reducing it slightly later in the forecast period. i would now like to return to a subject which the committee spent a fair bit of time discussing in may, namely residential property prices. as you know, we became particularly concerned about this issue when we noticed that virtually all of the increase in housing loan approvals in the past year was going to investors, not to aspiring owner - occupiers. at the same time, the building approvals data showed that monthly approvals to build multi - unit developments, i. e. apartments, had speeded up to an exceptionally fast pace, while approvals to build houses were going along steadily. these developments suggested to us that a disproportionate amount of the upward pressure on residential property prices was coming from investors. one response to this would have been to sit back and do and say nothing, on the grounds that the market would sort out the problem. we accept that it no doubt would, but it could take a lot of time, the excesses could get worse in the meantime, and the eventual resolution of the issue could cause a lot of financial distress. the problem is that the market works, but with long lags during which people are encouraged to take decisions based on little more than an optimistic extrapolation of the past. developers will continue to put up new apartment blocks while ever there are investors willing to pre - commit to buy. when investors purchase apartments off the plan ( and it is almost exclusively investors to which the marketing is directed ), they are making a financial commitment the wisdom of which may not become apparent for 18 months or so. it is only when they take possession of the apartment that they discover whether they can find a tenant willing to pay high enough rent to justify the financial calculation that underlay the original purchase. of course, any individual investor can hope to get around the problem by selling to another investor, but they in turn will depend on finding a renter. investors as a group are dependent on finding enough tenants willing to pay sufficiently high rents when the time comes, which may be 18 months away or more. these investment calculations ( or forecasts ) are difficult, and we fear that many investors are just assuming that things will work out, which is a very dangerous thing to do if you are making a highly - leveraged investment. certainly, recent trends would warn against such an assumption. from the best figures available, it is clear that rents are falling and that vacancy rates in apartments are rising

way. the european economy is coming back and recovering from the recession. but monetary policy cannot create long - term growth. long - term growth will be driven by productivity gains, well - functioning economies and a reformed economic and monetary union. it is the responsibility of the democratically elected governments to propose and implement the right reforms. mario draghi has insisted in his press conferences that fiscal policy and structural policy are also important, yet some european countries still continue to pursue austerity. could you tell us your opinion on that? as regards fiscal policy, the discussion in the g7 should not just be about increasing spending, it should also be about improving the quality of the budget. the ecb agrees with the idea that “ countries that have fiscal space should use it ”, but many countries do not have this fiscal space. reducing unproductive expenditures and cutting taxes or increasing bis central bankers ’ speeches investment in productive infrastructure, such as education and research, can lead to growth without increasing the deficit. what about foreign exchange policy? the uk pound and japanese yen have been increasing and volatility is very high. what will the g7 do to reduce volatility? the g20 countries have committed not to use the exchange rate for competitive purposes, as confirmed in recent meetings in shanghai and washington. all of us should act in a way consistent with this commitment and which does not add to global uncertainty. emerging markets are slowing down and advanced countries have very low growth rates. what should the g7 and advanced countries do for the world economy? in a low - growth environment globally, there might be a temptation for some countries to grow at the expense of other partner countries. so it is precisely the role of the g7 or the g20 to resist such temptation. there is no “ magic bullet ” for increasing growth. for the g7, it is crucial to send the message to support domestic demand and focus on those structural policies that will be most conducive to growth. you cannot just rely on other countries. the message that we would like to hear is that “ growth starts at home ”. bis central bankers ’ speeches