Before I move on to the other aspect of globalisation, let me repeat that I understand globalisation as a progressive process of international integration of national markets of goods, services, capital and knowledge. In practice, this means higher levels of trade and higher inflows of foreign investment,  11  For example M. Chinn “Getting Serious about Twin Deficits”, working paper, The Bernard and Irene Schwartz Series on the Future of American Competitiveness, CSR No. 10, September 2005. 12  This hypothesis has been proved in: J.Aizenman, J.Lee “International Reserves: Precautionary vs. Mercantilist Views, Theory and Evidence”, IMF Working Paper WP/05/198, October 2005; and M-A Gosselin, N Parent “An Empirical Analysis of Foreign Exchange Reserves in Emerging Asia”, Bank of Canada working paper 2005-38, December 2005. 13  See R.Caballero et al. “An Equilibrium Model of Global Imbalances and Low Interest Rates”, MIT mimeo, September 2005. 14  C.Engel, J.Rogers “The U.S. Current Account Deficit and the Expected Share of World Output”, NBER working paper 11921, January 2006. 15  See footnote no. 2. 16  Examples of such estimations can be found in: S.Edwards “Is the U.S. Current Account Deficit Sustainable? And if not, How Costly Is Adjustment Likely to Be?”, NBER working paper 11541, August 2005; N. Roubini “Global Current Account Imbalances: Orderly or Disorderly Rebalancing?”, New York University Working Paper; M. Obstfeld M, K. Rogoff “The Unsustainable US Current Account Deficit Position Revisited”, prepared for 12-13 July 2004 NBER conference on G-7 Current Account Imbalances: Sustainability and Adjustment; H. Faruqee et al.

At the same time, when looking at accumulated unit labour cost changes we observe that a number of economies which lost cost competitiveness also experienced a loss of market shares, less gains in job creation and/or deteriorating current account position. Despite the decline in the euro area average unemployment rate over the last few years, unemployment remains too high in several countries and regions of the euro area. In these countries and regions, wage increases should not fully exhaust productivity gains in order to provide incentives for firms to create additional jobs. In this respect, sufficient wage differentiation is also required to improve the employment opportunities for less skilled workers where there is high unemployment for this category of employees. The extent to which an increase in nominal wage growth leads to upward pressure on inflation depends crucially on trend labour productivity growth. Under normal circumstances, stronger labour productivity growth would justify an increase in nominal wage growth, thus allowing wage earners to participate in economic growth without adding to inflationary pressures. But for the same reason, without sustained improvements in labour productivity higher nominal wages would not lead to improvements in real purchasing power, but fuel inflationary pressures. Importantly, industries are characterised by different productivity developments. Therefore, wage setting should allow for sufficient wage differentiation and agreements in one industry or sector can not readily be transferred to others. BIS Review 52/2007  1  Those are the reasons whey the Governing Council calls for a high level of responsibility from social partners.