is subject to exceptionally high implementation risks. the debt exchange operation has been successful, official financing has been scaled up. this has improved debt sustainability prospects : the estimated debt - to - gdp ratio could be brought to about 116½ % in 2020. but this all depends on one key condition, namely that greece fully implements the programme. debt dynamics are extremely sensitive to implementation slippages. delayed fiscal consolidation, lower privatisation proceeds or slower structural reforms : such scenarios would translate into weaker economic growth and worsen again debt sustainability. without a regime - change in policy implementation and a much broader political consensus in favour of painful, but necessary reforms, there is a high risk that the programme derails. therefore, political courage is more needed than ever. bis central bankers ’ speeches let me now comment in some more detail on three key areas : fiscal adjustment, competitiveness gains and financial sector issues. fiscal adjustment the greek authorities and the greek people deserve recognition for the significant fiscal adjustment they have achieved over the last two years : despite the deep recession, the general government deficit was reduced by around 6½ % of gdp since 2009 ( from 15¾ % to 9¼ % ). this broadly corresponds to the deficit reduction that was initially envisaged under the programme, i. e. before the 2009 deficit outcome was revised upwards ( by 2. 2 % of gdp ). this is a remarkable achievement. nevertheless, the size of the government is still too large compared to greece ’ s capacity to generate and collect fiscal revenues. moreover, the quality of the fiscal adjustment was mixed. on the one hand, important reforms have started to address greece ’ s high level of public wages and employment and the previously unsustainable pension system. on the other hand, fiscal adjustment has so far excessively relied on an increase in tax rates and across - the - board expenditure cuts. looking ahead, further progress in fiscal consolidation requires the implementation of difficult structural fiscal reforms. closing the large fiscal gap for 2013 – 14 ( 5½ % of gdp ) will be a litmus test for the government ’ s commitment to the programme : without the government ’ s willingness and ability to design and implement the difficult structural fiscal reforms, such a large adjustment cannot be achieved. i call on greece ’ s political class to push through these difficult reforms by confronting vested interests. otherwise the critical mass of structural fiscal reforms necessary to close the medium - term fiscal gap may not be reached. finally, how can we make sure that the

economic governance and establishing the european stability mechanism, the single supervisory mechanism and the single resolution mechanism. these are important first steps in improving our toolkit for crisis prevention and crisis management, but further progress is needed. in the nearer term, we should move towards completing europe ’ s banking union through a common backstop for the single resolution fund as well as a roadmap towards a european deposit insurance scheme. both are essential for creating a truly single banking system to mirror our single currency. both are also crucial for underpinning the credibility of the banking union and achieving its initial promise of breaking the bank - sovereign nexus, making the financial system more resilient and protecting taxpayers ’ interests. in addition, we must look beyond the banking sector and make progress in developing a capital markets union to enhance further the scope for cross - border private risk - sharing. it is also essential to prevent imbalances from developing into future crises. we need a new convergence process based on the capacity of our economies to withstand shocks and recover from them quickly. this implies not only establishing a more robust financial system ; it also requires stronger governance of structural reforms and tighter control of national fiscal policies. to ensure that member states can adjust to economic shocks, whatever their size, once we achieve greater convergence we will also need to add a layer of fiscal stabilisation at the european level. taken together, these steps towards completing europe ’ s economic and monetary union would help the euro area not only to survive, but also to thrive and prosper. bis central bankers ’ speeches