in a number of countries which have seen an erosion of competitiveness. the second key challenge at the current juncture is that governments need to return to sustainable fiscal positions. even in the short - term fiscal consolidation will help to regain confidence and thus have a positive impact on economic activity. this should be underpinned by structural reforms to enhance the growth potential. for some countries returning to sustainable fiscal positions requires significant further fiscal consolidation efforts, especially in countries with large external deficits and high levels of indebtedness. but this call for fiscal discipline applies more widely – in all countries the implementation of strong fiscal consolidation efforts is required and effective rules need to be adopted that anchor fiscal prudence in overall budgetary decisions in the future. third, both competitiveness and fiscal sustainability should be supported by higher productivity growth. that implies that structural reforms should be targeted to remove remaining rigidities in the labour and product markets. in recent years, the progress with respect to structural reforms in euro area countries has overall clearly been disappointing and not commensurate with the requirements of participating in a common currency area. the europe 2020 strategy for jobs and smart, sustainable and inclusive growth may provide the institutional framework at the european level for ambitious progress with respect to structural reforms. these policy requirements gain particular urgency for those countries currently receiving eu / imf financial assistance. the policy conditionality associated with these programmes has been designed to address the main imbalances and vulnerabilities, taking into account the specificities of the individual countries. full compliance with the policy conditionality of the assistance programmes is absolutely essential to unwind existing imbalances and restore market confidence. turning to the necessary policy response at the european level, the reinforcement of the fiscal rules and the introduction of a new surveillance framework for macroeconomic imbalances are necessary elements in strengthening overall economic governance in the euro area. the current proposals are a step in the right direction but so far fail to constitute bis central bankers ’ speeches the necessary quantum leap for euro area countries. as to macroeconomic surveillance, it is of paramount importance that the procedure has a clear focus on those countries which pose the most serious threat to the smooth functioning of emu. these are – as the present experience shows – countries with large and persistent current account deficits, significant accumulated losses of competitiveness and high levels of private and public sector indebtedness. moreover, the procedures should be quasi - automatic, limiting excessive political interference in the process. furthermore, it would be

jurgen stark : in the aftermath of the global economic crisis – what next? speech by mr jurgen stark, member of the executive board of the european central bank, at the economist conference – 15th roundtable with the government of greece, attica, 18 may 2011. * * * introduction it is a pleasure to be here today. in my introductory remarks i would like to discuss briefly the main underlying causes for the current problems of some euro area countries. such an understanding of the causes is essential in order to develop strategies for “ restoring confidence in the european economy ”, the main topic of this session of the conference. in the remainder of my initial remarks i will then outline the key policy elements of such a strategy, both at the national and at the european level. the majority of emu member states is about to overcome the economic consequences of the global financial crisis. the economic recovery in the euro area has been sustained and has become more broadly based. the economy no longer needs the degree of economic or monetary stimulus as adopted during the height of the crisis in late 2008 and early 2009. economic growth in the first quarter of 2011 has turned out significantly stronger than expected. germany, in particular, is experiencing high growth rates, falling unemployment and a declining government deficit. to a great extent these positive developments are attributable to economic reforms adopted in the past which are now taking effect. some countries, at the euro area ’ s periphery, greece, ireland and portugal, find themselves in a critical economic situation. the origins of the current crisis the current problems in these countries have a number of root causes which have led to significant macroeconomic imbalances and vulnerabilities. in the years prior to the recent crisis, price and costs developments diverged noticeably within the euro area over extended periods of time. the cumulative impact of those differences has meant the gradual but significant erosion of the competitiveness positions in a number of euro area countries. the mechanisms underlying these developments have varied between countries but mostly have been linked with strong growth in domestic demand, relative to the supply capacity of the economy. demand pressures were often related to overly optimistic expectations about future incomes and profits. that triggered high spending, reduced saving and excessive indebtedness by the private sector and often increased risk - taking by the financial sector. this process was often exacerbated by low real interest rates and an insufficiently tight fiscal stance. even where headline fiscal numbers such as the deficit or the debt ratio still suggested a healthy fiscal