also a concern if the market is driven by animal spirits – if investors start to price in a strong recovery, albeit one that is still subject to considerable uncertainty − or if rates increase as a result of global spillover effects. such price dynamics risk increasing volatility and uncertainty and could result in vital policy support being withdrawn prematurely. 4 / 6 bis central bankers'speeches preserving favourable financing conditions therefore puts the drivers of changes in financing conditions, and their speed of adjustment, into the focus of our assessment. in this assessment, cross - asset price correlations can help identify and interpret potential changes in real interest rates. for example, if stock markets increase and credit spreads tighten in response to a rise in real interest rates, markets are likely to price in a stronger growth outlook that could leave financing conditions favourable. in addition, changes in market - based financing conditions have to be assessed jointly with the likely future trajectory of the economy, in particular the inflation outlook. the governing council meetings in which we discuss the quarterly ecb / eurosystem staff projections have an important role here. but it is important to note that this does not limit our flexibility to adjust purchase volumes in the period between meetings. if market conditions require, the pace and composition of purchases can be flexibly adjusted in both directions at any time. assessing recent market developments between the december decision and our most recent governing council monetary policy meeting on 11 march, we saw a rapid increase in global and euro area nominal interest rates. how should these changes in financing conditions be assessed? the factors that have caused a rise in risk - free interest rates have been largely benign in the euro area. at the time of our meeting, nominal ten - year overnight index swap ( ois ) rates were up by about 30 basis points, entirely reflecting a rise in the inflation component ( left chart, slide 9 ). these movements should not be seen as reflecting a genuine reappraisal of the expected future path of inflation. term structure models suggest that much of the recent rise in nominal ten - year ois rates reflects an increase in term premia which, in turn, likely reflects a rise in the inflation risk premium ( right chart, slide 9 ). in other words, markets have started to revise the balance of risks around the medium - term inflation outlook. after a long period in which inflation persistently and repeatedly surprised to the downside, markets no longer exclude the risk that inflation may rise more strongly than previously expected. there are a number of

is subject to exceptionally high implementation risks. the debt exchange operation has been successful, official financing has been scaled up. this has improved debt sustainability prospects : the estimated debt - to - gdp ratio could be brought to about 116½ % in 2020. but this all depends on one key condition, namely that greece fully implements the programme. debt dynamics are extremely sensitive to implementation slippages. delayed fiscal consolidation, lower privatisation proceeds or slower structural reforms : such scenarios would translate into weaker economic growth and worsen again debt sustainability. without a regime - change in policy implementation and a much broader political consensus in favour of painful, but necessary reforms, there is a high risk that the programme derails. therefore, political courage is more needed than ever. bis central bankers ’ speeches let me now comment in some more detail on three key areas : fiscal adjustment, competitiveness gains and financial sector issues. fiscal adjustment the greek authorities and the greek people deserve recognition for the significant fiscal adjustment they have achieved over the last two years : despite the deep recession, the general government deficit was reduced by around 6½ % of gdp since 2009 ( from 15¾ % to 9¼ % ). this broadly corresponds to the deficit reduction that was initially envisaged under the programme, i. e. before the 2009 deficit outcome was revised upwards ( by 2. 2 % of gdp ). this is a remarkable achievement. nevertheless, the size of the government is still too large compared to greece ’ s capacity to generate and collect fiscal revenues. moreover, the quality of the fiscal adjustment was mixed. on the one hand, important reforms have started to address greece ’ s high level of public wages and employment and the previously unsustainable pension system. on the other hand, fiscal adjustment has so far excessively relied on an increase in tax rates and across - the - board expenditure cuts. looking ahead, further progress in fiscal consolidation requires the implementation of difficult structural fiscal reforms. closing the large fiscal gap for 2013 – 14 ( 5½ % of gdp ) will be a litmus test for the government ’ s commitment to the programme : without the government ’ s willingness and ability to design and implement the difficult structural fiscal reforms, such a large adjustment cannot be achieved. i call on greece ’ s political class to push through these difficult reforms by confronting vested interests. otherwise the critical mass of structural fiscal reforms necessary to close the medium - term fiscal gap may not be reached. finally, how can we make sure that the