The increased public investments in the infrastructure, provided by still comfortable fiscal position (the budget deficit was on average 3% of GDP during the crisis and the government debt is at 34% of GDP, the forth lowest in the Europe) are additional factor for growth. However, although the negative spillover effects of the global and Euro zone crisis to the trade, remittances and FDI’s could be diminished as Euro zone recover, still, the financial system of our SEE countries, that is broadly based on banks, is exposed to the risk of disruptive withdrawal of funds by European banks. Thus, when we assess the crisis’s impact on the financial system in our economies, we should distinguish the two phases. In the first phase of the global crisis, the negative spillover effects were pronounced on the local capital markets, with large portfolio withdrawals by institutional investors. On the other side, in that time, the Vienna Initiative has prevented a systemic banking crisis. However, with the new wave of the Eurozone crisis (extended at the end of 2011), there are many new challenges for SEE countries that should be rightly followed by Vienna Initiative 2. Concerns with respect to Euro zone banks’ deleveraging, due to new capital requirements by the EBA are materialized. The deleveraging by the Euro zone parent banks have affected the SEE credits’ developments and now there is new concern regarding to the upcoming asset-quality review and stress test of the Euro zone banks that could lengthen this process even further.

PORTUGAL Could the ending of this zero interest rate environment be a problem for more indebted countries, like Portugal? Obviously, countries with higher debt levels have benefited more from lower refinancing costs, but this is not the objective of our monetary policy, which to ensure price stability. More fundamentally, we should always keep in mind that investor confidence in the sustainability of public finances is the key determinant of interest rates on sovereign debt. If there are doubts about the sustainability of public finances, spreads can increase to very high levels, despite the ECB’s asset purchase programme. I have noted that, following heightened market volatility due to developments in Italy, spillovers to interest rates on Portuguese public debt were contained, thanks to significant progress in public finances. This again stresses the importance of sound public finances. What is your assessment of Portugal’s progress? Commission and ECB staff concluded their eighth post-programme surveillance mission last week. They stress that the current favourable macroeconomic and financial conditions provide an opportunity to accelerate structural reforms, further reduce macroeconomic imbalances and increase Portugal’s resilience to shocks. Fiscal consolidation remains necessary to ensure a steady decline in the debt ratio. 3/4  BIS central bankers' speeches  They also note that, while Portuguese banks have made considerable progress in strengthening their balance sheets, remaining vulnerabilities in the banking sector need to be addressed, in particular the high level of non-performing loans (13.7% in 2017 compared with an EU average of about 5%).