spanish style rule - based dynamic provisioning. this latter stabilizer seems unfortunately not likely to be included in the reform package. it is very important that these kind of automatic stabilizers are built into the new regulatory framework. it is important that they are rule - based. leaving stabilization to the discretion of regulators will always give more uncertain results. rules are often preferable even if they have to be crude and suboptimal. norway is part of the european economic area, and eu regulations are thus applicable in this country. within the remaining national discretion, norwegian regulations are laid down by the ministry of finance, and implemented by the financial supervisory authority. but norges bank aims to be an active advisor on these issues. our work on macroprudential supervision provides insights that we wish to share with other supervisory authorities. the second component of macroprudential policies consists of short and medium term measures to alleviate the effects from the procyclical behaviour of financial institutions. there are two macroprudential aspect of procyclicality. it is the common exposures of a group of financial institutions. and it is the interconnectivity of financial institutions through trading and credit relationships. common exposures are probably the most important of these interdependencies for crisis generation. individual institutions can look perfectly healthy even when vulnerabilities are building up on the systemic level. the prime example of this phenomenon is naturally lending stimulating a price bubble in the property market. developing time - varying macroprudential policies is not straightforward. the interest rate policy targets the inflation rate, and cannot always be set as would be appropriate for asset prices. there might be conflicting targets. we should thus be looking for new instruments. as you are certainly aware, most of the macroprudential policy instruments that have been proposed are the same as those already being used for microprudential purposes. examples are loan - to - value or loan - to - income limitations, and add - ons to the risk weights on relevant bank exposures. the latter instrument is being used in new zealand, where supervisors have recently introduced a 15 percentage point risk weight add - on to property lending. since these instruments are also microprudential, they are all in the domain of the financial supervisory authority and are needed there. but the macroprudential objective is different from the microprudential, and may call for different calibration of the instruments. the implementation may for practical reasons

spreading. unemployment in many countries has risen to alarming levels. economic growth is weak, particularly in europe, constrained by uncertainty and fear of new setbacks. both the public and private sectors are focusing on reducing debt. banks are consolidating their balance sheets and holding back on lending to businesses and households. bis central bankers ’ speeches chart 3 total sovereign debt in advanced economies is almost as high as it was after world war ii, following a period of soaring, debt - financed military spending. the long post - war boom helped to reduce debt. experience shows that it is difficult to restore growth after a financial crisis. necessary austerity measures can amplify an economic downturn, with falling tax revenues and rising spending on benefits, trapping both public finances and economic activity in a downward spiral. this is what we have seen in europe. today, economic growth is low in virtually the entire oecd area. many countries are forced to implement fiscal consolidation measures, while there is also a need to stimulate the economy and create jobs. that is a difficult balancing act. the european crisis was acute about a year ago, at the beginning of 2012. spanish and italian government bond yields had risen markedly. the reason was not only the uncertainty related to sovereign debt problems in those countries. markets also reflected fears that the construction – european monetary union – might crumble. the question of the fate of the euro was on the table. through 2012, the european central bank ( ecb ) intervened with resolute measures to calm the markets. the banking system was offered large amounts of long - term funding. in summer 2012, the ecb declared that it was prepared to make unlimited purchases of government debt which fulfill the conditions for borrowing from the european stability fund. these measures seem to be working. bis central bankers ’ speeches chart 4 borrowing rates for debt - burdened countries have fallen markedly. other risk premiums have also decreased. fears of a euro - area breakup and the collapse of the european economy no longer seem dominant. the european monetary union – after being established – cannot be dissolved without serious consequences for europe and the world economy. there is little point in discussing whether the original idea was a good one or not. the child was born and is now a teenager. as expected, puberty has presented problems. these problems must now be dealt with by the european authorities. budget deficits in europe are being reduced, despite strong headwinds from the slowdown that follows in the footsteps of