. 12 secondly, in terms of nancial markets, the shock led to a re - pricing of risk premia, with large falls in risky asset prices and tighter nancing conditions globally. 13 recent research shows that ireland is particularly sensitive to a tightening in global nancial conditions. 14 tightening global nancial conditions have implications for domestic lending, asset prices and economic output. thirdly, in response to the shock, governments around the world have signi cantly - and necessarily - increased spending to support their economies. 15 this support has been absolutely necessary to both to support affected households and business and to minimise the long - term damage of the shock to the economy. however, this also brings risk over the medium term with higher public debt levels. heightened public debt issuance could put pressure on government bond yields in some euro area countries. and while sovereign yields remain low in europe, this is against a backdrop of an incomplete nancial architecture. 16 the macro nancial risks of possible defaults, rising risk premia, tightening nancial conditions and increased debt burdens are coupled with the structural vulnerabilities we are exposed to as a small open economy. i have spoken previously about how our macro indicators tend to have higher highs and lower lows than other countries. 17 https : / / www. centralbank. ie / news / article / speeche - risks - resilience - and - policy - responses - to - covid - 19 - sharon - donnery - 17 - jun - 20 2 / 7 11 / 02 / 2021 risks, resilience and policy responses to covid - 19 - deputy governor sharon donnery our open economy is more sensitive to global developments. 18 the smooth functioning of global value chains, the health of the us economy and the presence of multinational enterprises ( mnes ) in ireland are all factors that affect irish output and household incomes. other risks have also not disappeared. the ongoing uncertainty surrounding brexit negotiations is a serious concern. we will focus on this in our next quarterly bulletin, to be published in july. the nancial stability risks of climate change and de - globalisation have not gone away. crystallisation of these risks would further test the resilience of the economy and the wider nancial system. resilience now let me turn to the resilience of the economy and nancial system. an important positive is that the starting resilience of households, businesses and the domestic banking system is signi cantly

##ute deregulation of the economy, the restructuring of production, a greater opening up to foreign businesses and trade with the new industrial economies of the region can increase productivity. domestic demand, influenced by low demographic growth and the ageing of the population, needs to be supported. intermediaries and large banks that operate in international markets are seeking new configurations following the strong growth of the nineties. the banking systems of the countries of the european union are solid ; after the rapid expansion in lending in the past years, a re - examination of the criteria for measuring risk and of the structure and level of capital is necessary. the potential growth rate of the european economy remains limited by the as yet scant application of new technologies and the slow progress of structural reforms. the expansion will continue, even if more slowly than in 2000, thereby contributing to the stability of the world economy. an increase in domestic demand can also come from more intense infrastructure investment. it is necessary to press ahead with the steps already taken to remove the rigidities and imbalances that are still present in the labour market, the social security systems and the structure of government budgets. scope for sustained growth can come from the integration of the economies of central and eastern europe. in italy there is a wide gap between achievable and actual growth. in 2000 gdp is estimated to have expanded by 2. 7 per cent. from the middle of the year onwards consumption was held back by the increase in energy prices ; this reduced private sector disposable income significantly, by more than 1 per cent of gdr inflation was marginally higher than in the other european countries, but the latest data suggest that a gap could re - open. last year exports again expanded less than world trade and the exports of the other eu countries ; the increase in sales within europe was especially small. non - price factors continue to influence italy's export performance and to contribute to the rise in imports. the increase in employment has been considerable thanks to the innovations in the labour market and the upturn in economic activity. the size of the underground economy has remained basically unchanged and abnormally large by international standards. further reform of ltaly's labour laws and the agreements between employers and trade unions will have to permit a more flexible adjustment of costs to reflect productivity and individual companies'situations, with account also being taken of the sectors and geographical areas in which they operate. the recent efforts to raise the volume of public works must be continued, both because of