whether to sell npls or externalise servicing to a specialised operator. of the total of €81 billion of net bad loans, only about €20 billion are with banks, significant and less significant, that are currently experiencing difficulties. the average book value of these assets is around 40 per cent of their face value. this is about twice the low prices currently offered by a few market specialists. based on these prices, the additional provisions that such banks may need to book could be estimated at about €10 billion. this amount of additional provisioning is far 4 below the €20 billion fund set up by the italian government at the end of last year to support troubled banks. moreover, it should not be forgotten that any public support would be accompanied by some burden sharing. the npl legacy comes from the past. another and even more serious challenge for all european banks lies in the present and the future and has to do with technology and the shape of the market. current trends are compressing profitability. it is time for a change in the business model of many banks. the extension of branch networks, the provision of services, and the use of technology must be reviewed in a bold and innovative spirit. this is essential for italian banks if they want to compete effectively and maintain their stability. 3 / 4 bis central bankers'speeches the prospects for the italian economy have been improving gradually but steadily in the last three years ; the moderate recovery is a testimony to the effectiveness of the policies put in place, but also to the need for further intervention. the production of goods and services continues to increase in the current quarter, although the pace of recovery is slow and lags behind that of other large countries in the euro area. domestic demand is benefiting from favourable monetary and financial conditions, as well as from a mildly expansionary fiscal policy. labour market conditions have improved. business confidence is increasing. bank lending has continued to expand in recent months, even though it remains heterogeneous across firms. our latest forecasts suggest a further moderate strengthening of gdp growth. as in the euro area as a whole, the outlook, however, is clouded by risks, and tilted to the downside mostly by global geopolitical factors. economic policy uncertainty – as measured by the most popular indicators – is at very high levels nationally, in the euro area, and outside europe. italy has been on a path of reform for a number of years now. change is beginning to pay off. the effort to modernise

the way. today, banking union – whose first pillar, the single supervisory mechanism, has been put together in an extremely short time and at a difficult moment – remains incomplete. the capital markets union is an excellent project, but it is still at a very preliminary stage. in spite of the efforts of many, including members of the european parliament, moving ahead towards fiscal union appears somewhat difficult. the legacy of the crisis has aroused fears and prejudices once thought 2 long buried. distrust leads to disaccord ; in the exasperated pursuit of mutual reassurance, looking only to short - term gain, the necessary steps are hard to take. moving forward based on a series of compromises is becoming more difficult. i am convinced that true european integration can only be achieved through the carefully considered development of democratic institutions appointed to manage shared sovereignty. the sovereign debt crisis was also a crisis of trust : interest rate spreads on sovereign bonds increased sharply amidst fears of a euro break - up and redenomination risk. the latter accounted for about two thirds of the increase in the interest rate differential between italian and german sovereign bonds at the height of the sovereign crisis in 2011. we may now say that italy is coming out of the worst economic crisis of its history as a nation. from 2008 to 2013, as a result of a double - dip recession, gdp fell by almost 10 percentage points, industrial production by about a quarter, investment by 30 per cent, and consumption by 8 per cent. fiscal consolidation, even if pro - cyclical, was necessary to regain the trust of markets and to convince our partners of the country ’ s resolve to address its imbalances. the primary budget balance had returned to surplus by 2011 and net borrowing was brought back below the threshold of 3 per cent of gdp in 2012. keeping primary current expenditure in check played an important role : since 2010 it has recorded modest growth in nominal terms ( around 1 per cent ) compared with more than 4 per cent in the previous ten years. as tensions in the sovereign market spread to banks, the latter ’ s ability to access international funding was impaired and a credit crunch ensued, which added to the contractionary impulse coming from the much - needed fiscal consolidation. this was not offset by an acceleration in foreign demand, either from the rest of the euro area or from other countries. the aggregate fiscal stance of the euro area was also contractionary. only monetary policy responded by 2 / 4 bis central bankers'speeches fighting financial fragmentation and avoiding the