which have accumulated over the last few years in the euro area are the result of a combination of “ good ” and “ bad ” convergence. the so - called good convergence concerns the levels of per capita income. at the start of emu the per capita income levels between countries differed significantly. among the countries that joined the euro area in 1999 and 2001, three – spain, greece and portugal – were considered “ cohesion countries ”, i. e. countries that qualified for very sizeable structural support from eu funds to speed up their convergence to the european average per capita income levels. in 1999 gdp per capita ( measured in purchasing power standards ) was around 80 % of the euro area average in spain and around 70 % in portugal and greece. in ireland, the gap with the euro area bis central bankers ’ speeches differs depending on whether it is measured in terms of gdp per capita ( 110 % ) or gnp per capita ( 95 % ). neoclassical growth theory suggests that catching - up countries would experience faster economic growth. with the disappearance of the exchange rate premium, convergence within the euro area was facilitated by capital flows originating from wealthier euro area countries with higher gdp and per capita capital endowments. 1 between 1999 and 2008 greece and spain witnessed a significant convergence of their per capita income to the euro area average. in portugal this convergence came to a halt in 2003. ireland continued to experience a tremendous increase of its per capita income between 1999 and 2007. on average, between 1999 and 2008 per capita gdp increased at a yearly pace of 3. 4 % in greece, 3. 4 % in ireland ( gnp ) and 2. 0 % in spain, much higher than the average for the euro area ( 1. 4 % ), which was broadly similar to that of the us ( 1. 5 % ). the “ bad ” convergence i referred to was the speed at which income increased in the catching - up countries, which largely took place through debt, either public or private. as a result, their debt with the rest of the world increased tremendously over the past decade. the most dramatic development took place in ireland, which moved from a net creditor position of 52 % of gdp in 1999 to a net debtor position of 71 % of gdp in 2008. greece increased its net debtor position from 33 % to 76 % of gdp ; portugal from 32 % to 96 % and spain from 28 % to 79 %. the expectation of higher levels of income led to excessive consumption

##tainable everywhere, partly due to the over - indebtedness of the private sector. trying to return to those levels of activity may bring about financial conditions that could reinflate the bubble or turn it into a public debt bubble. this diversity of views may partly reflect differences in the underlying positions of the economies. there is no doubt that the potential for us growth is higher than europe ’ s, if only because of the stronger demographics and greater market flexibility. several european countries, where growth was stronger before the crisis, have shown a loss of competitiveness and will have to profoundly reform their markets in order to grow again. on the other hand, there is no doubt that the pre - crisis economic growth in the us was accompanied by large internal and external imbalances, influenced by the expectations of firms and households being above potential. growth was also favoured by deregulation and policies to stimulate demand that fed the imbalances. trying to return to high growth rates may lead to behaviour that could again prove unsustainable and lead to new excessive fluctuations. financial markets are assessing the policies implemented in different countries also on the basis of countries ’ ability to meet their commitments over time, particularly as regards debt repayment. this has an impact on the effectiveness of fiscal policy. as long as agents have confidence in a state ’ s ability to repay its debts, owing to higher future tax revenues, fiscal policies can stimulate aggregate demand and offset the decline in private consumption and investment caused by the economic slowdown. if, however, agents are concerned that future growth will not be enough to generate sufficient tax revenue to ensure the sustainability of public debt, they will tend to increase savings, weakening the effectiveness of the stimulus and exacerbating in this way the debt dynamics. this brings us to address current issues, particularly as regards the euro area. as i mentioned earlier, the euro area has generally implemented a more restrained fiscal stimulus, and has more contained debt dynamics than other countries. however, some countries within the area have experienced a much greater deterioration in public finances than others, with higher debts. moreover, the euro area is not a fiscal federation. furthermore, individual countries no longer have their own money to tackle public finance problems or to stimulate growth in the short term. this is why financial markets have focused their attention on the euro area and on some of its member countries. there are – in theory – two ways to tackle the crisis. the first is to question the euro, and give back