Third Financial Stability Report

Third Financial Stability ReportThe risks to financial stability ease but do not disappear

The massive injections of liquidity by the European Central Bank and national governments' measures to counter the euro-area crisis halted the downward spiral of increased sovereign risk, banking system difficulties and the deteriorating economic situation, which in the last part of 2011 threatened to become systemic. In April, tensions re-emerged, signalling that risks are still serious. The advanced countries' economic and financial prospects are clouded by fears concerning public finances and the robustness of world growth.

Italy makes significant progress to improve its public finances but is affected by contagion and the recession

In Italy, the fiscal consolidation measures taken since mid-2011, the provisions curbing pensions and progress with reforms to raise the economy's growth potential have restored confidence in the sustainability of the public finances. The yield spread between Italian and German government bonds is nevertheless still large, owing to the cyclical economic weakness and to speculation that has driven German interest rates down to exceptionally low levels. It is essential to forge rapidly ahead with the vast programme of structural reforms that can influence expectations of future growth, without which it would be more difficult to strengthen the fiscal consolidation process and seize the opportunities offered by the global economic recovery.