In fact - in one of many examples of how Basel II seeks to reflect reality - the new framework draws on the tremendous advances that many firms have already achieved in quantifying their exposures to credit and operational risk. This reflects as well one of the Committee’s goals to build the new framework on sound risk management practices in use today and to provide sufficient flexibility for it to evolve with advances in the future. At the same time, the Committee knows that mathematical formulas and financial models are only as good as the assumptions they make. At best, therefore, they serve as supplements to our insight: they do not replace our need for expertise and judgement. Even Einstein warned of the dangers of confusing mathematical certainty with reality. He said once that, “As far as the laws of mathematics refer to reality, they are not certain; and as far as they are certain, they do not refer to reality.” Reasonable supervisors and bankers know that we cannot rely purely on the apparent mathematical certainty of models and formulas to make decisions for the uncertainty of the future. Likewise, some banks may engage in unique activities that are not captured in the minimum standards. To guard against overdependence on quantitative models, we have included qualitative provisions to ensure that strong risk management and internal controls are adopted throughout the organisation and to ensure the involvement of boards and senior management. The New Accord also stresses the importance of independent assessments and audits.

Governments need to stand ready to implement further consolidation measures, notably on the expenditure side, if risks regarding the attainment of the current fiscal targets materialise. Countries that enjoy better than expected economic and fiscal developments should make full use of this room for manoeuvre for faster deficit and debt reduction. All euro area governments need to demonstrate their inflexible determination to fully honour their own individual sovereign signature, which is a decisive element in ensuring financial stability in the euro area as a whole. Fiscal consolidation and structural reforms must go hand in hand to strengthen confidence, growth prospects and job creation. The Governing Council therefore urges all euro area governments to decisively and swiftly implement substantial and comprehensive structural reforms. This will help these countries to strengthen competitiveness, increase the flexibility of their economies and enhance their longer-term growth potential. In this respect, labour market reforms are key, with a focus on the removal of rigidities and the implementation of measures which enhance wage flexibility. In particular, we should see the elimination of automatic wage indexation clauses and a strengthening of firm-level agreements so that wages and working conditions can be tailored to firms’ specific needs. These measures should be accompanied by structural reforms that increase competition in product markets, particularly in services – including the liberalisation of closed professions – and, where appropriate, the privatisation of services currently provided by the public sector, thereby facilitating productivity growth and supporting competitiveness. We are now at your disposal for questions.