the real and financial wealth of households is high overall and their level of indebtedness among the lowest in the advanced countries, while those of firms are below the european average. in the private sector as a whole, debt amounts to 110 per cent of gdp, even lower than that of germany ( 114 per cent ) and half the level recorded in countries such as france ( 215 per cent ) or the netherlands ( 258 per cent ). the financial system has become stronger in recent years and, despite the very serious effects of the double - dip recession, is in better shape now than it was on the eve of the financial crisis. • for more than 20 years now, our economy ’ s biggest problem has been low growth, in turn due to very weak productivity growth. ‒ it is well known that the demographic projections are not favourable : even taking account of the contribution of immigration ( estimated by eurostat to amount to more than 200, 000 persons on average per year ), the population aged between 15 and 64 will decline by more than 3 million in the next 15 years. nevertheless, assuming that the trends of the last ten years continue in a similar vein, higher female labour market participation and the extension of working lives can enable employment to make a positive contribution to growth, of more than half a percentage point per year. ‒ to restore gdp growth to at least 1. 5 per cent, the average annual level recorded in the ten years leading up to the global financial crisis, will accordingly require an average increase in labour productivity of almost 1 percentage point per year. • this objective is within our reach, but its achievement presupposes a break from the recent past ; it calls for the resolution of those structural problems, which for too long now we have failed to address, and which have become increasingly pressing in a new technological context and a more integrated world. • productivity gaps cannot be bridged through expansionary monetary or fiscal policies. indeed, these are macroeconomic stabilization measures that are essential to achieving adequate levels of aggregate demand, facilitating full employment and preserving price stability, but they cannot, in and of themselves, raise productivity in the long term. • in this emergency phase, the measures in support of households and firms have been crucial to mitigating the economic and social costs of the crisis ; they will continue to be so in the future, in order to support demand and thereby attenuate the impact of the transition by tackling social hardship and the rise of inequality. now, however

, moral suasion, the endeavour to stabilise their own respective sovereigns or simply strategic considerations. in an economy in which the sovereign defaults, banks are likely to default, too. thus, the domestic banks have an incentive to invest in sovereign ’ s bonds and earn the yield mark - up if things go well. what happens in the event of a joint sovereign - bank default is not relevant for them. this undermines market discipline for governments and reduces their incentive to carry out necessary structural reforms. on the other hand, banks, which can obtain unlimited cash against sovereign collateral from the central bank, are protected from discipline from investors who provide funding. large sovereign bond exposures might also harm the real economy. rises in sovereign risk are transmitted into reduced bank lending. banks that were highly exposed to strained european sovereign debt have reduced their lending to the private sector. bis central bankers ’ speeches thus, the current regulatory treatment is incompatible with the principle of individual responsibility ; the market interest rate no longer reflects the riskiness of the investment. i am aware that banks as well as governments are afraid of rising funding costs as a result of ending the regulatory privileges afforded to sovereigns. the argument goes, moreover, that such a regulatory move risks considerable market turmoil. i do not think that this argument should keep us from doing the right thing. no market participant would judge a french bond to be as risky as a greek one : the riskiness of each is reflected in their prices. investors believe that sovereigns differ in terms of riskiness. so no one should be surprised when the regulatory treatment accommodates this fact. if additional capital requirements for european banks were imposed to cover sovereign exposures, the extra capital would be almost negligible on aggregate – albeit with substantial differences between banks. other measures, such as the inclusion of sovereigns in the large exposures regime might lead to more substantial repercussions, but these would be manageable if introduced over a transition period – which undoubtedly has to be granted. when it comes to funding costs for governments, a healthier banking system with better diversification would pose less of a burden on states. the contingent liabilities of the government would shrink which – all other things being equal – would reduce the risk of investing in sovereigns and, eventually lower the sovereign bond yields. the current regulation ’ s assumption that government bonds are risk - free has been dismissed by recent experience. the time is ripe to address the regulatory treatment of sovereign exposures.