stress by giving them unlimited access to central bank money at a fixed price against adequate collateral. to facilitate this support, we expanded the set of eligible assets that can be used as collateral and extended the maturity of our lending. it is widely recognised that these measures have been effective in averting a disorderly spiral of deleveraging in the banking system, which would have taken place in an environment of severe liquidity constraints and fire sales. this was necessary in order to avoid deflationary downward pressures that would have prevented us from delivering on our mandate of preserving price stability in the euro area. however, to mitigate the crisis we have also had to go beyond liquidity support, in particular to counter financial fragmentation in the euro area – created by the adverse feedback loops i described above – that was disrupting the transmission of monetary policy across the euro area. diverging credit conditions by countries, by sectors and by size of companies have prevented the ecb ’ s very accommodative monetary policy stance from being passed on evenly in the financing conditions faced by euro area firms and households. as the euro area economy relies heavily on bank credit, this has serious implications for growth and ultimately for our ability to maintain price stability. in particular, in the first half of last year we perceived a situation last year where severe upward pressure on sovereign yields was being driven by unfounded fears about the future of the euro area. these fears were causing investors to charge risk premia to lend to some member states that could not be justified by economic fundamentals. we therefore decided to open the possibility of undertaking outright monetary transactions ( omts ), entailing ex ante unlimited interventions in short - to medium - term securities issued by governments which have submitted to strict and effective conditionality, in order to eliminate the pricing of un - warranted tail risks in the bond markets. this has played an important role in reducing financial market fragmentation, as financial markets understood omts as a credible backstop for countering redenomination risk. 2. what remains to be done these measures by the ecb, however, can only buy time ; they cannot substitute for the responsibilities of national governments to address the unsound fiscal, economic and financial policies that are the root causes of the crisis. and while a great deal has already been done by euro area authorities to address these root causes, there are three areas in which more progress still needs to be made. first, the euro area needs to continue to deepen

##balances, weak bank balance sheets and the lack of a genuinely european approach to bank resolution and recapitalisation. to give just one example of such interactions, large fiscal imbalances in a member state can lead financial markets to drive up yields on its sovereign debt. this in turn creates higher funding costs for its domestic banks and reduces their profitability, thereby hampering credit growth to the real economy. lower credit growth then contributes to lower nominal gdp, which not only further weakens banks ’ balance sheets by increasing non - performing loans, but also increases concerns about the sustainability of sovereign debt through the denominator effect ; and thus, the feedback loop restarts again. without a european approach to banking sector repair, if the sovereign intervenes to break the feedback loop by recapitalising or resolving banks, it may only heighten market concerns about its debt sustainability and aggravate the situation. a. actions by governments addressing such adverse feedback loops between government finances, credit and growth implies a triple policy response from governments : first, fiscal consolidation and current account rebalancing to secure public debt sustainability and lower external financing needs. second, structural reforms to increase potential growth and offset the potential negative effects of fiscal consolidation. third, comprehensive banking sector repair to acknowledge impaired assets and strengthen bank balance sheets. fortunately, in all three areas the euro area is heading in the right direction. first, fiscal and macroeconomic imbalances have improved significantly : fiscal deficits have declined from their 2009 peaks throughout the euro area based on sizeable consolidation efforts and despite strong economic headwinds, while there has been a pronounced reduction of current account deficits. however, these sizeable flow adjustments have not yet fully translated into improvements in the accumulated stock of imbalances – public debt ratios on the fiscal side, net international investment positions on the macroeconomic side – because of depressed nominal gdp growth. most eu countries made significant progress towards further reducing budgetary imbalances in 2012, in an environment of weaker than expected output growth. the euro area government deficit has decreased to 3. 7 % of gdp ( 3. 1 % of gdp excluding one - off government support for financial institutions ). in 2013, the commission expects the euro area deficit to reach 2. 9 % of gdp – i. e. below the maastricht reference value. this level would be less than half the peak reached in 2009 ( 6. 4 % of gdp ), and it puts the euro area as