channels of financial intermediation will in time be transformed into co - operation or even initiative, thus obviating the need for government involvement. in the meantime, however, and having regard to the degree of financial sophistication of most economies in the region, some official sector involvement in bond market development seems justified. this might be in the form of facilitating development of the market infrastructure, ironing out administrative obstacles, helping with education, etc, rather than more direct or obvious forms of subsidy. fourth, bond market financial intermediation need not be narrowly confined to just a domestic phenomenon. it can and should take on an international dimension. through facilitating the inward investment of foreign savings, the source of funding for much needed domestic investments can be tremendously enlarged. this would also enhance the overall efficiency in the international allocation of funds, to economies that can provide a higher return commensurate with the risks involved. an economy with capital controls should therefore plan for the eventual internationalisation of the bond market, even though the associated financial liberalisation process can be quite a risky one. but risks are to be managed and not avoided, and the benefits of open markets far outweigh the costs in terms of financial instability. i can confirm this, even with the unpleasant experience of the financial turmoil of 1998. free and open markets impose a valuable discipline on policy makers that is to be welcomed in the long - term interest of the people they serve. fifth, and turning to the actual bond market development issues, there is a need to adopt a comprehensive approach. we should address the demand and supply sides, the environment in which they interact to discover the prices for the debt instruments, including market making arrangements and the determination of benchmarks, and the market infrastructure, including payment, clearing and settlement systems. focusing on these issues individually, and this is the sixth point, there is usually strong latent demand for debt instruments, particularly in economies with a high savings rate. between the low risk - return bank deposits and the high risk - return equity market, there should be a risk - return profile that fits that of debt instruments. the trick is how this latent demand, involuntarily trapped at the two ends of the spectrum, can be brought out and satisfied. investor education and the creation of a retail network to market debt will help. but the costs of the latter can be quite substantial and possibly prohibitive, particularly in a low interest environment, if the retail banking system cannot be

of the economic governance of the euro, the difficult position of the irish, portuguese and, above all, greek economies must be redressed. tensions are at a peak and the outcome of the situation may have very important consequences for the euro area as a whole. it is often acknowledged that european construction has been forged through the overcoming of recurrent episodes of crisis, from which the project has always emerged strengthened. let us hope this is true this time and that the european authorities ’ decisions will rise to the challenge. the spanish economy was particularly affected by the sovereign debt crisis when the greek and irish economies had to resort to adjustment programmes. conversely, when the same happened with portugal in april this year, the impact was less, despite our closer economic, trade and financial ties with this country. this was due to the set of measures that had been bis central bankers ’ speeches adopted previously to speed the approval of some reforms and thus tackle confidence problems. in any event, the spanish economy remains under the scrutiny of the markets, which continue to demand an unjustifiably high level of sovereign risk premia. in past weeks we have witnessed the effect caused by the recent discussions in europe on the potential participation of the private sector in the bail - out of the greek economy, while doubts resurfaced over the seriousness of spain ’ s commitment to pushing through outstanding reforms. the spread of the sovereign debt crisis to spain was ultimately due to the presence in our country of certain factors of vulnerability as a result of the imbalances that had built up during the previous upturn. and these were compounded by the factors that had emerged during the crisis, such as the high unemployment rate and the burgeoning budget deficit. the main imbalances accumulated in the phase of strong growth were attributable to a sharp expansion in demand that gave rise to a substantial increase in private - sector debt, excesses in the real estate sector, and price and cost increases that tended to crowd out domestic output in favour of imports, systematically raising the external deficit. the unfolding of the economic crisis further complicated the situation. firstly, because it gave rise to severe job destruction, as a result of shortcomings in the workings of the labour market. at 21 %, the unemployment level has not only highlighted the need to reform the institutional framework of this market ; the figure also raises doubts about the spanish economy ’ s capacity to restore its potential growth and ensure the sustainability of its public finances. in this respect