first, in october the newly - elected greek government announced that the 2009 fiscal deficit would be 12. 7 per cent of gdp, more than double the previous government ’ s projection. in turn, the 12. 7 per cent figure would undergo further upward revisions, bringing it up to 13. 6 per cent of gdp. second, in november 2009 dubai world, the conglomerate owned by the government of the gulf emirate, asked creditors for a six - month debt standstill. that news rattled financial markets around the world and led to a sharp increase in risk aversion. in light of the rapid and sharp worsening of the fiscal situation in greece, financial markets and rating agencies turned their attention to the sustainability of greece ’ s fiscal and external imbalances. the previously - held notion that membership in the euro area would provide an impenetrable barrier against risk was shaken. it became clear that, while such membership provides protection against exchange - rate risk, it cannot provide protection against credit risk. the subsequent course of events has made global headlines, so i do not need to dwell on details. allow me, however, to highlight the following. first, in contrast to the origins of initial stage of the global crisis in august 2007, which involved a crisis in the u. s. banking sector that spilled over to the real economy, in greece the problems posed by both the fiscal and external imbalances spilled over to the real economy. the greek banking sector has had sound fundamentals as reflected, for example, in high capital - adequacy and tier 1 ratios. second, the crisis in greece contributed to widening spreads in other euro - area countries judged to have large fiscal and / or external imbalances. the spread of the crisis to other parts of a geographical area represents a continuation of a process observed in other recent crises, including those in latin america in 1994 / 95 and in asia in 1997 / 98. third, the commitment by the greek government to reduce the fiscal deficit from last year ’ s 13. 6 per cent of gdp to 8 per cent this year and below 3 per cent in 2013, and the 110 - billion euro support package agreed between the greek government and the european commission, the ecb, and the imf, are unprecedented in terms of magnitudes. i have no doubt that the government will take whatever measures are needed to attain its fiscal objectives to ensure fiscal sustainability. it will, however, take some time to convince the markets of the government

area of micro - prudential supervision is the most advanced following the creation of the single supervisory mechanism. common rules are being applied to banks throughout the banking union designed to prevent the unsustainable build - up of risk, to ensure risk is treated in a harmonized way and, ultimately, to divorce the assessment of banks from the conditions that happen to prevail in a particular national jurisdiction. that these rules can then be extended to institutions not supervised by the ssm can help create a level playing field within national systems and also upgrade the quality of our less significant institutions, while concurrently recognizing that national specificities remain. however, it is also important to continue to ensure that banks are not primarily judged according to their origin and geographical presence – here the horizontal functions of the ssm have an important role to ensure risk - based approaches to micro - supervision. addressing the home - host issue is another important issue of concern. aside from preventative measures there are also the crisis management tools. here resolution is primary and that is why it is a critical pillar to ensure the smooth functioning of the banking sector. legacy issues appear to dominate here – too big to fail, moral hazard, a failure to address systemic crises where financial stability is compromised at the national level. let me suggest three priority areas. i am pleased to see that eu leaders have decided to take action in this respect and in the recent eurogroup decided to proceed with the review of the crisis management framework. and this brings me to the issue of deposit insurance schemes and their contribution to banking union. such schemes are largely seen as a simple payout function. that is indeed an important aspect of their operation. and a european scheme is surely crucial in preventing the flight of deposits that we witnessed during the euro area sovereign debt crisis in 2011 - 12. depositors fleeing domestic banking systems where the ability of deposit insurance schemes to cover potential systemic crisis brought into question the viability of national fiscal authorities, highlighs an other aspects of the bank - sovereign nexus. but deposit guarantee schemes can contribute far beyond their payout function. they can act as risk minimizers to prevent and promptly manage a crisis : 1. first, the existing framework has to become more usable. it is by far preferable to resolve banks rather than liquidate them, even where the ‘ sale of business tool ’ is used. this requires a broader interpretation of the public interest assessment from the resolution authorities, thus expanding the pool of banks which could qualify for resolution.