In short, in just one year, since May 2010, the EU has embarked on a radical overhaul of its economic governance, while managing the sovereign crisis. This is a great achievement, especially considering the multiplicity of actors involved and the creativity of the response, which also had to take account of public opinion. BIS central bankers’ speeches  3  Positive developments Looking at aggregate numbers, it is very difficult to understand many of the concerns expressed on the euro area. The euro area is the only major currency area with its external accounts in balance, and which therefore does not depend on external finance. This is an essential element of robustness. For outside investors, it provides a strong guarantee of long term solvency. Its aggregate fiscal balance (with a deficit of 6.3% of GDP in 2010) is the most favorable of all advanced economies (10.5% for the United States, 9.6% for the United Kingdom and 7.7% for Japan). The same holds true for public debt, which stands at 92% of GDP, close to that of the United States (93%), and much lower than that of Japan (200%). Looking at national fiscal situations, most analysts would acknowledge the magnitude of the efforts undertaken. Yet, some tend to take a very pessimistic view about future outcomes. In short, their argument is that the euro area, and more specifically, its periphery, will be unable to return to normal growth anytime in the foreseeable future.
Between 2000 and 2008, Greece and Ireland posted cumulative labor productivity growth rates, as measured by the output per employee, of 14.7% and 10.2% respectively. Both significantly outpaced that of Germany (6.1%). This is exactly what you would expect in an integrated economic and monetary area and this process should continue in the future, provided that appropriate policies are implemented. Economic convergence will therefore boost growth and support the return to debt sustainability. It is true that, looking at nominal developments, a different picture emerges. During the same period, nominal wages grew by a total of 42% in Ireland and 52% in Greece, compared with only 7.4% in Germany. There has to be a regime change in the way in which nominal wages and prices are set in some parts of the euro area. As central bankers, we have been putting forward this argument for years. Strong reforms are now being pushed in labor market legislation as well as in wage determination in the public sector in many countries. What about banks? I would like to end with a few words about the banking sector. Revenues for the twelve biggest European banks grew, in aggregate terms, by 8.6% in 2010 (as compared to 2.5% for the main US banks). As a result, European banks’ Core Tier 1 ratios stood at between 8.5% and 15.3% at the end of 2010 (corresponding numbers for US  4  BIS central bankers’ speeches  banks were between 8.4% and 13.3%).