, there will certainly be some impact. as regards the euro area, possible spillover effects on growth are one of the downside risks to activity that have been identified by the governing council, although the upside risks to inflation at present are also very clear. financial markets turning to financial markets, it is clear that these too have become much more integrated over time. from a position where sectors like your own have tended to have a “ home bias ” in asset allocation, portfolios have become much more international in nature. one consequence of this is that it has made possible the financing of ever growing global current account imbalances. this may have facilitated the rise of these imbalances, and the national spending and savings behaviour that lies behind them by, for example, a tendency to keep the cost of borrowing lower than it might otherwise be in countries with savings deficits. it has been argued that financial globalisation and, in particular, the scale and speed with which it has developed, has played a part in generating some of the excesses in financial markets which have crystallised over the past six months. however, there have also been other factors at work. i would like to turn now to comment on some of these. at this stage, the events of the past six months are well known. after a long period during which financial market conditions were extremely buoyant, global markets have witnessed a substantial and warranted repricing of risk. this follows a prolonged period when asset prices were driven to exceptionally high and unsustainable levels in many parts of the world, and inadequate attention was paid to risk. the unwinding of these excesses has generated significant turbulence in financial markets and strains in money markets. these problems reflect vulnerabilities which have been uncovered about the way risks have come to be assessed, valued and distributed in today's markets. once they surfaced, these vulnerabilities have led to a substantial degree of financial reintermediation and deleveraging. central banks have responded in a determined manner to counteract disorderly conditions in money markets. the actions undertaken since august have alleviated problems at the shortend of the interbank market. they have also helped to encourage a narrowing of the wide spreads that had opened up between longer - term rates and policy rates. while having eased back, however, concerns about credit quality and asset valuations persist. international stock markets have also been affected by the turbulence, particularly financial sector stocks. irish bank shares

was relatively difficult. however, after financial regulations were eased around the globe, many new financial products were developed specifically for households, and particularly relating to housing finance. households found it was much easier to get a loan. most loans products have worked well, though some have caused significant problems ; subprime loans in the united states are the clearest example. the level of interest rates in most developed economies in the past decade has been about half that in the decade to 1995. this structural decline in interest rates has facilitated the increase in household debt ratios because it reduced debt - servicing costs ( table 1 ). households have therefore found that they can now service more debt than used to be the case. note that there is no particular reason why household debt ratios should be the same across countries. has the rise in household debt left households over - exposed financially? in trying to judge this, there are a few considerations to take into account. first, at the same time as the household debt ratio has risen, so too have the assets held by households. some commentators might dismiss this as simply reflecting the fact that the additional debt has been used to inflate asset values. there is some basis for this in relation to housing assets but, even if we exclude housing and focus only on households ’ financial assets, the statement is still true. financial assets held by households have risen to the equivalent of 2. 75 years of household income, up from 1. 75 years ’ income in the early 1990s. second, the available data suggest that the increased debt has mostly been taken on by households which are in the strongest position to service it. for example, if we look at the distribution of debt by income, we can see that the big increases in household debt over the past decade have been at the high end of the income distribution ( graph 3 ). households in the top two income quintiles account for 75 per cent of all outstanding household debt ( graph 4 ). in contrast, households in the bottom two income quintiles account for only 10 per cent of household debt. if we look at the distribution of debt by age of household, we see that the increased debt has mainly been taken on by middle - aged households. the proportion of 35 – 65 year olds with debt increased significantly through to 2008, as households have been more inclined to trade up to bigger or better located houses, and to buy investment properties. households under 35 years of age ( i. e. the group that would typically encompass first