an average maturity of 15 – 20 days ), the current average maturity is 28 months ( see slide 5 ). the expansion of the ecb collateralised monetary policy operations, together with the more widespread collateralisation of financial transactions, has raised the fear of encumbrance of bank assets. this risk has not materialised as the list of eligible collateral has been expanded to enable banks to take full advantage of the ecb full - allotment policy, while rigorously applying risk control measures to mitigate liquidity, market and credit risk. but as higher haircuts erode the refinancing power of encumbered assets, there must be an asymptotic limit to the ability of the central bank to provide outside money without endangering its creditworthiness, on which confidence in the currency rests. the notion that central banks have an unlimited capacity to create money is an illusion and thus cannot be used as an excuse not to reform the economy. overall, the policy measures taken on several fronts were able to stem the risk of a credit flow fallout with related adverse implications for price stability. in particular, the role of bank credit in financing the private sector has been preserved, supported by an increased recourse to debt markets especially by large firms ( see slide 6 ). the sovereign debt crisis and fragmentation of credit markets across national borders my discussion so far has focused on term and liquidity premia, which have taken centre stage since the very beginning of the financial crisis. starting in may 2010, the crisis was marked by a new phenomenon, until then little known in euro area : the emergence of large and variable credit risk premia in the pricing of supposedly risk - free securities issued by euro area governments. this has led to questions about the creditworthiness of some sovereign issuers and to a fully - fledged sovereign debt crisis. this new phase of the crisis has taken on several dimensions. the first and most noticeable one has been the large sell - off of government debt issued by sovereigns in precarious fiscal positions ( see slide 7 ). markets have increased their scrutiny of the fiscal and structural conditions of member states ( the “ fundamentals ” ) and assessed them with an increasing degree of risk aversion. at times, markets have also overreacted to national news and to the political debate at euro area level, with yields subsequently displaying little mean reversion. fragmentation of credit market across national borders the second dimension of the debt crisis has been a

be reversed as workers would naturally be better able to get jobs and would not be remaining on the unemployment rolls. this is one action that seems to satisfy all three conditions. accelerate scheduled cuts in tax rates. if future tax - rate cuts are already enacted into law, putting them into effect sooner than planned could be done quickly. presumably the relevant political compromises have already been made. as the acceleration would not damage the long - run budget position, the reversibility condition is satisfied. but that property could lessen the effect of the rate cuts. it has been found that consumers spend relatively little out of one - shot increases in their income. they spend much more when tax cuts are viewed as permanent rather than one - time events. since rational, forward - looking consumers should view accelerated rate cuts as one - shot increases in income, the effect of these cuts on consumption could be limited. on the other hand, if consumers are not forward - looking but wait for their tax cuts before they begin spending, the accelerated rate cuts could stimulate a normal amount of consumer spending. in this case accelerated rate cuts could satisfy all three conditions. if one changed the tax policy expectations, the overall verdict is, if anything, less favorable. suppose households did not expect proposed future rate cuts to become law. in such cases, moving up rate cuts might have a stronger perceived effect on permanent income and consumption and more clearly satisfy the impact test. but the same action might take the general budget out of long - term balance, at least as far as bond markets are concerned, and would fail the reversibility test. in this latter case, the accelerated tax cuts satisfy only two conditions. temporary cuts in payroll taxes. one could also respond to recessions by cutting payroll taxes for a limited period. the cuts could be made quickly, satisfying the first requirement. but as with income taxes, if rates are cut only for a short time, the funds will appear to be temporary to consumers, in which case their effect on consumption may not be very large. another problem with changing payroll taxes involves the fact that virtually all of them are now devoted to entitlement trust funds such as social security. the social security trust fund is already underfunded in a long - term actuarial sense, and payroll - tax revenues could not be removed from the fund, even for a short period, without raising the long - term actuarial deficit. moreover, one would not want to start the tradition of using a long -