understanding the underlying trends and for identifying inflexion points. in interpreting time series analysis, we need to apply judgement on whether the future would be different from the past, and if so in what way. in other words, we must be able to say if the underlying trend has turned non - linear. the second conference theme, financial statistics, has always been important ; indeed, its importance has grown in the rapidly globalizing world. in a globalizing world, financial systems are interconnected both within and across jurisdictions. in analyzing and interpreting financial statistics, we must keep these interconnections in view. we are privileged to have with us today two eminent guest speakers – prof. sastry g. pantula from the university of north carolina, usa and prof. rajeeva karandikar, director of the chennai mathematical institute – two statisticians in the forefront of their respective fields of specialization. they bring together enormous intellectual acumen, wisdom and expertise in two vital branches of statistics : time series analysis and financial statistics. on behalf of all of us, i want to extend a hearty welcome to both of them. bis central bankers ’ speeches global crisis and statistical analysis let me make another observation on a larger canvas before turning to specifics. as we emerge out of the global crisis, the deepest financial crisis of our time, there are many lessons being drawn. among the “ big picture ” lessons is that the real world is not deterministic but that the real world is stochastic. our analysis and policy judgements should not lose sight of this truism. let me explain this by drawing an analogy from physics. in the newtonian world view, we have a clockwork universe. all we need to know are the basic laws of physics and the initial conditions, and it would be possible to determine the outcome of the universe at any and every point of time in the future with absolute precision. newtonian physics requires a god, but a god who is no more than a clockmaker. with the benefit of hindsight, we now know that the mistake economists made was to extend the newtonian world view, applicable to the world of machines, to the real world inhabited by capricious human beings. in line with the “ deterministic reductionism ” that was the defining feature of newtonian mechanics, economists deluded themselves into thinking that the laws of economics can be reduced to precise and deterministic mathematical equations. we should have known better. it

adverse situations. the stability and growth pact ( sgp ) was designed for this purpose. it provides a framework of rules that is essential to the macroeconomic stability of the euro area. however, we have to acknowledge that the pact has not been able to contribute to the design of countercyclical fiscal policies. its excessive complexity results in its being somewhat opaque and difficult to communicate to the general public, which does not facilitate its implementation. this complexity also makes uneven application across countries and over time more likely, undermining its legitimacy and credibility. hence the pressing need to overhaul the current fiscal framework. in this regard, there is broad consensus that the reform should be aimed at reducing the number of rules around a single objective ( reducing debt ) and an operating rule ( the spending rule ), so as to ensure that public spending does not exceed nominal long - term gdp growth and that it stays below it in countries with high levels of debt. moreover, beyond the simplification of the fiscal framework, it would also be necessary to move towards more automatic implementation, so as to avoid excessively discretionary application. european financial architecture reforms also notably include those relating to the completion of a full - fledged banking union in the euro area. the cornerstone pending approval for this union is a fully mutualised european deposit guarantee scheme. in this regard, it is worth reiterating here that the financial channel, and the credit channel in particular, should be a means of risk - sharing among private agents in the european economy to complement and reinforce the public channels i mentioned earlier. moreover, these private channels are particularly important in episodes of deep - seated economic contraction, insofar as they mitigate the possibility of these episodes posing an element of financial instability that would only prolong and exacerbate the contraction. in my opinion, the early announcement of a credible commitment to the full completion of the banking union, even were it to come about at a later date, would be a decisive contribution to ensuring euro area financial stability, both in the coming months and over a medium - term horizon. further, it is necessary to equip the european regulatory framework10 to deal with a hypothetical systemic crisis, to address the problem of the liquidity of institutions under resolution, and to analyse the possible role of asset management companies in the event of severe impairment of european financial institutions ’ balance sheets. eu member states should also move swiftly to reach an agreement on creating a common european procedure for the administrative winding - up