##s and unsustainable public debt. it is essential to establish sound procedures to enhance and enforce fiscal surveillance in the euro area. we need shorter deadlines under excessive deficit procedures so that corrective policy action is taken in good time. we need quasiautomaticity in the application of sanctions, based on clearly defined criteria and with less discretion over outcomes. and we need ambitious targets for the reduction of public debt towards the 60 % of gdp ceiling. the crisis has also demonstrated the importance of broader surveillance of macroeconomic policies in the euro area. given the large spillovers from the macroeconomic policies of one country to other members of the single currency, much needs to be done. i am in favour of the creation of an early warning system to identify unsustainable policies. a number of the commission ’ s proposals point in this direction, but we need to go further still. the framework for the assessment of macroeconomic imbalances within the euro area should focus primarily on countries with vulnerabilities, losses in competitiveness and high debt levels, as these countries face the greatest sustainability challenges. the framework should also use a limited number of indicators to ensure clarity and consistency. when the indicators reveal potential problems, they should automatically trigger an in - depth analysis of the country concerned, including missions by the commission in liaison with the ecb and public scrutiny. this process should be backed up by graduated sanctions, which kick in at an early stage, to reinforce compliance with recommendations. the effectiveness of these enhancements to the governance framework will in part be determined by the quality and independence of the economic analysis that underpins them. without reliable statistical data, interpreted and acted on by independent arbiters, we cannot be certain that the governance framework will provide the quantum leap forward that is necessary. it is therefore extremely important that the commission services charged with conducting macroeconomic and fiscal surveillance for the euro area be sufficiently independent, ideally supported by a body of “ wise persons ” providing external assessments. we are now at a stage where we need to remain bold and enact those reforms that we envisaged when the crisis was at its deepest. it was then that we witnessed the clearest manifestation of risks and our judgement was sharpest. it would be a big mistake if, with gradually improving conditions, we fell back into accepting the status quo. i therefore call on all parties to remain as bold in their reforms as they were when we were in the eye of the storm. concluding remarks let

term economic impact study particularly noteworthy. it reminds us of the fact that tighter rules can be beneficial for economic welfare, for the simple reason that they help to avoid the major crises triggering abrupt busts, deep recessions and threats of depression that are so damaging to our societies. the study suggests in particular that if tighter rules were to lower the yearly probability of a major financial crisis by 1 percent, this could correspond, on average, to an annual output gain of 0. 6 %. the study also suggests that the increase in capital requirements, which is part of the basel iii consensus, would indeed significantly reduce the probability of a crisis. of course, the figures need to be interpreted with caution, but the various models applied in the impact study all suggest that the net social benefits of strengthened regulation can be substantial. they also remind us that, in the long run, growth is only meaningful if it is sustainable. overall, i consider that the agreement strikes a good balance between the objective of decisively strengthening the resilience of the financial sector in this new permanent regime, and at the same time, establishing a transitional period which is sufficiently well crafted not to hamper the ongoing recovery. wider financial reform but we are far from done on financial reform. financial reform at the global level is necessarily complex, and achieving it demands resolve and perseverance. for some comprehensive measures such as the framework to address risks posed by systemically important financial institutions, hard work remains to be done, in particular through the financial stability board, to clarify the concept of systemically important institutions, to investigate the properties of the pertinent tools – additional capital requirements, contingent capital, bail - in instruments, etc. – appropriate to increase the loss absorbency of their capital base and to develop firm - specific recovery and resolution plans. this will require continued resolute coordination and dialogue in order to resolve potential conflicts and avoid regulatory arbitrage. but there is much more to the financial system than the main regulated banks. the financial system has grown in scope and dimensions that – since finance is largely an invisible service – are hard to imagine. there are three figures that i consider it important to note in absolute terms. first, assets of major investment banks have risen from less than usd 2 trillion 20 years ago to usd 22 trillion just before the crisis. that is around 1. 5 times us gdp. second, hedge funds, which had capital under management of less than usd 100 billion in the early 1990s, were estimated to