that low public debts and deficits do not guarantee fiscal sustainability. in a crisis, private liabilities can quickly turn into public debt. before the crisis, the fiscal performance of ireland was considered extremely successful. from the launch of emu, it almost halved its debt - to - gdp ratio, reducing it to 25 per cent in 2007. the recession more than doubled it. furthermore, households and non - financial firms were highly indebted ( their debt burden was about two and a half times gdp ) ; the major irish banks had balance sheet assets equal to five times gdp. the fall in real estate prices and the recession caused them big credit losses ; the political decision to use public funds to bail out reckless financial institutions has pushed up the public debt by more than 20 percentage points of gdp so far, to a level of about 95 per cent of gdp in 2010, with further disbursements anticipated for this year following the results of the stress tests conducted on banks. perhaps, the crisis would have been less severe if a framework to detect and tackle macroeconomic imbalances and systemic risks had been in place. this has prompted the introduction of a second pillar in eu economic governance : macroeconomic surveillance. but there is a need for a third pillar : market discipline. i will not focus on the temporary arrangements devised to cope with the significant short - run challenges posed by the crisis. rather, i would like to offer some remarks on the long - term institutional set - up that is currently taking shape in the european union. during the early stages of the debate on the new european architecture, there was relatively little emphasis on the role that markets can bis central bankers ’ speeches play to induce fiscal discipline. the issue gained prominence in november 2010, when the main characteristics of the european stability mechanism ( esm ), the permanent mechanism slated to replace the european financial stability facility ( efsf ) in june 2013, were spelled out. scepticism on the effectiveness of market - based fiscal discipline was already present in the early stages of the emu project. the final report of the delors committee remarked in 1989 that : “ the constraints imposed by market forces might either be too slow and weak or too sudden and disruptive ”. the european commission expressed similar concerns a year later. and many years earlier, luigi einaudi, the great italian economist and statesman, summed up the common view by saying “ i risparmiatori hanno cuore di coniglio, ga

that such apartments are relatively close substitutes for existing apartments, the prices for apartments shown should be broadly representative of all apartments. 7 the shift from interest - only payments to principal - and - interest payments is another compositional change that may have contributed to a reduction in the average interest rates paid over this period. however, interest rates also declined within the set of interest - only and principal - and - interest loans, for both owner - occupiers and investors. 8 see rba ( 2018 ), household and business finances, financial stability review, october. 9 see rba ( 2018 ), ‘ box b : the impact of lending standards on loan sizes ’, financial stability review, october. 10 bullock m ( 2018 ), “ building financial sector resilience : a decade long transition ”, 10th annual commonwealth bank global markets conference, sydney, 30 october 2018. 11 while, as i note below, the average seasoning of loans in non - banks ’ new rmbs deals has fallen in recent years, the data on non - banks ’ securitised loans remain a less reliable indicator of recent lending activity. 12 atypical rmbs tranche ( or note ) will pay a floating interest rate with principal returned on a ‘ pass - through ’ basis as payments are received ( subject to the payment profile specified in the rmbs deal documentation ). a shortterm tranche is one that is structured to receive sufficient principal payments such that its weighted average life is less than or equal to one year. a ‘ green ’ tranche indicates that a sufficient share of mortgages in the pool involves housing that meets certain energy efficiency or low carbon criteria for residential buildings. 13 see rba ( 2018 ), domestic financial conditions, statement on monetary policy, august for more detail on the effect of higher bbsw rates on banks ’ funding costs. 14 this point was raised in a speech by guy debelle several years ago : debelle g ( 2015 ), ‘ benchmarks ’, speech at the bloomberg summit, sydney, 18 november. 15 for further details, see debelle g ( 2018 ), ‘ interest rate benchmark reform ’, keynote at isdaforum, sydney, 15 may, and alim s and e connolly ( 2018 ), ‘ interest rate benchmarks for the australian dollar ’, rba bulletin, september. 16 / 16 bis central bankers'speeches