, must not blind us to the fact that in italy more than in other countries the cyclical ups and downs are superimposed on serious structural weaknesses. in the ten years preceding the crisis, this was already evident in the overall performance of the italian economy, which fared worse than those of nearly all the other major advanced countries. we failed to respond to the extraordinary geopolitical, technological and demographic changes of the last quarter - century. the adjustment required, and put off for so long, is historic in scope. it will affect the accumulation of tangible and intangible capital, product specialization and the organization of production, the education system, skills, career paths, the characteristics of the welfare system and income distribution, the positional rents that are incompatible with the new competitive environment, and the working of government. an adjustment of this magnitude needs a decisive contribution from the political system, but the response of society and all the forces of production is essential. firms are called upon to make an exceptional effort to ensure the success of the transformation by investing resources of their own, seizing the opportunities for growth, adapting their corporate structures and organization, relying on innovation and their ability to hold their own in the most dynamic markets. they have demonstrated their ability to do so at other times in our history. some are doing so now. but too few have been willing to take the plunge ; at times, instead, the illusory solution of public support is advocated. this year ’ s report contains a special section on innovation in italy. the ability to renew products and processes, to export to emerging markets and to internationalize, including by heading or joining global production chains, divides the firms that are continuing to expand sales revenue and value added from those that, instead, are struggling to remain on the bis central bankers ’ speeches market. the recession has deepened this divide and made the inadequacy of some parts of the productive system glaringly obvious. transferring activity from ailing to growing sectors and firms requires profound changes in employment relationships and in the education system. the point is not so much to foresee which sectors and activities will attract consumption and investment demand in the decades to come as to facilitate the transition, reduce the social costs, and capitalize on opportunities. many occupations are disappearing ; in the years to come young people cannot simply count on replacing their seniors as they retire. now is the time to establish the right conditions for the birth and growth of new enterprises and to generate new job opportunities. lifelong

on government securities have also declined on the longest maturities, returning to the levels prevailing at the beginning of 2010. yet these advances have not been accompanied by an improvement of the real economy ; economic activity continued to be weak throughout the euro area in the first quarter. credit conditions still differ from country to country, owing not only to the diversity of macroeconomic situations but also to the residual uncertainty as to the future conditions of funding in the national banking systems. at the beginning of this month, considering the contraction of demand, the prospect of prolonged cyclical weakness and the decline of both actual and expected inflation in the medium term to well below 2 per cent, the ecb governing council lowered the rate on main refinancing operations further, taking it to a new historic low of 0. 5 per cent. the council reiterated that the unlimited supply of liquidity at fixed rates would continue for as long as necessary and in any case until july of next year. the ecb, in concert with other european institutions, is examining initiatives to promote a market in securities backed by loans to nonfinancial corporations. the governing council stands ready to intervene again as new information becomes available and to consider all possible measures for maintaining credit conditions throughout the area consistent with the monetary policy stance. the ecb ’ s management of official interest rates has proven effective ; the effects of last year ’ s reductions have spread to the countries hardest hit by the tensions. the measures taken, in particular the announcement of outright monetary transactions, are conducive to the national and european reforms which alone can eradicate redenomination risk. monetary policy can guarantee stability only if the area ’ s economic fundamentals and institutional architecture are consistent with that objective. every country must do its part. the procedure for the activation of omts presupposes the emergence of very serious tensions ; it can only be applied to countries that have previously requested, possibly on a precautionary basis, a european financial assistance programme, and it is subordinated to compliance with the conditions attached. these reflect the awareness that the fears of euro reversibility are not disjoined from those for the sustainability of the public debt and the growth prospects of individual countries. more than any conditionality, however, what is essential is the shared determination to advance towards a complete european union : monetary union, banking union, fiscal union and finally political union. important strides forward have already been taken. under the pressing time constraints dictated by the crisis,