This additional distortion has given rise to further instability in the financial system, both directly and through its interplay with the weaknesses of the public sector. Given the central role played by sovereign debt in financial markets, its dysfunctional behaviour threatened both financial stability and the transmission of monetary policy. In this context, the Eurosystem launched its Securities Markets Programme (SMP), which entails the outright purchase of debt instruments to address the malfunctioning of securities markets and to ensure the proper transmission of monetary policy impulses to the wider economy and, ultimately, the general price level. In addition, in order to mitigate the impact of the sovereign debt crisis on the banking sector’s ability to refinance its activities, the ECB temporarily reversed the phasing-out of its nonstandard measures. It also took collateral-related measures to support access to central bank liquidity by banks located in the countries that were committed to implementing economic and financial adjustment programmes negotiated with the European Commission, in liaison with the ECB, and the IMF. There is no denying that the financial crisis has put the euro and the economy of the euro area to the test. During the crisis the euro area public authorities have proven their capacity  2  BIS central bankers’ speeches  and willingness to take the necessary emergency steps to maintain financial stability. However, the crisis has clearly shown the need to undertake a number of reforms in order to address some institutional and structural weaknesses in our economies.
But also from the supply side developments were, for a period at least, positive, partly because there was an increase in the working-age population. In recent years, however, it has become evident that many people have ended up outside the labour market, partly as a result of a rise in sick leave. As regards productivity growth, the trend in recent years has been more positive. At GDP level it has been approximately 2 per cent per year or slightly above. This differs from the situation in the 1970s and 1980s. It is likely that the changes in monetary and fiscal policy and increased transparency with stiffer competition have been important in this regard. So how should we feel about developments in the near future? When it comes to productivity, there is reason for optimism, even if the high figures seen in the 1990s partly reflect both rapid growth in the private sector compared to the public sector and robust growth in the ICT sector. Our economy is more open and has greater competition and downward price-pressure in many sectors. The cost pressures in the public sector also have a similar impact. The outlook is considerably gloomier for the labour supply. As I mentioned, developments are now on a downward trend. One cause of this is that economic policy in some respects has become less focused on raising labour force participation. In terms of both transfers and taxes, changes have been implemented that reduce the incentive to work.