have fuelled asset price rises and private indebtedness. hence, current account imbalances within the euro area should be a source of concern for policy - makers when they relate to losses of competitiveness. a useful way to measure excessive imbalances is to look at unit labour costs, as these reflect developments in both productivity and labour costs. if we compare countries with an external surplus and countries with an external deficit, we see that, since the introduction of the euro, unit labour costs have increased by 28 % in deficit countries, 2. 5 times as much as in surplus countries. for sure, some of this differential might reflect sustainable increases in income per capita or other “ catch - up ” effects. but to a much larger extent, this differential relates to structural problems and reflects growing misalignments between developments in wages and productivity. these misalignments have also become visible in terms of deviations from price stability. indeed, we can observe that most countries with strong current account deficits prior to the crisis had also experienced substantial increases in prices. ensuring price stability is key for competitiveness. it provides the nominal anchor for future price developments. it is key for the euro area as a whole as much as it is key for all countries. significant and persistent deviations from price stability translate into losses of competitiveness and should be corrected. restoring competitiveness is vital for a number of countries within the euro area. policies to ensure sufficient responsiveness in wages and prices, as well as to boost productivity, are crucial ingredients in the rebalancing. the policy challenge let me conclude. the euro area ’ s performance in the global economy is good, but continuous adjustment is needed to keep up in a highly dynamic international environment. within the euro area, a number of countries need to repair and strengthen their competitiveness for the sake of their own continued prosperity and the overall stability of our economic and monetary union. this process requires going to the root of the loss of competitiveness, tackling its sources and enhancing the opportunities for growth. the time frame of this correction will differ according to the degree of the imbalances and countries ’ overall economic conditions. but in times of severe financial constraints, there is no other choice than to address the structural losses in competitiveness in an urgent and decisive manner. what monetary policy can do for competitiveness is to ensure price stability in the euro area, reducing risk premia and making sure that all the transmission channels of the monetary impulse do

, n. j. : princeton university press, 1978. us house of representatives. an act to lower interest rates and allocate credit. hearings on h. r. 212 before the subcommittee on domestic monetary policy of the committee on banking, currency and housing, 94th cong., first sess., february 4 - 6, 1975. washington, d c : us government printing office, 1975. us house of representatives. the federal reserve accountability act of 1993. hearing before the committee on banking, finance and urban affairs, 103rd cong., first sess., 13, 19 and 27 october 1993, washington, d c : gpo, 1994. us senate. monetary policy oversight. hearings on s. con. res. 18 before the committee on banking, housing, and urban affairs, 94th cong., first sess., 25 - 26 february 1975. washington, d c : gpo, 1975. walsh, carl : “ optimal contracts for central bankers ”, american economic review, vol 85, no 1, march 1995, pp 150 - 67.