##able. the crisis that started in 2008 marked the beginning of a painful but remarkable adjustment process. thanks to strong domestic policies combined with international support, this adjustment has laid the foundations for an economic recovery, underpinned by healthier balance sheets and improvements in competitiveness. i believe that latvia ’ s experience harbours important lessons for countries inside the euro area that have to undergo a similar adjustment. the adjustment process in latvia during the past few years shows that it is possible to reduce large macroeconomic imbalances without adjusting the nominal exchange rate. such an adjustment benefits from a high degree of flexibility of the economy and needs to rely on a determined and strong policy response to rebalance the economy, regain competitiveness and lay the foundations for sustainable output growth. a sizeable fiscal adjustment was essential for strengthening fiscal sustainability and critical in regaining market confidence. cuts in wage costs and prices were necessary to regain competitiveness that had been lost during the boom years. exactly three years after the crisis hit, latvia now seems close to concluding its international financial assistance programme. what were the specific elements that underpinned this adjustment? i want to mention four elements in this regard. first, in the absence of nominal exchange rate flexibility, any real exchange rate adjustment had to be delivered via cuts in wage costs and prices combined with enhancements in labour productivity. the adjustment in wages was both market - driven, owing to a sharp decline in the demand for labour, and supported by policies aimed at cutting public sector wage costs. the labour market adjustment was not only achieved through wage cuts, but also through employment cuts, reductions in hours worked and a restructuring of production processes. as a result, unit labour costs declined significantly, partly offsetting their previous excessive gains ( see slide 7, ulc levels ). second, sizeable fiscal consolidation was targeted at bringing latvia ’ s fiscal position back to a sustainable path, lowering sovereign funding needs and regaining market confidence. efforts also focused on strengthening the budgetary framework and procedures. following a sharp increase in fiscal deficits, latvia ’ s fiscal position has started to improve, but the deficit remains at a very high level ( see slide 8, fiscal balances ). bis central bankers ’ speeches a third element of the adjustment strategy comprised structural reforms to enhance market flexibility and medium - term growth. measures focused on both labour and product markets, such as revisions to labour market legislation to strengthen labour market flexibility, improving the business climate by streamlining start - up procedures and tax administration, supporting export

area growth ; on the upside, risks could stem from further increases in indirect taxes and higher than expected energy prices. our monetary analysis gives a picture consistent with price stability over the medium term. in particular, the underlying pace of monetary expansion remains subdued. weak loan growth largely reflects the current cyclical situation, heightened risk aversion and balance sheet adjustments by households and firms, which weigh on credit demand. bis central bankers ’ speeches 2. central banks ’ response to the crisis let me now turn to the first topic you asked me to address, the measures taken by central banks around the world in response to the global financial crisis. in a nutshell, i consider those actions to have been bold, forward - looking yet historically informed, drawing appropriate lessons from financial crises of the 20th century. central banks have cooperated very closely during the crisis : through an important coordinated interest rate cut in october 2008 ; provision of swap lines ; continuous information exchange ; and overall actions that have been mutually consistent. in particular, the overriding objective of medium - term price stability has never been lost from sight. both interest rate policy and non - standard measures have taken account of the prevailing specific circumstances : first, the financial and economic structure of each economy ; second, the magnitude and specificity of shocks ; third, the different operational frameworks of different central banks ; and fourth, the different institutional settings in which they operate. for these four reasons, comparisons across constituencies have their limits. what ’ s more, comparison of the size of central banks ’ balance sheets may give a distorted picture of the extent of policy action. for example, in the eurosystem, a significant part of the balance sheet is not related to monetary policy but to gold and foreign exchange reserves. therefore, the appropriate way to measure a central bank ’ s actions is to do so in its own institutional and economic setting and against its own objectives. for the ecb, those actions have been, and will continue to be, geared towards maintaining price stability in the euro area. this is our mandate, and our track record speaks for itself. 3. the ecb ’ s role in adjustment programmes effective crisis resolution needs bold actions by central banks but it also needs bold actions by other policy actors, notably governments. this brings me to the other topic that you proposed : economic adjustment programmes and the role of the ecb. in the aftermath of the crisis, a number of eu and euro area countries have requested financial assistance because of their challenged access to