and growth pact. this means establishing stricter and more binding rules for fiscal policy, backed up by stronger sanctions or mechanisms to ensure compliance with the rules. at the same time, the effectiveness of budgetary institutions needs to be improved at the national level. in this context, effective rules on expenditure should be regarded as a means of promoting fiscal discipline and limiting fiscal vulnerabilities in the event of adverse economic shocks occurring in the future. iii. ( b ) promoting sustainable growth and job creation euro area countries also need to increase their efforts to strengthen their growth potential and their ability to create jobs in a sustainable manner. european countries have made reasonable progress over the past ten years in the area of employment. indeed, over 14 million jobs were created in the euro zone since the introduction of the euro, far more than in the previous ten years ( around 8 million ). the employment increase in the euro area since 1999 was even significantly larger than in the united states ( 7. 6 million ). this is an important achievement, but it remains insufficient, especially against the background of the massive employment destruction observed in some euro area countries during the crisis. unemployment rates have reached unacceptably high double - digit rates in some countries and segments of the population ( i. e. the young workers ), that, as a result, carry extremely large economic and social costs. this is socially unfair and economically inefficient. european countries must made more efforts to resolutely pursue – and with far greater urgency than in the past – the necessary structural reforms in product markets, labour markets, pension systems and so on. in this respect, a key contribution to the strengthening of the euro area ’ s long - term economic prospects will come from the thorough implementation of the europe 2020 strategy, with its focus on key areas such as : ( i ) education, research and innovation ; ( ii ) resource efficiency ; and ( iii ) high levels of employment and social cohesion. iii. ( c ) enhancing the crisis management framework in response to the sovereign debt crisis, the euro area has recently armed itself with an important tool to safeguard area - wide financial stability. at the european council meeting of 24 and 25 march 2011 the heads of state or government of the eu agreed to establish a permanent european stability mechanism ( esm ) based on the existing temporary european financial stability facility ( which will remain in place until june 2013 ). the esm will grant financial assistance to countries in distress in the form of

as “ goldilocks ” economies, with this term meaning their supposed ability to grow on a sustained basis at a rate that was neither too high to generate inflation nor to low to cause unemployment. the trust in the ability of our financial markets and economies to smoothly overcome any disturbances came to an end in the summer of 2007, when the financial “ turmoil ” began. after the collapse of lehman brothers in october 2008, the turmoil mutated into a full - blown financial “ crisis ” and many market segments seized up. the “ great moderation ” gave way to the “ great recession ”, characterised by a massive fall in industrial output and trade. bis central bankers ’ speeches policy interventions were made by central banks and other public authorities to restore and secure the orderly functioning of markets and economies. i like to think of the interventions by public authorities as “ lines of defence ” against the crisis. they proved successful in guaranteeing those authorities ’ ability to continue delivering macroeconomic and financial stability against the crisis. let me recall briefly the three main lines of defence : central banks increased their provision of liquidity and financial intermediation services ; monetary and fiscal authorities adjusted their policies in order to mitigate the macroeconomic impact of the crisis ; and governments implemented a variety of measures in support of the financial sector. the government measures adopted in response to the economic crisis – both those related to fiscal policy and those in support of the banking sector – did not come cheap. this is true not only in the euro area, but – more generally – in all advanced economies. together with the impact on government budgets of the massive economic contraction recorded during the crisis, they led to a significant deterioration in the public finances of a number of economies in the euro area. the deterioration was particularly significant in countries in which : ( 1 ) pre - crisis growth had been of an unsustainable and unbalanced nature – typically as a result of an over - reliance on the expansion of private credit and the contributions of housing - related sectors ( notably construction and housing finance ) – and ( 2 ) in which governments had failed to take advantage of favourable developments in the years of booming growth in order to consolidate their public finances. over time, concerns about the size of government deficits and soaring debt - to - gdp ratios – combined with uncertainty about the ability of governments to design and implement consolidation plans in the context of reduced potential growth and massive implicit liabilities towards the financial sector – developed into uncertainty about the sustainability of government debt. although