Domestically, financial liberalisation and deregulation have relaxed investment restrictions. More flexible exchange rate policies, liberalisation of capital accounts, the opening of domestic stock markets to foreign investors as well as “investor-friendly” policies help to attract foreign investors. Global factors have also played a role, with the abundant global liquidity environment as well as the decrease in home bias. By way of example, non-residents currently hold 46% of French market capitalisation and slightly more than 50% of French government bonds. BIS Review 140/2007  1  A third driver is the emergence of global financial players, such as large banks, hedge funds, private equity funds and more recently sovereign wealth funds. They all share common characteristics: -  They play an important role in fostering market efficiency, and provide liquidity to capital markets;  -  They use sophisticated investment strategies;  -  They implement advanced risk management practices, and help to spread them across markets and countries. However, because of their sheer size and potential impact on market equilibria, they raise some concerns of transparency as well as questions about their role in fostering, or not, financial stability. Those issues warrant being debated. What are the consequences of the financial globalisation currently underway for global capital markets? They are well known, so I will just highlight two of them. First, globalisation increases the efficiency of financial markets. Thanks to financial globalisation and technological progress, informational efficiency of capital markets has increased over the past few decades.

Philipp M Hildebrand: Where is productivity growth in Europe? Summary of a speech by Dr Philipp M Hildebrand, Member of the Governing Board of the Swiss National Bank, to the Vereinigung Basler Ökonomen, Basel, 28 October 2004. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  Since 1996 the E.U. is lagging behind the U.S. in terms of productivity growth. This phenomenon has become more pronounced since 2001. The growth of GDP per work hour in the E.U. between the periods 1990-1995 and 1995-2002 is lower by two percentage points per year. This difference amounts to 2,8 percentage points per year if one compares the periods 1990-1995 and 2000-2005. Differences in GDP measurement account for roughly 0,5 up to a maximum of 1 percentage point of the productivity growth differential. The remaining difference is caused by two factors. On the one hand, total factor productivity growth has accelerated in the U.S. This was made possible by a wideranging restructuring of the U.S. economy which provided an optimal backdrop for the new information and communication technologies. On the other hand, capital deepening in Europe was lessened by employment growth. The productivity of this additional labour input has to be increased through strong educational efforts, open markets and additional investment. Labour market reforms remain indispensable in order to enhance the productivity of all workers. Product market reforms will be crucial in order to unleash the full productivity potential of the new technologies.