Actions by governments to restore stability Across the whole euro area, governments are making determined efforts to reverse economic imbalances. They are implementing reforms to redress the misguided policies of the past and to create sustainable long-term growth. It is a difficult road and there is still a long way to go. But the early signs are encouraging. Fiscal consolidation is progressing well in most countries. The International Monetary Fund (IMF) forecasts that the euro area’s primary budget will be almost in balance this year. By comparison, Japan will have a primary deficit of 9% of GDP, the United States 6.5% and the UK more than 5%. We are also seeing some noteworthy improvements in competitiveness. Price competitiveness has improved significantly in several euro area countries. And current account deficits are falling. For example, the countries under full EU-IMF programmes have seen their unit labour costs improve by more than 10% since 2008, relative to the euro area average. Their current accounts have improved by around 8% of GDP since then. Governments have also taken measures to strengthen the rules and institutions that guide economic policies in the euro area. This is important to ensure that the positive developments do not simply reverse when economic conditions improve and markets stabilise. One notable example is the new fiscal compact, which will provide a strong tool for keeping budgets close to balance in the future. Governments have also set up a new framework to prevent and correct unsustainable developments in the private sector.
In other words, ECB actions that support market confidence are of benefit not only to countries in difficulty, but also to the euro area as a whole. Our measures ensure the proper transmission of monetary policy, which means neither excessively high interest rates nor excessively low interest rates. The measures enable the ECB to continue to maintain price stability for the benefit of all citizens of the euro area. The announcement on OMTs has already triggered positive effects. Sentiment in financial markets has improved significantly. Excessive government bond spreads have gone down, a number of banks in stressed countries have been able to regain access to markets and Target2 balances have broadly stabilised. The way forward Let me draw to a close. Actions by the ECB can build confidence in the euro area in the near term. But only actions by governments can secure confidence in the euro area over the longer term. In particular, governments need to work together to establish a stronger institutional structure for the euro area. 4  BIS central bankers’ speeches  This process began in June this year with what has been called the “Four Presidents’ Report”. That report – of which I am a co-author – identified four key pillars on which a stable and prosperous monetary union should be built. These pillars are financial union, fiscal union, economic union and political union. In the near term, the most important pillar is financial union.