a little under €450 billion. this may permit a progressive reduction in the importance of government - guaranteed bank bonds, the volume of which is about €60 billion after the application of haircuts. the introduction of new collateral eligibility criteria and the ample supply of long - term liquid funds are helping to restore a uniform transmission of monetary policy in the various euroarea countries. bis central bankers ’ speeches the injection of three - year liquidity has already helped to attenuate the tensions on the money market. compared with the days preceding the operation, three - month and one - year euribor rates have fallen by about 40 and 30 basis points respectively, largely owing to the reduction in risk premiums. after rising to as high as one percentage point, the differentials between the overnight rates on the interbank markets of the countries most severely affected by the tensions and the euroarea average have fallen to zero. the spreads on credit default swaps for italian banks have also fallen significantly, although they remain higher than they were up to the middle of 2011. at the end of january a large italian bank returned to the international market with an issue of unsecured bonds that was favourably received by investors ; the yield was not significantly higher than that on italian government securities. 3. banks ’ profitability and capital strengthening in 2009 the financial crisis and the recession caused a sharp fall in italian banks ’ profits. in contrast with what happened in the other main european countries, the recovery in 2010 and 2011 was modest and the outlook for this year is not good. banks ’ profit and loss accounts are affected in the first place by the difficulties facing a large part of italian industry. in addition to these cyclical problems, italian banks are faced with others of a more structural nature related to the relatively limited diversification of their sources of income and the high level of their costs. low profit margins reduce the resources with which to strengthen banks ’ capital and make it more difficult to raise funds on the market, thus diminishing the ability of the banking system to support the economy. profitability can be increased by improving the quality of the services supplied, thus permitting revenues to be expanded and diversified. the progress of technology and the public ’ s growing ability to use it can foster a rationalization of production processes and distribution networks ; significant cost savings can also be achieved by simplifying corporate governance. the medium - term objectives for profitability must be revised taking into account the far - reaching changes that have

positive since 2013, recorded a surplus of nearly 3 per cent of gdp in 2017. the net debtor position has decreased considerably, from 25 per cent of gdp in 2014 to less than 7. 5 per cent in 2017, the lowest figure since 2002. according to our projections, the net international investment position will continue to improve over the next three years, to the point where it will turn positive. against this background, the financial situation of households and firms and that of banks has improved. the latter, as well as recording a sharp drop in the flows and stocks of nonperforming loans, will benefit from the increase in profits stemming from the upturn in market yields. 36 despite the high debt - to - gdp ratio – partly a legacy of the crisis – an increase in yields under orderly conditions would not put the sustainability of public finances at risk. after increasing by 30 percentage points since the onset of the crisis, over the last few years the debtto - gdp ratio has remained essentially stable thanks to the improvement in growth and to the primary surpluses. furthermore, the high average residual maturity – more than 7 years – significantly tempers the sensitivity of the cost of debt to interest rate shocks. according to our estimates, a permanent increase of 1 percentage point in debt issuance costs would mean an increase in the ratio of interest expense to gdp of about 0. 1, 0. 2 and 0. 4 percentage points over one, two and three years respectively. 37 while these trends may be reassuring, they are not sufficient to eradicate doubts or fears regarding the sustainability of debt in the medium term. over the next decade, the public debtto - gdp ratio is expected to narrow, partly owing to an increase in interest rates, but only if the differential between the cost of debt and real gdp growth remains small and budgetary policy is prudent ( figure 4 ). in this type of scenario, debt could fall to 100 per cent of gdp in ten years if the primary surplus stays in line with the objectives set out last september in the update to the economic and financial document. 38 the main element in these analyses is not just the real interest rate – ‘ r ’ as the macroeconomists call it – but the gap between this rate and that of real gdp growth, i. e. ‘ r - g ’ : bank of italy ( 2017a ). bank of italy ( 2017a ). in the baseline scenario in figure 4, in which the public debt -