domestic savings and investment. for countries with an ageing population like germany, it is a matter of rationality to save more than to invest domestically since the number of investment projects with good prospects is declining, whereas households want to maintain their level of consumption in old age. similarly, countries that export an exhaustible resource would be well advised to invest some of the proceeds abroad so that future generations can benefit from the resources as well. current account surpluses will therefore fade out over the medium to long term and probably eventually turn into deficits, as the accumulated net foreign assets are gradually reduced. on the other hand, countries that are catching up on economic development usually invest more than they save. given a wide variety of investment opportunities but scarce capital, they rely on foreign inflows of funds. in such cases, temporary current account imbalances are fundamentally unobjectionable. by allowing economies to separate domestic absorption from output – which is, by definition, not possible in closed economies – current account imbalances are welfare - enhancing since consumption is smoothed over time and because capital flows from economies with net savings to countries where the marginal return on investment is higher. this, however, requires a productive use of the capital inflows in the deficit countries. overall welfare will be adversely affected, for example, if capital inflows mainly fuel a speculative housing bubble. it has now become obvious that unproductive use of foreign capital was widespread in the years prior to the financial crisis and that several countries have been living beyond their means. regarding the debate on whether global imbalances were among the causes of the financial crisis, i do not, however, consider them to have triggered the crisis. rather, i think that deficiencies in the financial system were at the core of the crisis, whereas global imbalances intensified and accelerated the resulting chain of events. indeed, many of the persistent high current account positions that have emerged over the past decade are neither benign nor sustainable. the large u. s. deficit is due, first and foremost, to low national savings. on the other hand, the current account surpluses of major emerging economies are, to a significant degree, the outcome of exchange rate policies that helped merchandise exports to grow. rather than investing the financial surpluses domestically, china, in particular, continues to accumulate substantial foreign exchange reserves – mainly denominated in us dollars. whilst this may possibly be not irrational from the surplus country ’ s point of view, it is

the system ’ s resilience and, with that, its stability. especially with basel iii there have been concerns that the increased capital requirements will have a potentially negative impact on economic performance. however, studies have revealed that these fears are not well - founded. in anticipation of the new rules banks have already started to increase their capital. additionally, the transition period before the new requirements fully enter into force has been set with a long horizon. these are clear signs that policy - makers have found the right balance between regulation for stability and ensuring strong and sustainable growth. in fact, there is no inherent conflict between the g20 agenda ’ s objectives of a more stable financial system and of strong, sustainable and balanced growth. what we have to be careful with is public debt. the ( sadly ) new feature of the current crisis has been its third phase, the debt crisis, which hit us hard in may 2010. towards the end of 2009, investors and rating agencies were increasingly turning their attention to the financial risks that the government sector worldwide had already incurred or was likely to incur. the default risk of these countries ’ government debt securities had until then been considered safe. however, with deteriorating public debt through fiscal programmes and guarantees to financial institutions in particular as rescue measures, the default risk was revalued on a more differentiated basis. as a result, intra - euro - area yield spreads widened significantly – especially to the detriment, above all, of periphery countries like greece, ireland and portugal. although this third phase of the crisis has so far not impacted significantly on euroarea economic developments, and financial markets have continued to recover, too, the bis central bankers ’ speeches sovereign debt crisis still poses a serious challenge for the euro area as a whole that needs to be resolved before it potentially becomes a more serious threat to the recovery. policymakers have already taken important first steps in this regard, both to embark on ambitious and timely consolidation as well as to strengthen the institutional framework within the eu. keywords in this context are a strengthened stability and growth pact, better enforcement measures to correct excessive macroeconomic imbalances and a crisis resolution mechanism that helps to deal with future crises but does not undermine the incentives to rein in public deficits. 4. conclusion ladies and gentlemen, the major drivers of growth for the world economy have not been impaired by the financial crisis. emerging markets are still undertaking great efforts to catch up, and technological progress will continue. as i pointed out, even the regulatory