be revised. moreover, the current accord applies in a uniform way to all types of credit institutions, from the smallest local savings banks to the largest global players, regardless of the quality of their risk management. the new framework, which i presented as chairman of the g10 together with jaime caruana, chairman of the basel committee, last saturday in basel, addresses these concerns. basel ii is based on three pillars, namely minimum capital requirements, a review process by supervisors and market discipline. it also introduces more comprehensive and risk - sensitive rules. for example, in addition to the already existing capital requirements for credit risk, banks will for the first time have to set aside capital for their operational risk. basel ii also allows for different ways to calculate the minimum requirements and the institutions that opt for the most advanced methods get a capital advantage. in this way, institutions have an incentive to further develop their risk management capabilities. the ecb strongly supports the new framework and considers that its incorporation in the european rules will be another milestone for the single market. but the consistent implementation of the new rules remains an important area to watch. close co - operation between supervisors will be of utmost importance to achieve effective convergence, both within the eu and on a world - wide basis. i now turn to the current endeavours in developing an internationally harmonised accounting framework. this reform is especially important for the eu because of its contribution to financial integration. i recall that from 1 january 2005 onwards, all listed companies in the eu will be required to publish their consolidated accounts in accordance with international accounting standards. a first step in this direction was the adoption of a regulation endorsing all international accounting standards, with the exception of two controversial standards concerning the recognition, measurement and disclosure of financial instruments, ias 32 and 39. these standards are particularly important for the banking industry. it is therefore no surprise that they have triggered an extensive debate among the industry, supervisors and standard - setters. the ecb has a keen interest in these new rules because of their impact on banks. we therefore carried out work in this area, mainly from a financial stability angle. our concerns relate in particular to the reliability of calculated fair values, the comparability across institutions, and the impact of changes in a bank ’ s own credit risk on its capital position. we conveyed our concerns to the iasb, which triggered additional discussions. we will follow with extreme attention the developments to come. supervision supervision is the second pillar i see of a framework

should play as i mentioned earlier, the government and the bank share a common goal of preventing further price declines and bringing the economy back to the path of sustainable growth as soon as possible. the role that the government should play in this is also quite large. the first role is to foster business conditions that are competitive and attractive in order to induce business fixed investment. to do this, it is important to deregulate, to review the taxation system drastically, and to ensure that reform of public corporations progresses steadily. another important challenge is to relieve the anxiety of households about the future by reviewing the social security system, including pension benefits. furthermore, i would like to reemphasize the importance of ensuring that the npl disposal proceeds as expeditiously and smoothly as possible. the following point needs to be borne in mind. progress in the economic and fiscal structural reform and npl disposal is likely to lead to a decline in demand and to exert downward pressure on price levels in the short term. on the other hand, if a positive outcome of the structural reform bears fruit which leads to an increase in the productivity of the economy as a whole, it will have a significant meaning to prevent further price declines through a revitalization of economic activity. when we consider economic issues, we should always check from the viewpoint of aggregate demand and productivity. of course, aggregate demand and the productivity are not independent of each other. even if the growth rate recovers as a result of inefficient public investment, productivity could fall and consumption expenditure could be reduced due to concern about the future tax burden. on the other hand, if the growth rate declines substantially, firms reduce business fixed investment and the r & d expenditures necessary for improving productivity in the future. whether to put emphasis on aggregate demand or on productivity needs to be judged objectively based on the economic conditions. no matter where the emphasis is put, the economic consequences need to be objectively recognized and shared among the people. given that the price decline will inevitably continue to some extent while the structural reform proceeds, policy initiatives will be focused on preventing the decline in prices leading to a deflationary spiral. monetary policy, it goes without saying, must play an important role in these efforts. on the other hand, there is a limit to what can be achieved by monetary policy alone. improvement of the social safety net through measures to secure employment is necessary to prevent a sharp decline in consumption. it is essential that the stability of the