year. this is quite an achievement in an international context : japan, for example, will have a 9 % of gdp primary deficit this year, the u. s. 6. 5 % and u. k. more than 5 %. and the euro area is not only performing well on average : each individual member country will have this year a primary budget deficit lower than those three countries. bis central bankers ’ speeches important improvements are also taking place in competitiveness. member states have now started to undertake structural reforms to facilitate intra - euro area adjustment. there have been determined efforts to address product and labour market rigidities, reform tax and pension systems, and increase the efficiency of judicial systems. and some positive effects are already visible in the data. 7 for example, the three countries under full eu - imf programmes have seen unit labour costs improve by around 10 % since 2008, relative to the euro area average. this has translated into current account deficits that are on average around 8 percentage points of gdp lower than they were then. at the same time, exports of goods and services in volume since 2009, increased by 22 % for spain, 15 % for ireland, 22 % for portugal, 19 % for italy, this against an average of 21 % for the euro area. 8 while there are clear cyclical drivers behind these developments, there are also signs of structural improvements. moreover, drivers of the previously unsustainable domestic demand in some countries, like the housing market, now seem to provide structurally lower contributions to growth, thereby facilitating the way towards a more sustainable growth model. it is no secret that this necessary process of adjustment, and the reallocation of resources it implies between sectors, is having a negative effect on economic activity. economic growth is subdued in the euro area, and is expected to remain so for the rest of this year. there is also considerable heterogeneity between euro area countries. in these circumstances, monetary policy in maintaining price stability on a medium term perspective, contributes also to reduce the output gap, as the literature on flexible inflation targeting has shown long ago. 9 with risks to inflation well - contained, the ecb has lowered its policy interest rate to the historic low level of 0. 75 % and provided banks with access to unlimited liquidity at this price. however, before september this year, the transmission of our policy rate to the real economy was seriously disrupted across countries. for instance, when the ecb cut interest rates by 125 basis points

vitor constancio : completing and repairing emu speech by mr vitor constancio, vice - president of the european central bank, at the hyman p minsky conference, organised by the levy economics institute and ecla of bard with support from the ford foundation, the german marshall fund of the united states, and deutsche bank ag, berlin, 26 november 2012. * * * ladies and gentlemen, it is a great pleasure to be here today to participate at this event organised by the levy institute. it is fair to say that, intellectually, the levy institute has had a “ good crisis ”. building on the post - keynesian analysis of minsky ’ s financial instability hypothesis and wynne godley´s theory of sectoral balances and stock - flow consistent models, the work of the institute´s resident scholars predicted and explained many of the challenges we are facing today. this serves as a reminder of the importance for policy - makers to keep an open mind in continuously refining our economic thinking. it is today clear to us that conventional macroeconomic models were ill - equipped to capture the key role of financial markets. our theoretical foundations proved to be misplaced when tested in reality. the way forward therefore has to involve taking the lessons from this empirical test : using the knowledge we have gained so far to better understand the necessary conditions for economic and monetary union to function. what this implies for the euro area will be the subject of my address today. shortcomings in emu ’ s architecture emu was designed with a centralised monetary policy but decentralised fiscal, economic and financial stability policies. its construction rested on three convictions : first, the synchronisation of business cycles in the euro area ; second, a sufficiently flexible and competitive internal market ; and third, the existence of sufficient “ shock - absorbers ” to deal with country specific developments. where do these convictions of the emu designers come from? well, the general expectation was that the first two would be supported by the common currency itself. the euro would boost trade and financial market integration within the european union by eliminating exchange rate risk and lowering cross - border transaction costs. this deeper market integration would lead to greater synchronisation of business cycles, thus making the stance of a single monetary policy appropriate for all member states. at the same time, the existence of the euro would strengthen the single market and create greater flexibility, in turn making it easier and faster to rebalance after economic shocks. in this