BIS central bankers’ speeches  3  follow until very recently in Q1 2013. This not only limited the potential for the external sector to generate growth, but also lowered citizens’ real incomes. The third contributing factor was that, while this supply-side adjustment taking place, there were also constraints on the demand side.
To begin with, the reform process had to start in an environment where fiscal policies had, by necessity, to become contractionary. Clearly, contractionary policies were needed to restore debt sustainability and market access. Indeed, structural fiscal balances – i.e. fiscal balances excluding the impact of the cycle and one-off costs – improved significantly in the crisis countries.