There should be better ways of making financial globalisation work, while guarding against its darkest consequences – to achieve robustness without fragility. But this may require new tools and approaches, operating system-wide. It may even require a new architecture, strong enough to withstand the new scale and scope of systemic risks. Let me discuss four areas where progress could realistically be made in developing this new architecture: financial surveillance; debt structures; macro-prudential policies; and multilateral financing. Each would be an important new brick in the wall. 6  BIS central bankers’ speeches  (a)  Improvements to global financial surveillance  Forewarned is forearmed. Understanding the dynamics of the international monetary system, its tipping points and edges, is a pre-requisite for effective management. Some progress has been made on this front. For example, the IMF’s Global Financial Stability Report has, since 2002, sought to plot the evolving contours of global finance. And the publication by the IMF of “Spillover Reports”, since 2011, is a further step in the right direction. Nonetheless, these steps only take us so far. The centrepiece of the IMF’s surveillance efforts remain the country-specific Article IV consultations. Whether that country-specific focus, enshrined in the IMF’s 1944 Articles, can be justified in today’s highly integrated global financial network is a more open question. This year’s IMF Triennial Surveillance Review may be an opportunity to tilt the balance further towards multilateral surveillance. What more might be feasible? I have a dream. It is futuristic, but realistic.

In this regard, the recent, widely different experiences of Ireland and Portugal are highly instructive. 1 Thus, whereas real per capita income in these two countries was not very different in the early 1990s, it had roughly doubled in Ireland by 2006 to 131% of the euro area average, but had only improved slightly in Portugal to 68%. How can such divergent performances be explained? Before joining the euro area Portugal pursued a pro-cyclical fiscal policy, which reinforced domestic demand, while in Ireland the fiscal stance was more disciplined. Whereas unit labour costs and inflation rose fast in Portugal, cost and price pressures were more contained in Ireland. As a result, competitiveness declined in Portugal, reflected in a growing current account deficit, whereas Ireland remained competitive and enjoyed a roughly balanced current account. These different policy approaches left their mark in the post-euro period. In Ireland, real output growth in the years 1999-2006 continued at a strong pace, 6.5% per year on average, and the fiscal balance was in slight surplus. In contrast, Portugal experienced an average growth rate of 1.7%, continued weak competitiveness and a substantial current account deficit. A major factor behind Ireland’s success was a 3% average annual increase in labour productivity growth, compared to less than 1% in Portugal. Another lesson that has emerged from the experience of these two countries, and is also widely documented in the literature, is that cost levels are not the only determinant of competitiveness.