of distortions. the ltros have certainly prevented an abrupt deleveraging. but loans to the euro area private sector increased by only 1. 1 % in february, compared with an average of around 7 % since the start of the euro. looking at capital flows to other parts of the world, we see a broadly balanced picture. the euro has in fact appreciated in effective terms since we conducted the first ltro in december 2011. there have been significant capital inflows due to renewed interest and confidence by foreign investors. the strongest effect of the ltros has been on bank funding. euro area banks issued eur 55 billion in senior unsecured bank debt in the first two months of this year, more than the whole amount in the second half of last year. this is exactly what the ltros were intended to achieve : to prevent a bank funding crisis. over time we expect this to feed into higher credit for firms and households. bis central bankers ’ speeches when this happens, we will be constantly alert to any threats of inflation. our commitment to price stability is steadfast and credible. and observers recognise this. following the two 3 year ltros market indicators of inflation expectations – that is, investors risking their own money – show no signs of inflation above our medium - term objective. so to conclude, the euro area still has a lot of work to do to put itself back on a sustainable footing. this work is difficult because it goes to the root of our economic problems. but it is also essential. solutions that would paper over these problems by creating more debt are not in europe ’ s long - term interest. they would solve this crisis by creating the conditions for the next one. but we also need to be patient. the euro area is made up of 17 different democracies. and as you know very well in washington, democracy is sometimes messy. events may not play out as an economist would determine in his or her model. we may not take the most direct route to our destination. but important thing is that, in the end, we get there. i am confident that in europe we are heading slowly but surely down the right track. thank you for your attention. bis central bankers ’ speeches

firms and households across the euro area. these actions have pulled the euro area back from the very dangerous situation we faced last year. but the crisis of public and private debt in some countries is clearly not over. the recent rise in spanish yields is evidence of this. this is no longer a problem that can be addressed through bigger firewalls or a more active ecb. it can only be addressed through consistent and determined reform, even if it is painful in the short term. in the spanish case the shift in market sentiment is a result of poor communication on deficit targets and delays in announcing the budget. in other words, spain currently has a credibility problem with the markets. but this can be fixed by taking measures to regain credibility. overall, we should not wait for a “ silver bullet ” to end the crisis. it does not exist. the end of the crisis will come only after a series of comprehensive steps taken over a number of years. this means all member states and eu institutions playing their part. let me stress that we are greatly helped in this task by excellent transatlantic cooperation, not least between the ecb and the federal reserve. among other things, the provision of dollar swaps lines has been a key weapon in fighting the crisis since 2007. so the u. s. is also playing an important role in supporting the european recovery. is the european response to the crisis killing growth? this leads into my second question : is the response i just described – fiscal consolidation and structural reforms – killing growth in europe? it is important to understand that we see things differently in europe and the u. s. in our view, strong public finances are a pre - condition for sustainable growth. we see fiscal consolidation as supporting growth, because it creates confidence effects that will support consumption and investment in the future. certainly, the short term effects of consolidation can be negative. we recognise this. that is why we always recommend that consolidation is accompanied by productivity - enhancing structural reforms. this means inter alia opening up closed professions, increasing the efficiency of public administration and improving judicial systems. these are reforms that will bis central bankers ’ speeches ultimately benefit the majority of people, by increasing the growth - potential of these economies. take the example of spain. the labour market reforms i mentioned are essential to increase employment. the spanish labour market has for too long been organised in a way that protects insiders. this is what lies behind the very high rate of youth unemployment. it may be the case that these reforms