habit. ” strict and consistent application of the stiffened rules is therefore important. here, the commission has a special responsibility. in this context i am worried that the fiscal policy rules have become ever more complex and, in turn, so has monitoring compliance with them. it has now become almost impossible for experts, let alone the general public, to determine whether or not countries are complying with these budget rules. this naturally reduces the binding force of the rules. the binding force of the rules can also be diminished if there is the impression that they are not being strictly interpreted by the bis central bankers ’ speeches commission. and the assessment procedure gives the commission greater and more discretionary leeway. metaphorically speaking, we need to make sure that the commission does not go beyond its role as a referee and move the goalposts mid - game. based on past experiences it is clear to me that stiffening the rules alone won ’ t suffice to enforce the principle of individual responsibility. at its core, this principle requires that sovereigns, banks, and investors bear the consequences of their decisions. this implies that it is primarily up to the respective government and its citizens to come up with the revenue required for repaying public debt. this holds, in particular, since high levels of public debt often go hand in hand with substantial private assets. but it also implies that the risk of non - repayment ultimately lies with the investors, since they are the ones who reap the return when things go well. and if the fiscal limit has been reached for real, public debt needs to be restructured without posing a systemic threat to financial stability. the introduction of collective action clauses into sovereign bonds was a first step in that direction. but more steps are needed. the bundesbank has put forward a proposal for sovereign bonds to include an automatic maturity extension of three years in case a sovereign accesses the european rescue mechanisms. this automatic maturity extension would allow the sovereign in question to tackle its fiscal challenges while preventing investors from bolting. liability and control would be brought better into balance. the amount of official financial support would be reduced, and time is bought to figure out if the problem is one of temporary illiquidity or insolvency. but ultimately, all these questions boil down to the quip of american economist allan meltzer : “ capitalism without failure is like religion without sin. it doesn ’ t work. ” for the above proposals to work, we need to make sure that the ins

a disturbance in one market segment or one country is likely to be transmitted far more rapidly throughout the world economy than was evident in previous eras. in earlier generations information moved slowly, constrained by the primitive state of communications. financial crises in the early nineteenth century, for example, particularly those associated with the napoleonic wars, were often related to military and other events in faraway places. an investor ’ s speculative position could be wiped out by a military setback, and he might not even know about it for days or even weeks, which, from the perspective of central banking today, might be considered bliss. as the nineteenth century unfolded, communications speeded up. by the turn of the century events moved more rapidly, but their speed was at most a crawl by the standard of today ’ s financial markets. the environment now facing the world ’ s central banks - - and, of course, private participants in financial markets as well - - is characterized by instant communication. this morning i should like to take a few minutes to trace the roots of this extraordinary expansion of global finance, endeavor to assess its benefits and risks, and suggest some avenues that can usefully be explored in order to contain some of its potentially adverse consequences. a global financial system, of course, is not an end in itself. it is the institutional structure that has been developed over the centuries to facilitate the production of goods and services. accordingly, we can better understand the evolution of today ’ s burgeoning global financial markets by parsing the extraordinary changes that have emerged, in the past century or more, in what we conventionally call the real side of economies : the production of goods and services. the same technological forces currently driving finance were first evident in the production process and have had a profound effect on what we produce, how we produce it, and how it is financed. technological change or, more generally, ideas have significantly altered the nature of output so that it has become increasingly conceptual and less physical. a much smaller proportion of the measured real gross domestic product constitutes physical bulk today than in past generations. the increasing substitution of concepts for physical effort in the creation of economic value also has affected how we produce that economic output ; computer - assisted design systems, machine tools, and inventory control systems provide examples. offices are now routinely outfitted with high - speed information - processing technology. because the accretion of knowledge is, with rare exceptions, irreversible, this trend almost surely will continue into the twenty - first century