new fiscal framework the deficiencies of the stability and growth pact have been well documented elsewhere. to a large extent, fiscal policy is guided by variables that cannot be observed and cannot be estimated in realtime, with any precision, due to data, sampling, and model uncertainty, many times allowing for procyclical episodes. indeed, a good deal of research has shown that estimates of key inputs such as the output gap, suffer from substantial measurement problems. in turn, lack of confidence to the measurement of structural fiscal variables has been a constant source of questioning, and often noncompliance with, eu policy recommendations. despite its emphasis on cyclically adjusted variables ( such as the structural balance ), the stability and growth pact confers insufficient policy space for economic stabilization in times of large persistent negative shocks, whereas, in times of expansion, it does not offer incentives to strengthen national fiscal buffers. it has therefore led to procyclical fiscal policy, both in good and bad times, with detrimental effects on business cycle amplitude, economic welfare and debt sustainability. importantly, even if the rule that a country ’ s debt must decline annually by 1 / 20th of the gap between its actual debt level and the 60 percent anchor guarantees sustained debt reduction, it cannot serve as a homogeneous guiding principle for fiscal policy across eu member states today, where the dispersion of debt - to - output ratios among countries is very large, and the contribution of the ‘ snowball effect ’ in debt reduction is very different across member states. there is no doubt that a common fiscal policy framework is necessary to prevent the externalities that stem from the adverse effects of unsustainable sovereign debt in one member country to other members through the financial market spillovers of fiscal crises. but there is also no doubt that a new fiscal framework is now overdue. in this regard, it is great news that, a few months ago, the european commission has relaunched the public debate on the review of the economic governance framework and that several constructive proposals have already been put forward by colleagues. in my view, a new sound fiscal framework should serve three key objectives : sustainability of public debt at national level, to avert the negative debt externalities discussed earlier, safeguard the public goods of policy credibility and creditworthiness and increase resilience to adverse macroeconomic shocks. counter - cyclicality of fiscal policy, in order to stabilize national output in recessions, and build sufficient fiscal buffers in expansions, thereby maintaining sound public

emphasis in the future should be placed on the risks and vulnerabilities of the rapidly expanding non - bank financial sector5. in addition, further steps to enhance data quality and availability are necessary, including by harmonising data definitions and promoting greater standardisation at global level ( e. g. financial and real estate transactions data ). issues related to greece let me now turn to a few key domestic issues. throughout the crisis, the bank of greece has been the guardian of financial stability, fully protecting all deposits and supporting the economy and serving the public interest. the bank focused on two major fronts : ensuring adequate provision of liquidity, and managing and assisting recapitalisation, resolution and restructuring of the banking sector. with respect to liquidity provision, the bank has been critical in ensuring continuous liquidity provision to banks in its role as the lender of last resort. on various occasions, the bank of greece has provided ela to the banking system. this has helped preserve financial stability and contributed to the avoidance of a banking crisis. with respect to managing and assisting recapitalisation, resolution and restructuring, the bank, in the context of the adjustment programmes, aimed to strengthen viable institutions and resolve non - viable ones, whilst safeguarding financial stability. to this end, viability assessments and 3 / 5 bis central bankers'speeches capital needs assessments were undertaken. those banks deemed non - viable were resolved and absorbed by systemic banks. with 14 such resolutions having successfully taken place since 2011, this process has also facilitated the considerable consolidation of the banking sector. following three rounds of recapitalisation, greek banks now have among the highest capital ratios of banks in the euro area and maintain buffers sufficient to absorb additional credit losses, as the recently completed pan - european stress test indicated. they have also markedly improved their liquidity position, reducing their reliance on central bank funding, regaining access to the interbank market and issuing covered bonds. concurrently, customer deposits have been gradually increasing. however, the ratio of non - performing exposures ( npes ) to total exposures remains quite elevated and constitutes the most significant challenge for the greek banking sector. banks have set operational targets to significantly reduce the stock of npes by end - 2019. at the same time, significant reforms have been implemented, aimed at removing administrative, legal and judicial impediments to npe resolution, as well as establishing a secondary market for npl servicing and sales. these efforts have started to bear fruit : according to