this explains the “ affordable housing ” measures taken by the clinton administration and the “ ownership society ” of the bush administration. financial innovation has also been facilitated by the interest rates kept low for an extended period of time. the problem arises – and arose – when the transition to the new equilibrium is very long, longer than expected. if the transition is longer than expected, financial engineering is no longer a solution and can become a problem. the debt burden becomes unsustainable and cannot be repaid, starting by the less well - off, whose incomes do not keep pace with property values inflated by low interest rates. the sub - prime crisis was created by excessive debt, taken on not by the wealthy, as happened on other occasions in the past, but by the less well - off, whose relative position in society was slipping. debt had given them the illusion of being able to live for a few years beyond their means. the gist of this first thought is that the crisis sprang from an unsuccessful attempt to square dahrendorf ’ s circle. the failure involved not recognising that technological and global processes bring about a longer and more difficult than expected transition for one part of the population. it consisted of deluding oneself that such a transition can be facilitated by easy debt and low interest rates. recognising this failure is the first step towards not failing again. the second thought comes from the way in which our societies have responded to the crisis. without making a value judgement, but considering only the efficiency and timeliness of actions that have been implemented to tackle the crisis and counter its negative effects, there is no denying that in most cases the reaction has been slow. this slowness has added to the cost of the crisis itself and to the scale of the adjustment required. let me offer a couple of examples. if lehman brothers ’ bankruptcy had been avoided in september 2008, through an effective and timely intervention, there would probably not have been the collapse of confidence that in the months thereafter affected the global economy. the rescue package – tarp – would very probably have been much less than the usd 700 billion needed to restore calm to the markets. in europe – to take another example – if the greek government had decided to intervene with corrective action as early as autumn 2009, having just discovered the budget hole left by its predecessor, it could have avoided the sovereign debt crisis and the drastic adjustment programme which it then had to put in place under pressure from the markets. if the european

many believe, budgetary austerity and reforms do not penalise governments. indeed, in recent years in europe there has been a positive correlation between political popularity and budgetary rigour ( see chart 1 ). the correlation is much stronger than the one between political popularity and economic growth ( see chart 2 ), which indicates that, for a given level of growth, healthy public finances reward governments. this suggests that political leaders who have the courage and the ability to reconcile balanced public finances with the economic growth are rewarded over time. democratic systems should not to be blamed if advanced economies risk stagnation and do not grow. they are in danger only if people succumb to the illusion or become resigned to thinking that democracies do not allow change. centuries of history demonstrate just the opposite : that without democracy there is no change, and sooner or later there is decline. thank you for your attention. chart 1 trust in national government vs. government balance ( average 2005 – 2009 ) – eu sources : eurostat, eurobarometer and ecb calculations. note : “ tend to trust government ” is the proportion of respondents to the may 2010 eurobarometer survey who reported trusting their national government. chart 2 trust in national government vs. growth per capita ( average 2005 – 2009 ) – eu sources : eurobarometer, ec and ecb calculations. note : “ tend to trust government ” is the proportion of respondents to the may 2010 eurobarometer survey who reported trusting their national government.