funding and the rapid credit expansion took place against very limited equity capital in the corporate sector. the global financial crisis exposed these balance sheet vulnerabilities. the onset of the crisis caused a sudden stop in external financing, and countries in the region were caught in a vicious cycle of reduced credit availability, deleveraging, rising non - performing loans, and a cutback in corporate investment and output. much of the region is still suffering from the fallout of the global crisis. in a large number of countries, economic recovery remains feeble and bank credit is still contracting. for these set of countries, reviving credit growth is considered essential to achieving a strong and durable output expansion. however, the task is complex. boosting credit growth without addressing the large sectoral and aggregate imbalances in the economy that had built up during the credit boom years can be risky. matters may become worse if additional credit availability enables enterprises to postpone balance sheet adjustment. in the wake of a balance sheet recession, the allocation of credit matters more bis central bankers ’ speeches than its aggregate amount. it is important that good borrowers rather than the bad ones are the main beneficiaries of credit growth. it is not surprising that much of the cesee region is experiencing a slow so - called credit - less recovery. balance sheet recessions are typically not very responsive to traditional demand management measures. this is because the monetary policy transmission channel is impaired by the weak balance sheets of banks and the corporate sector. as long as asset quality is poor and capital is inadequate, banks will tend to restrict overall credit supply. liquidity may not be a binding constraint in such a situation. as has been argued by some analysts in the context of an unexpectedly low take up in the recent first auction of liquidity under the ecb ’ s tltro programme, the profitability of borrowing very cheaply for the central bank to lend to the private sector ( especially smes ) is not guaranteed if nonperforming loans are high and banks would need to discount high expected default rates and if lending to smes implies high risk weights and, consequently, capital charge. credit demand also is weak in a balance sheet recession. bank lending surveys in the region indicate that credit demand has decreased since the onset of the global crisis. an important factor weighing down credit demand is the corporate debt overhang. the easing of monetary conditions will not necessarily induce higher borrowing while highly indebted companies are focused on deleveraging. thus,

- area sovereign debt crisis of 2010 – 13 ), many italian firms have introduced organizational changes that have enhanced their efficiency, making them more competitive on international markets. the restructuring process has been more intensive in the export sector and, as a result, domestic firms have been gaining 2 / 6 bis central bankers'speeches market shares in many countries. it is a process that must continue and be extended to the rest of the economy, supported by appropriate public policies. in recent years various measures have been introduced to support high - tech investments and innovative start - ups. in order to be effective, industrial policy needs stable and appropriate fiscal incentives, while the regulatory framework must be aligned with international best practices. the italian economy has many strengths that can help support these recent positive developments : private sector net wealth is high by international standards, the debt - to - income ratio of italian families is low, exports remain strong and the current account of the balance of payments is in surplus – it has been this way for many years now, so much so that the net foreign asset position is balanced. a reduction in the risk premium on italian public sector bonds is another crucial objective : at the beginning of this week the yield differential with respect to 10 - year german bonds was over 270 basis points, more than twice the level prevailing in early 2018, before the latest general elections. the premia on credit default swaps suggest that the yield differential has risen as a result of the increase in both credit risk and the risk of redenomination of bonds in a different currency. the high public debt - to - gdp ratio exposes italy to the volatility of financial markets, with the annual amount of bonds to be refinanced currently standing at around €400 billion. the average residual maturity of the public debt is above 7 years ; therefore, the initial impact of higher interest rates on servicing costs is small but, if the increase in rates persists, it would inevitably weigh on expenditure. reducing the differential between the interest burden on public debt and the nominal rate of growth of gdp – which is positive in italy, compared with negative values in most advanced countries and throughout europe, including in greece – while maintaining an adequate primary surplus, is therefore of vital importance. the transmission of higher rates from government bonds to the cost of loans for households and firms has been limited so far, thanks to banks ’ ample liquidity and improved balance sheets. but signs of tension are beginning to emerge. according to our surveys, credit conditions tightened