. the countries that have succeeded are those that have developed a virtuous circle of activity, productivity and employment. if one link is missing, the reforms implemented elsewhere will not have their expected effects. we know that france has vast labour pools in market services. we also know that by their very nature, most of these jobs cannot be moved abroad. however, many obstacles still lie in the way of their development. it is too often difficult, even prohibited, in france to produce or sell services. there are a number of causes for these obstacles. first, there is a desire to protect existing activities and to ensure that the professional quality of service provided is upheld. second, regulations aim to prevent excessively harsh working conditions. all of these reasons are legitimate in themselves. but, taken together, they considerably restrict supply even though – as foreign examples have shown – demand is potentially sizeable. these restrictions also encourage the substitution of labour by capital and therefore result in growth that is both constrained and has an insufficient employment content. they are sometimes based on a notion of working rhythms that is out of step with the functioning of a modern society and technological progress. they are very costly for the economy. and, lastly, they do a disservice to those they set out to protect. the main victims are those for whom access to employment requires flexibility, adaptation, and freedom to choose working hours, i. e. primarily young people and women. a complete overhaul of all the legal and regulatory conditions governing a wide range of commercial and services activities therefore appears to be an urgent priority. lastly, in order to increase france ’ s productivity, a shift towards technology - and sciencebased activities is essential. to do so, research and development ( r & d ) efforts must be encouraged. in this respect, while the share of public r & d expenditure is comparable or even greater than that of the country ’ s main trading partners, private sector r & d investment remains well below that in germany, the united states or japan. the creation of poles of competitiveness in 2005 and the industrial innovation agency in 2006 contribute to achieving this strategic objective. these recent initiatives should be pursued in order to expand the poles of competitiveness, attract researchers and companies, and integrate smes and startups that do not benefit from the resources available under these innovation drives. in the main, these reforms are currently underway or being examined in our country. it is thus becoming possible to create lasting conditions for stronger and more employment -

##ing in this respect. the financial authorities ’ second objective should be to constantly verify the relevance of safety nets. regulators must, of course, ensure that their supervisory mechanisms are adapted to an evolving financial sector. the gramm leach bliley act adopted last year by the united states illustrates this concern, which has resulted in a new allocation of the roles of the different american supervisors. as regards the european union, the integration of national financial systems within a large, efficient market is the ultimate objective of the regulatory harmonisation. since 1977, when the first banking coordination directive was laid down, two key principles have constantly been applied : • on the one hand, the “ european passport ” gives the right of establishment and freedom to provide services within the area. • on the other hand, supervision on a consolidated basis entrusts the consolidated supervision of banking groups to the home country, in cooperation with the host country. these are the two pillars of our european prudential framework. they are the basis for a clear definition of the respective roles of and close cooperation between national supervisors. thanks to these principles, prudential supervision within the eu has for many years been conducted in a decentralised and cooperative manner which has proved its worth. in this respect, national supervisors are well prepared for the integration of the different national financial systems. the same principles broadly apply for the supervision of insurance companies and insurance firms. as for cross - sector pan - european complex institutions, we believe that a similar combination of specialisation and intense cooperation is the best solution. lastly, the third objective of financial authorities must be to achieve a new balance between regulations and market discipline the first generation of prudential rules - chiefly a raft of prudential ratios with the cooke ratio as its symbol - was devised at the end of the 1980s under the aegis of the basel committee, the iosco and the iais. as financial activities evolved, these quantitative standards were gradually supplemented with a more qualitative approach based on risk management and market discipline. i would like to emphasise that far from being at odds, these two approaches are complementary and inseparable. financial participants must be encouraged to take more responsibility in mutual surveillance in order to encourage market discipline. this means that they must adopt more transparent procedures. however, regulators and supervisors still have an essential role to play in ensuring the stability of financial systems which is necessary to the common good. • maintaining a balance between market discipline and regulations should lead to a more flexible approach