In addition, cross-country debt holdings and linkages between financial institutions led to contagion and the spread of systemic risk. Moving on to the macroeconomic dimension, it can be observed that in various countries, governments with large fiscal imbalances have now resorted to the narrowing of such imbalances, through the application of inevitable fiscal consolidation measures. These corrections have often met strong social dissatisfaction and political resistance. And yet, the budgetary restraint has not always been viewed as adequate from the point of view of the financial markets that seem to have limited patience for the measures to have a discernible impact on fiscal imbalances. For many governments, bond spreads remain wide. This fiscal restraint has also slowed down economic growth and this in turn has aggravated the budgetary deficit. Chart 5 shows the deficit as per cent of GDP for the euro area as a whole, along with the corresponding cyclically adjusted ratio. The light blue line in the chart shows where the deficit would have been without the economic 2  BIS central bankers’ speeches  slowdown that was caused in part by fiscal consolidation. The gap between the two lines illustrates the inevitable contribution of the economic slowdown to the deficit ratio. Still, the relatively small size of this gap post 2009 indicates that there is a strong structural element in the fiscal deficit. This explains why structural adjustments are so necessary. In response, the ECB has taken policy rates lower than any time during its history (as can be seen in Chart 6).
Although the level of activity on the money market remains persistently low, they continue to be available to the market as a basis for interest rate transactions in Swiss francs. However, the Libor retains its position as the most important interest rate benchmark in the money and capital markets. BIS central bankers’ speeches  3