risks remain, however, related to a possible worsening of the sovereign debt crisis. financial markets are also now generally less volatile – although we must closely monitor the situation in the spanish government bond market. certainly the doomsday predictions from the fourth quarter of last year seem to have been avoided. we should not forget that, only five months ago, der spiegel, the leading german weekly magazine ran an article entitled “ a continent stares into the abyss ”, which declared that the end - game for the euro had begun. the front cover of the economist magazine in the same week asked “ is this really the end? ”, set against an image of a burning 1 euro coin hurtling towards oblivion. what changed in this time? in my view, the explanation is actions taken at three levels. first, member states recognised the seriousness of the situation and implemented major reforms. spain has begun addressing its competitiveness problem with the most significant labour market reform in a generation. it is also improving central control over regional bis central bankers ’ speeches spending. italy is increasing competition and modernising its public administration to increase its potential growth. the debt exchange in greece was successful, which gives the country a fresh start to address its fiscal and competitiveness issues. ireland and portugal have continued to implement their eu - imf programmes, which are both on track. second, europe has strengthened its economic governance. fiscal rules have been reinforced through the agreement on the fiscal compact, which obliges all euro area countries to run a structural balanced budget. it also shifts the onus for enforcement away from brussels and onto national institutions, encouraging greater ownership. monitoring of economic policies will go deeper through the new “ enhanced surveillance ” legislation. it allows the commission to send missions to countries experiencing or threatened with financial difficulties and recommend policy changes. this gives the commission the power to demand some reforms that the u. s. federal government could not demand of a u. s. state. euro area firewalls have been strengthened by the decision to increase the total resources to around i trillion us dollars. altogether, this presents a convincing package for markets : a tough new set of rules, a strong regime for monitoring those rules, and a credible safety net to back it up. third, the ecb has played its part by preventing a funding crisis in the banking sector. the two 3 - year ltros launched in december and february have eased bank funding pressures and stopped further deleveraging. this should over time support lending to

expected to remain at very low or negative levels in the early months of 2015. this heightens the risk of second - round effects on wages and prices that could have an adverse impact on inflation expectations in the medium term. indeed, the latest private sector forecasts have seen substantial downward revisions for all terms. thus, for example, according to the january edition of consensus forecasts, the leading private sector economic forecast publication, the average rate of inflation forecast for 2015 is just 0. 1 %, compared with 0. 6 % forecast for the same period a month earlier. in a macroeconomic context of weak demand, these rates, so far from 2 %, not only endanger the current anchoring of medium - term inflation expectations, but also heighten the risks to price stability and hamper the economic recovery of the area as a whole. economic recovery is even more difficult for countries that are in the process of correcting imbalances that built up in the past, and in particular for those, such as spain, that have suffered competitiveness losses and need their prices and costs to fall relative to the euro area as a whole. to address these risks the ecb has in recent months taken further measures to make its highly expansionary monetary policy even more expansionary. bis central bankers ’ speeches as regards standard measures, the ecb has reduced the interest rate on its main refinancing operations to 0. 05 %, which is technically the lower bound for this rate. also, the interest rate on the deposit facility, which is the rate at which the cash surpluses that credit institutions hold in their eurosystem accounts are remunerated, stands at negative levels ( – 0. 20 % ), which discourages the accumulation of such balances and stimulates lending. recent actions also include non - standard measures : a new long - term financing facility specifically aimed at promoting greater lending to the private sector ; and two asset purchase programmes, one for asset - backed securities and the other for different types of covered bonds. finally, on 22 january, the ecb announced new monetary stimulus measures. the interest rate applicable to the long - term financing facility, which aims to stimulate lending, was reduced and an expanded asset purchase programme was announced. this programme includes, in addition to the purchases of asset - backed securities and covered bonds issued by the private sector, purchases of bonds issued by euro area central governments, agencies and european institutions. the size of this expanded programme is ambitious, with monthly