For this reason, the ECB has been very clear that the measures it has taken are designed to be temporary in nature. Let me also emphasise that our non-standard measures do not in any way impinge upon our capacity to tighten our monetary policy stance in response to inflationary pressures. In all our actions, we have been careful to keep inflation expectations well-anchored and have remained faithful to our mandate to preserve price stability in the euro area over the medium term. Our mandate is what has guided, and will continue to guide, all our monetary policy decisions. But the success of the ECB’s crisis measures in maintaining monetary stability in the euro area should not let anyone believe that monetary policy is the medicine that can solve the underlying, more structural problems in the euro area. The lasting resolution of the crisis is the responsibility of the euro area governments. The euro area governments’ responses to the crisis Euro area governments face three main challenges. First, they need to address the internal and external macroeconomic imbalances. Second, they have to restore confidence in, and stability to, the European financial system. Third, they must deal with the remaining shortcomings in the institutional design of EMU. Let me elaborate on these factors in turn. First, the rebalancing of the euro area economies requires, first and foremost, that public sector expenditure is brought back to a sustainable path and that the debt overhang is reduced.
This is, of course, particularly true for those euro area countries that are currently under an EU/IMF programme or are experiencing disruptions in their sovereign debt markets. Much remains to be done, but we should not forget the steps that have already been taken – although there is no room for complacency. Based on a direct estimation of revenue and spending (rather than on the cyclically adjusted primary balance), the cumulative fiscal consolidation achieved thus far is in excess of 10% of GDP in each of the three countries under EU/IMF programmes. While some countries have, most regrettably, fallen behind the targets in their programme, the consolidation efforts are significant in absolute terms. One of the reasons why countries did not reach their headline deficit targets is to be found in the economic headwinds they are experiencing. Negative economic growth, higher interest  4  BIS central bankers’ speeches  payments and higher social security spending have led to quasi-automatic increases in expenditure and obscure the fiscal consolidation efforts. This stresses the importance of the implementation of well-designed and ambitious fiscal adjustment programmes being accompanied by growth-enhancing structural reforms. There is no doubt that the long-term effects of fiscal consolidation on growth and employment are positive and significant. Whereas fiscal consolidation may have a dampening effect on economic activity in the short run, the extent to which it does so depends on several factors, such as the composition of the fiscal adjustment. National authorities need to set ambitious and credible targets, and to stick to them.