other countries also have serious problems with their public finances other countries are also experiencing serious problems. among the euro countries, apart from greece, these are mainly portugal, italy, ireland and spain. critical conditions for assessing how these countries shall attain a sustainable development of their public finances in the future are the current size of the public sector debt in relation to gdp, the credibility of their future fiscal policy and the conditions for growth in domestic and external demand. the larger a country ’ s debt in relation to its gdp, the greater its interest expenditure and the closer it is to an untenable situation. among the countries i just mentioned, italy has the largest burden of debt, with a gross public debt similar to that of greece at just over 100 per cent of gdp. the other countries are not quite so vulnerable, but their debts are rising rapidly. ( slide : gross public debt in portugal, ireland, italy and spain ). the credibility of their future fiscal policy is a decisive factor, not least for the rate of interest they are forced to pay on their public debt. here, earlier patterns of balance or deficit play an important role, as does, of course, the content of their fiscal policy consolidation programme. the deficits are currently large in all of the vulnerable countries, but while ireland and spain have been able to show a balance or surplus during the years prior to the crisis, italy and portugal have shown a deficit throughout. ( slide : general government net lending in portugal, ireland, italy and spain ). a common precondition for the ability of these countries to renew their loans at a manageable cost is the credibility of their fiscal policy consolidation plans. the example of ireland points to a credible consolidation plan with concrete decisions on large cuts in public expenditure being able to reverse an upward trend in interest rates, while the greatest pressure is currently on portugal, where the ten - year rate rose last week. ( slide : government bond rates of portugal, ireland, italy and spain, compared with those of germany ). the more favourable the conditions for the development of domestic and foreign demand, the greater are the chances that good gdp growth will be able to reduce the problems in public finances. those countries that have not had large falls in asset prices, including italy, do not risk suppressed domestic demand in the same way as, for instance, spain and ireland, where property prices have fallen substantially. with regard to demand from abroad, the problems are made more severe by wages and prices having grown faster in

were maintained. such an approach is both competitively inequitable and contributes to moral hazard. it should be addressed. 5. indexing insured - deposit coverage ceilings. the fdic recommends that the current $ 100, 000 ceiling on insured deposits be indexed. the board does not support this recommendation and believes that the current ceiling should be maintained. in the board's judgment, it is unlikely that increased coverage, even by indexing, would add measurably to the stability of the banking system today. macroeconomic policy and other elements of the safety net, combined with the current, still - significant level of deposit insurance, continue to be an important bulwark against bank runs. thus, the problem that increased coverage is designed to solve must be related to either the individual depositor, the party originally intended to be protected, or to the individual bank or thrift. clearly, both groups would prefer higher coverage if it cost them nothing. but congress needs to be clear about the nature of a specific problem for which increased coverage would be the solution. depositors. our surveys of consumer finances suggest that most depositors have balances well below the current insurance limit of $ 100, 000 and those that do have larger balances have apparently been adept at achieving the level of deposit insurance coverage they desire by opening multiple insured accounts. such spreading of asset holdings is perfectly consistent with the counsel always given to investors to diversify their assets - - whether stocks, bonds, or mutual funds - - across different issuers. the cost of diversifying for insured deposits is surely no greater than doing so for other assets. an individual bank would clearly prefer that the depositor maintain all of his or her funds at that bank, and would prefer to eliminate the need for depositor diversification by being able to offer higher deposit insurance coverage. nonetheless, the depositor appears to have no great difficulty - - should he or she want insured deposits - - in finding multiple sources of fully insured accounts. in addition, the singular characteristic of postwar household financial asset holdings has been the increasing diversity of portfolio choices. the share of household financial assets in bank deposits has been declining steadily since world war ii as households have taken advantage of innovative attractive financial instruments with market rates of return. there has been no break in that trend that seems related to past increases in insurance ceilings. indeed, the most dramatic substitution out of deposits in recent years has been from both insured and uninsured deposits to