reported inflation in most emerging economies has been moderate