A data-dependent normalization means policymakers need to see tangible evidence of a solid recovery, prior to any policy tightening. 2/4  BIS central bankers' speeches  Given the fragile recovery policymakers would be best advised to lean on the side of caution. Faced with additional shocks, we believe our priority should be to offer additional accommodation to the economy. However, policy makers should be careful in getting the policy mix right so that potential long-term costs do not outweigh short term benefits. To that extent, we believe: Fiscal policy should provide additional support, subject to existing fiscal space. So far, public sector sin the developed economies have little financing constraints, partly on account of massive injections of liquidity from central banks. The same appears to be true also for the emerging market economies, such as Albania, which continue to enjoy both market access and relatively low financing costs. However, the fiscal authorities of emerging market economies should be mindful on the need to preserve market credibility on the sustainability of their finances. Financial intermediaries – such as banks – have also shared their fair share of the burden. They would naturally absorb a large part of the additional financial costs incurred in case of further shocks. However, financial and macroprudential policies should avoid the temptation of shifting an ever increasing part of the cost on the banks’ balance sheets. Financial stability and a robust banking sector remain paramount for the long-term growth. Finally, monetary policy should offer additional stimulus.

Therefore, my first conclusion is that from the economic perspective the dilemma between deepening and enlarging is rather imaginary. In fact, both these processes are going on around us at every moment, and the authorities have a limited ability to choose between these two aspects of integration. The political dimension makes the question much more complex. Despite the aforementioned conclusion that economic integration is relatively independent of political will, an appropriate institutional framework is undoubtedly important for the pace of integration and the future shape of European markets. But politicians are caught between their vision of an integrated Europe and pressure from many of their voters to defend their current positions. Their inability to explain the benefits of integration to the electorate is a source of frustration and puts limits on any further political deepening and enlarging of the more and more economically integrated area. This may lead to a temptation to use the argument of an imaginary choice between deepening and enlarging. But businesses will not ask politicians for permission to move to Balkan countries or Turkey, or to continue concentrating their activities inside the present EU. The role of the authorities is to support, not hamper these processes. Therefore, my second conclusion is that frustration with the inability to politically consolidate the existing area should not become a reason for constraining its political expansion. In the end, business would find its way through, but Europe would lose. BIS Review 50/2006  1