of the growth in public debt took place during the 1980s, when large budgetary deficits piled up and disinflation was slow and incomplete ; this eventually led to the financial crisis of 1992 – 1993. afterwards, in the run - up to the economic and monetary union ( emu ), substantial stability was restored as public debt was progressively reduced from a peak of over 125 per cent of gdp in 1995 to about 105 per cent in 2007. this was largely the result of two factors : the reduction in interest payments and the rise in revenues from privatization programmes. the fall in interest rates reflected not only the taming of inflation but also the reduction in “ sovereign risk ”. it is also well known that italian households used to have high saving rates, while it is less well known that their levels of debt, and in general those of the whole of the private sector, have always been relatively low by international standards. the high saving has meant that interest earnings have been an important component of households ’ disposable income. however, when interest rates were reduced in the second half of the 1990s, the income share of net interest flows fell from an average of about 12 per cent in 1992 – 1996 to 8 per cent in 1999 – 2001. the negative trend continued over the initial years of the emu, reaching a low of around 6 per cent in 2005. two main factors have been at work : the progressive reduction of government bond yields and the reallocation of households ’ portfolios from relatively “ safe ” to riskier assets. this process was particularly in evidence in the second half of the 1990s, as government bonds held by households contracted from about 21 per cent of total gross financial wealth in 1995 to 12 per cent in 1999. after a partial recovery at the beginning of the new decade ( in connection with the stock market crash of 2001 ), the share of government bonds over total financial assets fell below 10 per cent. according to the bank of italy ’ s survey on italian households ’ income and wealth ( shiw ), the portfolio shift out of government bonds was widespread across different groups of investors. the proportion of households with low education ( at or below lower secondary school level ) holding government bonds fell from 49 per cent in 1995 to 23 per cent in 2000 and 15 per cent in 2004 ; it increased slightly in the following years ( up to 20 per cent in the 2008 survey ). at the same time, the share of low - education households investing in risky assets increased from 15

bonds. the stabilization fund ’ s role in sterilizing excess liquidity was particularly prominent between 2004 and 2005, when the stabilization fund resources increase was about 60 % of the total increase of russia ’ s international reserves. in 2006, and especially in 2007, international reserves have increasingly boosted by the inflow of private capital. even though inflation in russia remains high, it is gradually going down. in 2004, consumer price growth ( december - to - december ) was 11. 7 % ; in 2005, the figure was 10. 9 %, and in 2006, 9. 0 %. in 2007, inflation is expected to be reduced to 6. 5 - 8. 0 %. from april 2006 till april 2007 the inflation rate was 7. 6 %. russia applies a managed floating exchange rate regime. the central bank aims to attain two goals in implementing its monetary policy. the first principal goal is to gradually reduce inflation. the second task is to prevent a sharp real effective appreciation of the ruble, so as not to harm the conditions for economic growth. i would like to stress that we understand that the central bank can only exert a temporary influence on the real effective exchange rate of the national currency. for example, if there is a strong balance of payments and the central bank doesn ’ t allow nominal appreciation of the ruble, this will inevitably lead to growth in foreign exchange reserves, a rise in money supply, and eventually, after a certain period, to higher inflation. this means a real strengthening of the national currency. besides, we acknowledge that the set goals are contradictory in principle. given that the world prices for exported goods are very high and there is a strong inflow of capital, to attain the two goals simultaneously may be impossible. the central bank of russia gradually enhances the focus on achieving its inflation goal and reduces its responsibility for preventing a sharp rise in the real effective ruble exchange rate. we think that with the development of market mechanisms, increased flexibility of the economy, greater production factors mobility, and the development of the financial system, the degree of negative impact on economic growth caused by ruble real appreciation should decrease. in the future we intend to stop taking on any obligations in restricting appreciation of the real effective ruble rate, and to move on to inflation targeting, and free floating regime. it is not easy to achieve considering our strong dependency on world commodity prices. in order to reduce inflation, the central bank allowed the increase of the nominal effective ruble rate :