The preferential treatment afforded to government debt instruments needs to be put to an end in the medium term. Sovereign bonds need, like other bank exposures as well, to be backed by capital. The existing limits on large exposures should be gradually extended to cover sovereign debt.   Second, deeper integration of the markets for capital in Europe should be made possible.
Current challenges In assessing short-term prospects, say for 2007-08, it is essential to recognise that the impressive growth in GDP at 9.4 per cent during the preceding year, reflects the contribution of both – the structural and the cyclical factors though their relative contribution is somewhat non-quantifiable.