at 15. 6 per cent at the end of the period. the government debt to gdp ratio rose from about 100 per cent at the beginning of the period to 130 per cent at the end of the period. greece ’ s competitiveness, measured in terms of unit labour costs against those of its major trading partners, deteriorated by 30 per cent. the erosion of competitiveness, coupled with high growth rates generated by consumption and an unsustainable fiscal expansion, led to a widening of the current - account deficit. upon becoming governor of the bank of greece in 2008, i began to publically warn the government – in not very subtle terms – that it needed to urgently take measures to address the fiscal and external imbalances. my warnings were overlooked. once the crisis started in late 2009, it rapidly became self - reinforcing. the sovereign debt crisis spilled over to the banking system, even though the banking sector had sound fundamentals – including high cars, low loan - to - deposit ratios, and low ratios of total bank assets to gdp – prior to the outbreak of the sovereign crisis. as a result of the crisis, over the period from the end of 2008 until the end of 2013 real gdp contracted cumulatively by 25 per cent, intensifying the debt dynamics and contributing to the self - reinforcing nature of the crisis. in the remainder of the periphery – especially ireland, spain and cyprus – it was the banking sector that generated a sovereign crisis, not the other way around as in greece. capital inflows were mainly channeled through national banking systems to help finance construction. private indebtedness financed by the capital inflows surged, leaving the bis central bankers ’ speeches countries prone to the unwinding of the capital inflows. as with the case of greece, the inflows fueled large competitiveness losses as rises in the prices of non - tradables spilled over to the tradables sector, setting the stage for a boom - bust cycle. in these countries, the bust came through the banking systems. what happened was that the large size of the banks relative to national gdps undermined confidence in the sovereigns, creating doom - loops between banking systems and the sovereigns. to explain why this happened, consider the following difference between banks in the united states and those in the euro area. the largest banks in the euro area and the us are of roughly the same size in terms of euro area gdp and us gdp, respectively.

hellenic financial stability fund, the resources of which were provided through official - sector loans to the greek state. in other countries, where the crisis was bank - induced, the size of the banks often overwhelmed the fiscal capacity of the countries in which they were based. the case of ireland is an example. measures to ensure continued financial stability resulted in a sovereign deficit which reached 31 per cent of gdp in 2009. sovereign debt in ireland now stands at almost 120 per cent of gdp, up from around 25 per cent of gdp in the mid - 2000s. for these reasons, the creation of a banking union is of paramount importance to promote financial integration and to ensure financial stability. its further development is an important aim of the greek presidency. in this connection, i will now address three important issues. the banking union will include the following key components : a single supervisory mechanism, a single resolution framework and the accompanying single resolution mechanism, a single resolution fund, and the harmonization of deposit guarantee schemes. the single supervisory mechanism will become fully operational in november 2014. it will imply the transfer of supervision of around 130 banking groups ( comprising some 2, 000 individual banks ) to the ecb. almost 85 % of total banking assets in the euro area will be covered. the asset quality review, which will precede the full operation of the single supervisory mechanism, provides a unique opportunity for the ecb to restore full confidence in the european banking sector. it will also give the ecb a vital snapshot of conditions in the banks for which it will be responsible. a necessary complement to a single supervisory mechanism is a single resolution framework to deal with non - viable banks and preserve financial stability. the single resolution mechanism, and its associated funding through the single resolution fund, outlines a framework establishing the procedure for dealing with banks that are considered non - viable. our experience with the successful resolution of 12 banks in greece in the last few years has taught us that resolution mechanisms need efficient decision - making procedures which allow resolutions to take place quickly, typically over a weekend. to this end, the decision about the viability of an institution should lie with the supervisor only. the single resolution mechanism should not have the competence to decide on viability since this would imply multi - layered decision making, which for resolution would be, to say the least, inefficient. resolution also needs to have a credible back - stop. herein lies a significant challenge for the greek presidency. the european council agreed a general approach which will lead