Second, emergency assistance to countries was provided, without strict conditionality and at favourable interest rates, through the SURE and the Pandemic Credit Line of the ESM. Third, the NGEU provided funds to countries, earmarked for investments in digital capacities and the fight against climate change, in exchange for the implementation of structural reforms. This brief historical review can be summarised as follows: beyond its foundational components (independent monetary policy, focus on national debt sustainability, nobail-out clause), the framework has been continually adapted to a changing environment. 1  See Efstathiou, K., and Wolff, G. B. (2019). What drives national implementation of EU policy recommendations?. Bruegel Working Papers and “Country-specific recommendations: An overview September 2020”, European Parliament Briefing. 2 Stability and Growth Pact. 3  Let me now come back to the present and first discuss some unpleasant fiscal arithmetic. The main idea in the Treaty for the conduct of domestic fiscal policies was that excessive deficit and debt levels were to be avoided. In this regard, it is well known that, over the long term, and for a given inflation rate, the primary balance that allows a given government debt-to-GDP ratio to be stabilised depends on the differential between the real interest rate and the real output growth rate, the so-called “r-g” gap. The wider this gap, the higher the primary balance needed to maintain a stable medium-term government debt-to-GDP ratio. Over the period 1995-1999, the r-g differential was positive and close to 2 percentage points.
Second, as the SNB has repeatedly emphasised, given the cyclical risks in the Swiss mortgage and real estate markets, a temporary adjustment of banking system-wide capital requirements may have to be considered. To this end, on 1 June the Swiss Federal Council announced that a macroprudential instrument will be made available to the Swiss authorities from 1 July, in the form of a countercyclical capital buffer. Introduction of a macroprudential instrument To conclude, I would like to briefly describe how the countercyclical capital buffer will work. This instrument will enable the authorities to adjust capital requirements in the banking system, depending on potential excesses in the Swiss credit market. It is a preventive instrument that can be activated if necessary, to a level deemed appropriate. It can also be targeted to a specific segment of the credit market. Once the imbalances have been corrected, the countercyclical capital buffer will be deactivated, either immediately or gradually. In activating the countercyclical capital buffer, the aim of the authorities is twofold: First, it should increase the resilience of the banking sector, thereby helping to protect against the consequences of a correction of excessive credit growth. Second, it should help to lean against the build-up of such excesses. The Federal Council decides on the activation, deactivation and level of the countercyclical capital buffer, upon the proposal of the SNB. The SNB consults FINMA before submitting its  BIS central bankers’ speeches  3  proposal.