states and between segments of the financial markets. some observers have voiced concerns that specific mechanisms were at play, highlighting the potential destabilizing role of speculation and called for decisive policy actions to curb its consequences. i will come back to this issue later on. looking at the roots of these countries weaknesses, the financial crisis has played a pivotal role. of course, the structural fiscal deficit of certain countries were already sizeable before the crisis occurred but the crisis has triggered a huge deterioration of public finance situations : first via the mechanism of automatic stabilizers that resulted in rapidly declining fiscal receipts due to the global and synchronized recession ; second the imbalances of public accounts have been aggravated by greater public spending via unprecedented fiscal stimuli plans but also large public financial commitments, in particular via capital injection into the banking sector and debt guarantees schemes. public interventions have been massive to contain the scale of the turmoil but in return have implied a cost and led to a transfer of risk out of the banking sector onto the public sector balance sheet. for instance, interventions from european governments amounted to about 1800 billion eur or 14 % of the european gdp. the potential contagion channels of the april - may european crisis what are the reasons behind the strong and unambiguous public authorities ’ responses to the april - may crisis? as already shown in the previous stages of the financial crisis, strong and prompt public actions are needed to prevent contagion and undesirable second round effects. in that respect, properly handling this sovereign debt crisis is absolutely necessary, lest the shocks on the sovereign debt markets profoundly affect financial markets, banking systems and thus, the real economy. let me elaborate on these contagion channels. 1 ) considered theoretically as risk - free securities, government bonds are usually considered as floor rates and constitute the benchmark for pricing almost all other securities. thus, rising sovereign yields mechanically shift funding costs upwards for all private agents. interest rates on government bonds usually include small premia to compensate for liquidity and credit risk. for a proper monetary policy transmission, these risk premia should not reach such level and volatility that the signal from the key policy rates is no longer perceivable and no longer reaches the real economy. in recent months, the tensions rapidly spread to other markets to a point that jeopardized the transmission of monetary policy, as european government bond markets became largely dysfunctional. 2 ) the second contagion mechanism goes through the banking system. on the liability side

sound and liquid financial assets is largely disconnected from their level of economic growth : rising revenues in the emerging world need to “ find a home ” in sound and liquid financial markets. finally, in any case, the question of sustainability – the resilience of capital flows to the accumulation of imbalances – remains a pressing one. while capital flows tend to move freely across borders, exchange rate regimes remain very diverse in their degrees of flexibility. this leads to asymmetric adjustments depending on the exchange rate regime, not only between currency areas, but also inside the same region, such as in asia. overall, some of the main floating currencies may end up bearing a higher share of the adjustment on their shoulders than they should. maintaining integrated global capital markets in an environment where such differences persist might not be sustainable over the long term. an orderly unwinding of global imbalances might therefore imply greater flexibility from countries with large current account surpluses and fixed exchange rates. i will conclude on a matter of debate for international financial stability for the future. as i have said, financial systems have become more efficient as a result of globalisation and innovation. but have they become more resilient, that is, more capable of absorbing shocks? none of us has the answer to that question now, but it will be interesting for central banks and regulators to monitor financial developments in the coming months, in search of clues. ladies and gentlemen, thank you for your attention.