at least when we look at their substance. the quantitative budget ceilings were suited to ensuring that high debt ratios fall swiftly. however, they were insufficiently binding and their application was often the result of political negotiations. the results were not convincing either. highly indebted countries failed to reduce their debt levels even in good economic times. currently the rules are still suspended until the end of the year. during the pandemic, the general escape clause from the stability and growth pact was activated. in parallel, a reform process was launched. for that purpose, the commission initiated a consultation process in 2021. the bundesbank also contributed its proposals to this process. our main recommendations were to make the quantitative targets more binding, with less discretionary exemptions and more stringent implementation. moreover, we suggested allowing for more deficit - financed investment expenditure when debt ratios are sufficiently low, and national rainy - day funds to enhance flexibility for fiscal authorities. in addition, we proposed making fiscal rules more binding, for example by transferring fiscal surveillance to an independent institution with an exclusive focus on debt sustainability – such as the european stability mechanism. last year, the commission presented its first reform proposal, which saw contentious debate among member states. last week, the economic and financial affairs council – ecofin – agreed on basic reform principles. i very much welcome its commitment to sustainable public finances and reduction of high debt levels. however, the current agreement appears to be largely based on the commission's proposals of last november. i have not been convinced by the initial commission proposals. i have expressed doubts that such an approach will lead to an improvement in fiscal rules, but instead, i believe it will do the opposite. the commission proposes multiannual fiscal adjustment paths. those paths would have to be agreed by the commission and every member state. individual public debt challenges as well as reform and investment plans would have to be taken into account. in my view, such an approach is hardly compatible with the goal of a common clear, transparent, and binding fiscal framework for all member states. it implies leeway for member states as well as a high degree of discretionary judgement by the commission. monitoring compliance with fiscal rules would be highly complex, and results of sustainability analyses will crucially depend on initially defined assumptions. these challenges will be aggravated if the rules take reforms and investment plans into account. fiscal targets would be mixed with other policy goals. in combination with the 5 / 7 bis - central bankers'speeches multiannual set up

federalreserve. gov / boarddocs / speeches / 2007 / 20070523. a leveraged loan is commonly defined as a syndicated loan, typically to a riskier borrower, with an interest rate of at least libor plus 125 basis points. through securitization, while holding only nominal exposures themselves. although defaults and other indicators of borrower distress still remain low, and banks ’ exposures are so far quite manageable, supervisors are mindful that high levels of leverage can lead to credit problems relatively quickly for both borrowers and lenders when conditions turn. we want to ensure that any adverse events do not materially affect the banking industry and hope to encourage market participants to employ morerealistic expectations and structures in underwriting riskier corporate loans. turning to inflation risks, the high level of resource utilization continues to have the potential to put additional upward pressure on inflation. and, of course, higher oil prices and the possibility of further increases also pose an upside risk to inflation. with these concerns in mind, the latest statement issued by the federal open market committee again highlighted the risk that inflation could fail to moderate as expected, and i believe that the risks to the inflation outlook are primarily to the upside. the statement also noted that future policy adjustments will depend on the evolution of the outlook for inflation and economic growth, as implied by incoming information. i will continue to monitor these developments, as well as those in financial markets, very closely. this bis review is available on the bis website at www. bis. org.