likely to rise. moreover, the bank stressed the need to send a clear message to the markets that greece is determined to implement a multi - year plan of far - reaching fiscal consolidation and bold structural reforms. * * * the developments that followed confirmed these dire warnings. the economy has entered a vicious circle and there is unprecedented uncertainty, which led to a series of downgradings in greece ’ s creditworthiness. these downgradings led to a large widening in spreads, resulting in an increase in the cost of government borrowing and debt servicing. this situation, to the extent that it persists, worsens greece ’ s fiscal position, makes fiscal consolidation even more difficult to achieve, seriously hurts the real economy and the banking system, and refuels the climate of uncertainty, thus exerting a general debilitating effect. the only way out is to restore confidence, by drastically reducing the deficit and the debt and by recovering the competitiveness that has been lost. * * * the crisis of the greek economy is unfolding in a global environment characterised by high uncertainty, in spite of the existing signs of recovery. the recovery of the world economy, proceeding so far at an unsteady step, on the one hand has been supported by accommodating monetary policies and on the other by expansionary fiscal policies ; the latter, however, now increase the risks concerning the sustainability of public finances. these risks in the advanced economies are compounded by : ( a ) the large increases in the fiscal deficits and the public debt ; ( b ) the adverse demographic prospects due to population ageing ; and ( c ) the assessment that a return of potential growth and employment to their pre - crisis levels should not be expected soon. additional risks stem from the fact that public finances are exposed to shocks originating in the markets. the uncertainty about the timing and the intensity of “ exit policies ” from the fiscal stimulus measures leads to a widening in spreads of government bond yields. therefore, the cost of financing the public debt is expected to rise, while growth rates will be lower than prior to the crisis. the wider the gap between the interest rate on the public debt and the growth rate, the larger the fiscal adjustment needed to halt the upward trend in the public debt - to - gdp ratio. this is why structural reforms are needed in order to boost potential growth. it goes without saying that these remarks apply a fortiori to greece. * * * the crisis that the greek economy is currently experiencing

##able requirements ; • set aside adequate provisions for credit risk ; • rationalise their operating costs ; • manage available sources of funding flexibly and prudently ; • and, more importantly, adopt realistic and prudent medium - term strategies that will allow for consolidation. capital buffers, above the regulatory minimum capital a sound financial condition, effective risk management and the establishment of bigger and more robust formations will be key conditions for enhancing banks ’ shock absorbing capacity and for unfettered access to sources of funding. in my opinion, in the medium term changes in the banking sector are inevitable. the bank of greece, on its part, will continue to keep a close eye on developments and intervene as necessary to ensure that the next difficult steps can be made in the most effective manner. economic policy in order to address the major challenges, economic policy has been steered toward decisions which, if effectively implemented and enriched with bold structural reforms, will lay sound foundations for the serious and far - reaching effort required. so far, the decisions have mainly aimed to reduce the fiscal deficit and restore market confidence in the future of the economy. as far as the first objective is concerned, the supplementary measures announced in early march are in the right direction and were favourably received by the eu institutions. even after the announcement of these additional measures, uncertainty remained strong. the markets continued to maintain a wait - and - see attitude, as suggested by the subsequent ongoing widening of bond yield spreads. this attitude of the markets is basically due to the serious confidence and credibility deficit that the greek economy still faces. to this, however, one must add the concerns about the competitiveness and the growth outlook of the greek economy, i. e. the parameters which will determine the smooth servicing of the public debt in the future. in other words, the markets still have their attention focused on public debt dynamics. against this background, it is particularly positive that the greek government requested the activation of the support mechanism. it is assessed that the use of this mechanism will play an important positive role in overcoming the crisis, for the following reasons : 1. in the short term, it secures borrowing funds at relatively low cost, alleviates market pressures and contributes to the normalisation of liquidity conditions for the banking system as well. 2. in the medium term, the operation of the mechanism, with the involvement of the european commission, the ecb and the imf, imposes a tighter discipline in respecting time schedules, provides a valuable source of