nexus fails to consider that this is primarily sustained through channels other than direct exposures. the main channel is the real economy ; a sharp rise in the perceived risk of one state ’ s debt can quickly trigger a recessive spiral, kindling social tensions with unpredictable results. the blow to the banking system would be severe, irrespective of its capitalization and direct exposure. nor is there any evidence that the benefits associated with a reform of the prudential treatment of sovereign exposures outweigh the costs, or that the associated reduction in risk could be achieved by simply shifting the public debt securities from banks to other holders. only a combination of prudent budgetary policies and credible, growth - oriented structural reforms can simultaneously drive a sustained increase in lending and a reduction in public sector securities on banks ’ balance sheets. the governor ’ s concluding remarks annual report 2018 banca d ’ italia the euro summit held last december reached an agreement on strengthening the european stability mechanism ’ s role in managing and preventing crises in euro - area member states. the conditions that countries must respect to access the esm ’ s precautionary funding instruments were specified and cooperation procedures agreed between the esm and the commission for monitoring the public accounts of the member states. to reduce uncertainty as to how and when a sovereign debt can be restructured, the summit also decided to introduce ‘ single limb ’ collective action clauses ( cacs ) in euro - area government bonds by 2022 and that, if requested by the member state, the esm could facilitate the dialogue between that state and private investors. this uncertainty, however, only contributes to a small extent to the cost of a possible insolvency crisis. given the close economic and financial ties between the euro - area countries, the effects of a crisis of this kind would be serious and unpredictable not only for the country directly involved, but also for the others. europe should seek ways to support the efforts that must be made by member states to reduce their debt. rigorous and prudent budgetary policies are indispensable, but the lowering of the debt - to - gdp ratio is a necessarily long process, which could be disrupted by events outside the control of individual governments ; this is why some form of supranational insurance is needed, for example through the creation of a european debt redemption fund financed by dedicated resources of the participating countries. the heated debate on npls and sovereign exposures tends to overlook other significant risks to which banks

on government securities and those on loans to firms and households came down in the lead - up to the euro. neither the european union nor the euro are responsible for italy ’ s sluggish growth over the last twenty years ; almost all the other member states have performed better than we have. what today are sometimes perceived as the costs of belonging to the euro area are, in reality, the result of italy ’ s tardy response to technological change and to global markets opening up. the specialization of production in mature sectors has exposed the economy the governor ’ s concluding remarks annual report 2018 banca d ’ italia to competition on prices from emerging countries. hesitating to reduce imbalances in the public accounts has curtailed the scope for policies on macroeconomic stabilization and for achieving sustainable growth. it is up to us to become aware of the problems and to address them, including with the help of european instruments. others have done precisely this and done it well. although the single currency was a vital step on the path to european integration, economic and monetary union remains an unfinished construction. europe ’ s architects knew this, and wanted and anticipated greater progress in the future. even before the introduction of the euro, the unusual status of a stateless currency had been underlined, as had the institutional solitude of the ecb and the problems posed by the imperfect mobility of capital and labour. trust was placed in the push that integration would give to the economic convergence of the member states and in a strategy of progressive reforms, to be enacted when the political conditions were right. the risks inherent in this process materialized with unanticipated violence during the sovereign debt crisis. the inadequacy of the euro area ’ s economic governance was laid bare : the rules of the treaties failed to guide national policies appropriately and to ensure the necessary coordination ; the lack of shared instruments for managing national economic crises has made them longer and deeper, and has raised the risk of episodes of contagion. the proposals for reform drawn up after the peak of the crisis envisaged the gradual strengthening of integration, first in the financial arena and then for public finances. yet only partial progress has been made so far. the banking union is incomplete and not without flaws, the bases for the capital union are still being laid, and fiscal union has been postponed to an unspecified future date. efforts to reduce national risks before agreeing to share them – and even then not all risks – end by increasing them and heightening the feelings of pre