began in the united states and spread to europe through the banking systems in which these high - yield, high - risk financial instruments accounted for a large share of financial intermediation. the network of “ vehicles ” created especially to market these products proved a particularly important channel. over time, this network had become a veritable “ shadow banking system ”, operating outside all supervisory control. as was widely reported, during this phase many banking crises required government support measures. italy was one of the least affected countries, and no italian bank was placed under public control. the bank of italy prevented the creation of any “ shadow banking system ” in italy, and banks ’ liquidity positions were monitored daily. london ’ s much vaunted “ light touch ” approach to supervision was never adopted in our country. government financial support to banks was a mere 1. 3 per cent of 2009 gdp in italy, as against 51. 9 per cent in the uk, 32. 2 per cent in spain, 20. 6 per cent in germany, and 18. 4 per cent in france. italian banks ’ recourse to ecb refinancing was extremely modest, even at times of acute liquidity shortages in interbank markets. no italian bank is featured in the ecb ’ s list of “ persistent bidders ”. a number of lessons for regulation and supervision in europe can be drawn from this phase of the crisis. first, the rules and bis central bankers ’ speeches procedures of banking and financial oversight need to be harmonized in order to avoid disparities in treatment among institutions operating in different countries. second, we cannot permit substantial volumes of banking and financial business to escape all prudential supervision through recourse to off - balance - sheet transactions and vehicles. finally, experience has demonstrated the greater efficiency of systems in which banking supervision is entrusted to the central bank. central banks, in fact, are well placed to detect crises early, because they are in direct daily contact with the money markets and the payments system. phase two. the second phase of the crisis was marked by the sharp slump in economic activity in 2009. to combat the recession, the ecb adopted a highly expansionary monetary policy, and fiscal stimulus was introduced in almost all eu countries. during this period, the italian economy was among those hardest hit. gdp fell by 5 per cent in italy, as against 4. 7 per cent in germany, 2. 5 per cent in france, 3. 7 per cent in spain

fabrizio saccomanni : the european union and the global crisis the implications for banks, finance and economic policy remarks by mr fabrizio saccomanni, director general of the bank of italy, at the federal ministry of finance, berlin, 8 february 2011. * 1. * * introduction since the crisis that disrupted the world economy in 2007, financial tensions have affected the eurozone as well. last year saw moments of crisis in the sovereign debt markets for eurozone countries that threatened to compromise the monetary policy transmission mechanisms. in the international and especially the british and american press, economists and financial analysts hypothesized or predicted sovereign defaults, some countries ’ exit from the monetary union, and an end to the euro. even my old friend otmar issing, one of the founding fathers of the euro, in an article in the frankfurter allgemeine zeitung last november that had echoes across the globe, warned governments in the eurozone that the very survival of the currency was at risk. how have we got to this point? are the risks for the euro really so serious? can they be mitigated and managed? these are the issues i would like to address today. first, i will recount the phases in the crisis, showing how, after originating in the united states, its repercussions spread to the european union. i will also describe the situation in italy, which differs from the other “ peripheral ” countries in terms of the structure of its economy, the solidity of its banking system and the outlook for the public finances. second, i will examine why europe came unprepared to manage a global crisis, lacking the necessary tools and procedures. as has often happened in the history of european integration, the crisis has spurred the eu to adopt a series of measures to strengthen economic governance and crisis management. i conclude by sketching out what i consider to be the crucial items on the european agenda if we are to come through the crisis and promote sustainable growth in the european union. 2. the global crisis and its impact on the european union the developments of the financial crisis that struck the world economy in august 2007 are familiar enough, so i will just summarize what to my mind are the main repercussions on the european union. i will argue that the crisis had three distinct phases, each with distinct implications for the various eu countries. phase one. the first phase – that of financial “ toxic securities ” –