There are concerns regarding the burden of adjustment on deficit countries and its impact on the world economy. If debtor countries adjust internal imbalances and raise national savings – thus avoiding the scenario of resurging global imbalances – which country would then act globally as the consumer of last resort? In other words, can we avoid a scenario in which there is protracted slow growth across all regions of the global economy until imbalances are eliminated? Admittedly, this is not a new question, but it is more pertinent than ever. The typical answer is that, in order to avoid the slowdown, surplus and, in particular, creditor economies should rebalance growth within their economies by increasing domestic demand, strengthening non-tradable sectors and reducing reliance on export industries. Thus the policy recommendation to surplus countries is to stimulate domestic demand, in particular through fiscal policies or structural reforms aimed at reducing the level of net savings. The problem is that surplus countries are in surplus in the first place either because they are fiscally more conservative, at least compared with the more profligate countries – and rightly so I should add – or are facing a situation in which private savings are very high and might even increase if public dis-savings were to rise. Since surplus countries are reluctant to embark on expansionary domestic demand policies, the correction of payments imbalances is faced with some form of asymmetry, a situation that is often disliked by deficit countries.

Directive 2009/111/EC of The European Parliament And Of The Council of 16 September 2009 amending Directives 2006/48/EC, 2006/49/EC and 2007/64/EC as regards banks affiliated to central institutions, certain own funds items, large exposures, supervisory arrangements, and crisis management. OJ, L 302, 17.11.2009, p. 97. 8. European Commission Public Consultation regarding further possible changes to the Capital Requirements Directive (“CRD”). The consultation was closed on 4 September 2009. 9. European Commission Public Consultation regarding further possible changes to the Capital Requirements Directive (“CRD”) – launched on 26 February 2010. 10. European Commission Public Consultation regarding an EU framework for CrossBorder Crisis Management in the Banking Sector. 11. Lorenzo Bini Smaghi, Member of the Executive Board of the European Central Bank, Has the financial sector grown too big? 2010. 12. Lucas Papademos, European Central Bank Vice President, “Financial Integration, development and stability: Lessons from the crisis”, speech delivered on 12 April 2010 at the conference on “Financial integration and stability: the legacy of the crisis”. 13. Jean-Claude Trichet, European Central Bank President, ceremonial address at “100 years of Confindustria” delivered at Parma, Italy on 10 April 2010. 14. Lorenzo Bini Smaghi, Member of the Executive Board of the European Central Bank, “Monetary Policy: Recent experiences and future directions”, speech delivered at the Bank of Canada, Toronto, 9 April 2010. 15. Group of Twenty “Declaration of the Global Plan for Recovery and Reform”, London, 2 April 2009. 16. Group of Twenty “Declaration on Strengthening the Financial System”, London, 2 April 2009. 17.