in a short space of time we have overcome formidable political, legal, economic and organizational difficulties. today the european reform process is still struggling to make headway. although the debate is ongoing and the key problems have been identified, there is a deadlock between those who would prioritize action to reduce macroeconomic and financial risks in the individual member states and those who are calling for the rapid adoption of common safeguards against the consequences of such risks, given the absence or paucity of national tools. this deceptive dichotomy, however, rooted in misunderstandings and scant mutual trust, has come to condition the drafting of european rules for managing bank crises and to impede the completion of banking union. the result is a system without a safety net, one that lacks the new european financial backstops for the single resolution fund and the deposit insurance scheme, while the national tools and procedures used by many countries for the management of bank crises, even in recent years, are now out of bounds. in a context such as this, stricter rules and common supervisory and resolution mechanisms cannot prevent the outbreak of crises – even just of liquidity – nor can they adequately limit the consequences. this needs to be acknowledged and the necessary adjustments devised. the experience of recent years has demonstrated how important it is to leave an opening that will allow situations with the potential to disrupt financial stability to be successfully managed. risk reduction and risk sharing are complementary first and foremost in relation to public finance. a high debt - to - gdp ratio is a source of vulnerability : it discourages investment and impedes growth ; it exposes countries to a loss of market confidence and financial contagion. budget flexibility is essential in a cyclical downturn, but further progress, i. e. strong lasting growth of output, is impossible with a large deficit. italy cannot delay setting in motion a steady and tangible reduction in the debt - to - gdp ratio. the reduction of the time needed to achieve this requires budgetary discipline above all else. structural reforms to increase the economy ’ s growth potential are essential. we should bear in mind, however, that in the absence of adequate safeguards, a country ’ s recovery efforts can be rapidly thwarted by negative shocks. to avoid this happening, risk - sharing measures could be considered in order to reduce the sensitivity of national budgets to macroeconomic conditions, thereby avoiding the rapid accumulation of debt during adverse economic cycles and the adoption of procyclical policies in an attempt to limit it

as the sdrm is a more debtor - friendly mechanism, it could induce more fiscal discipline, strengthening the financial markets early warning function. in my opinion, this is not a secondary aspect. the key to an efficient approach to preventing sovereign distress lies in strengthening market pressure while also making it operate more gradually than is usually the case. an example is the cf. reinhart, rogoff and savastano ( 2003 ). cf. giordano and tommasino ( 2009 ). greek crisis. the spread between 10 - year greek and german bonds was less than 30 basis points in 2007. it widened to about 150 at the end of 2008 in the aftermath of the lehman brothers collapse and then fluctuated between 100 and 250 basis points until the beginning of this year. after that it skyrocketed, surpassing 900 basis points in the summer, and only in recent weeks has it fallen back somewhat to below 700. of course, any institutional reform that forces governments to become more sensitive to the warning signals coming from financial markets is welcome. with the stability and growth pact ( sgp ) the eu decided to use fiscal rules rather than market constraints, which were considered ineffective and slow in imposing fiscal discipline. as early as 1989, the delors committee had remarked that : “ the constraints imposed by market forces might either be too slow and weak or too sudden and disruptive ” 4. a solid fiscal framework can improve budgetary coordination over time by removing the built - in bias towards fiscal profligacy that is often attributed to democratically elected governments. a medium - term fiscal framework is particularly important, especially in the current situation, which requires credible plans to anchor expectations and, at the same time, a degree of flexibility in implementation so as not to hamper economic growth. however, it does not follow from this that market forces necessarily have to work only ex post and continue to be “ too slow and weak or too sudden and disruptive ”. we must strengthen “ gradual ” market pressure. for that, i believe having pre - defined procedures for debt - restructuring and a well - designed crisis management framework would help greatly. defaults are certainly “ unnecessary, undesirable, and unlikely ”, as cottarelli et al. ( 2010 ) assert. but we should not only be ready in case they take place but also have institutions capable of conveying to the market the message that they are in fact possible. the sovereign debt crisis and the institutional setup in the eu i