, may continue to collapse, hurting all open economies dependent on exports. the second are the negative effects that we are already witnessing in emerging market economies ( emes ). in fact, significant capital outflows and exchange rate depreciations already underway can hinder future growth. protectionist measures directed particularly against large emerging economies may further decelerate world economic growth and create instability in foreign exchange markets. the third factor concerns europe. in this first wave, europe apparently benefited from positive contagion with some increase in equity prices and a steepening of the yield curve, favouring financial institutions. as concerns equities, the low starting point seems favourable for european markets. share price levels are relatively subdued in europe with, for instance, a cyclically adjusted price earnings ( cape ) shiller index of just 14 against 27 in the u. s. this means that european shares, including those of banks, are undervalued with respect to other parts of the world and could thus attract investors. however, we already observed a slight drop in european share prices last friday. according to market analysts, this was explained by fears concerning 1 / 4 bis central bankers'speeches protectionism and emes ’ growth prospects as well as the possible resulting decline in global trade. besides these external concerns, europe ’ s internal problems may deter it from fully reaping the benefits from the expected expansion in the u. s. indeed, a range of political risks may induce economic shocks. to face heightened world uncertainty, europe would need to deepen its unity and integration, relying more on its domestic market to underpin higher growth. in turn, this implies that europe needs more expansionary macroeconomic policies and more reforms in the regulatory and competition policy fields, in order to improve the economy ’ s supply side. without higher real and nominal economic growth, europe will have greater difficulty in overcoming its challenges. euro area outlook so far, monetary policy has been the only expansionary macroeconomic policy in support of the recovery. yet, securing sustained economic growth and employment cannot be dependent on monetary policy alone. at the national and european levels, a much more comprehensive policy response, than has been the case to date, is needed. mainly, structural reforms and fiscal policy have yet to deliver their share to support economic activity and counteract the “ low growth trap ” dynamics faced by advanced economies at present. the euro area recovery is continuing its moderate but steady pace, supported by the ecb ’ s policies.

of the programme. if the programme did fail to restore market confidence, that would have to be dealt with when the time came : holding out for better terms at the outset would have been self - defeating. as the programme proceeded, the severity of the three risk factors that i mentioned dissipated. the interest rate was sharply reduced ; the tail risk on bank losses did not materialise as much as many feared, and the additional cost of rapid deleveraging turned out to be less severe than it might have been. the two successive irish governments ’ firm adherence to the programmed fiscal adjustment was a key element : without it, external official and market confidence in the policy path would not have been restored. ( it is worth recalling that fiscal adjustment was already well under way for more than a couple of years when the programme began. ) close attention to the details of implementation and a solid record of working closely with troika officials to tweak programme conditionality in order to avoid self - defeating actions also helped in delivering this outcome. ( examples relating to the banking sector included small but important operational adjustments to the deleveraging path and the timing of stress tests ). while the programme ’ s aggregate story thus ends well, it is instructive to consider in some detail how it might have been better designed. i will focus on some of the financial aspects, which, after the fiscal component, were indeed the programme ’ s centre - piece. the bank bond issue much has been made of the issue of “ burning bondholders ”, and rightly so. just as the scope of the two - year blanket guarantee of september 2008 had been criticised, the idea that the newly - unguaranteed remaining bondholders in the failed banks anglo and inbs might now receive government largesse was rightly repugnant to many observers at home and abroad. the irish government was very interested in seeking some form of bail - in to undo some of the damage caused by the original guarantee, especially if done as part of an international assistance programme. it was unclear how much burden - sharing could in practice be this is especially true, given the prevailing reluctance in official europe to rely to a greater extent on keynesian reasoning which, in the interests of maintaining higher levels of economic activity and employment, might have tolerated a more gradual fiscal correction path in the post - crisis adjustment phase. bis central bankers ’ speeches achieved for the going - concern banks ( discussions in the corridors around during the negotiations included suggestions that some form of