caused by the pandemic will necessarily continue to be at the centre of our agenda. the recovery that took hold in the third quarter of the 2 / 5 bis central bankers'speeches year, although vigorous, is partial and fragile. the resurgence of infections and – sadly – deaths in many parts of the world will most likely cause a deceleration, and in many countries a reduction, of economic activity in the coming months. uncertainty about epidemiological developments and economic prospects, feeding households ’ and firms ’ anxiety, reduces their propensity to consume and invest ; there is a concrete risk that high precautionary savings will continue to weigh on aggregate demand. recent news on vaccine development offer reason for cautious optimism ; efforts must be further encouraged. fiscal and monetary authorities should continue to provide support, readily adapting their action to the evolving situation. withdrawing support too early and failure to act timely, if needed, could jeopardise recovery, exacerbate social disruptions and, ultimately, prove self - defeating. in particular, the severity of the crisis requires that adequate protection reaches the households and firms that are most affected. at the same time, in a context of rising firm debts, highly uncertain economic prospects and increasing risks in the post - pandemic world, we face the challenge of preserving the financial system ’ s capacity to support the real economy without compromising its stability. the covid - 19 crisis will inevitably lead to a significant increase of non - financial firms ’ indebtedness and related debt overhang issues. measures to support firms ’ recapitalisation might be necessary to avoid a generalised debt overhang problem. it should also be considered that in the last ten years the financial system has become increasingly reliant on non - bank financial institutions for supporting economic growth. this has brought benefits but may also amplify some vulnerabilities, especially in short - term funding markets where these institutions obtain and supply liquidity to provide credit to the real economy. in march substantial stress was experienced, with large and persistent imbalances in the demand and supply of liquidity that was only eased by considerable public – mainly central bank – interventions. in this field, as a starting point, our presidency will promote a stocktaking analysis of the lessons learnt during the pandemic to understand which features of the existing regulatory framework for banks may need to be amended. one focus will be on the flexibility incorporated into the prudential standards ( concerning for instance

respect to fiscal policy and macroeconomic imbalances. in both fields we will have to find rules and regulations to help us decide when a country ’ s budgetary or macroeconomic development looks sustainable and when it seems to be on the wrong track. but this task of identifying fiscal or macroeconomic imbalances is inherently difficult. in most cases it is not possible to draw a clear line between the states of insolvency and illiquidity or between a macroeconomic divergence that is just the consequence of a catching - up process and one that is the sign of an alarming disequilibrium process. in this context, i see a number of guiding principles that could be useful in defining a new structure of european economic governance. first, we tend to be particularly alerted if we see balances in the red, if we see minus signs, negative numbers and apparent deficits. as a consequence, most reform activities normally concentrate on the bad times and on deficit countries. but we should not forget that the fiscal crisis has become so severe because most countries did not manage to restructure and improve their budgets during the good times of rather high growth. as it is much easier to implement far - reaching reforms when the general economic outlook is positive, we should put much more emphasis on appropriate anticyclical policies during periods of upswing. second, given the uncharted territory that we are currently exploring and the many uncertainties concerning the functioning and the effects of each institutional reform, it is probably wise to take a gradualist approach and to gradually add new elements to the already existing and functioning structures. third, apart from establishing a new institutional architecture, we also have to accomplish the more immediate task of reducing debt levels and securing the sustainability of public finances. given the exceptional nature of the current crisis, it is necessary to think carefully about a reasonable and balanced reform package to be able to distribute the costs of the crisis in an equitable manner. ladies and gentlemen, coming to the end of my remarks, i would like to emphasize that we also need to improve – and maybe regain acceptance for – our unique and precious european project. i am confident that european integration will proceed despite the difficulties that we have faced over the past years. i look forward to having a day and a half with you to discuss the future of europe from a multitude of perspectives. i hope you will find our economics conference a useful and an insightful event. bis central bankers ’ speeches