create employment opportunities for unskilled workers with low productivity, the wage scale needs to be brought more into line with productivity. ii ladies and gentlemen, the current political discussion in germany demonstrates almost daily that fiscal and social policy - makers are faced with major tasks. if they are tackled resolutely, germany will be in a position to overcome its weak growth. in my opinion, there can be no question of further increasing the general government deficits in order to try to engineer a short - term cyclical stimulus. the real challenge lies in implementing wide - ranging structural reforms to create confidence in the sustainability of public finances, thereby supporting macroeconomic momentum. however, it is no easy task to implement reforms of this kind in germany. a broad consensus normally has to be reached between the individual government levels and also between the political parties. a full calendar of elections and the virtually continuous electioneering which they entail, as well as the considerable influence of various lobbies, mean that a great degree of inertia is inherent in the system. the result can be seen, for example, in the extremely complicated tax and social security system, which is characterised by innumerable piecemeal amendments and supplements. the system has become immensely complex and, as a result, is increasingly perceived as unjust. the epithet “ tax and subsidy jungle ” indicates the loss of clarity and transparency. this is another reason why the stalemate over reform which has built up over decades must now be broken. the dismantling of the dense web of regulations, which this requires, would also enable us to reduce bureaucracy. a leaner government sector could then be financed with lower taxes, which, in turn, would benefit all. in my opinion, considerable “ deconcentration ” of government activity is also desirable. this includes a stricter separation of government tasks together with increased responsibility of each tier of government for both expenditure and revenue. greater emphasis on competitive elements in the federal system and greater consideration of the different preferences in the individual regions could facilitate more efficient and more focused government activity. allow me now to explain in more detail the tasks i see in the three areas of budget consolidation, taxation and social security. the consolidation of public finances constitutes a key task for all government levels. the budget deficits of central, state and local government have risen dramatically in the past two years from €34 billion to €60 billion. the situation is expected to deteriorate considerably this year, with the deficits of general

using the riskweighted approach. and the future floor will limit the problems that have emerged with internal models. for banks, risk regulation becomes an even more complex optimisation problem. a bank ’ s management has to integrate its business model with the multiple regulatory requirements. this implies a major challenge for operational processes, for risk management and, last but not least, for profit generation. to sum up, the successful management and supervision of banks under multiple regulatory instruments is a key challenge for bankers and supervisors – and one, i might add, that needs to be combined with the challenge of rethinking a bank ’ s strategy and business model. i will come back to this point later. 6. challenge 2 : ending “ too big to fail ”. finalising the recovery and resolution framework and making it work in reality the second challenge opens up a previously untouched layer of the banking infrastructure for reconstruction. as my colleague andrew bailey from the bank of england has rightly criticised, the call for ever - higher capital provisions neglects that there are other ways to successfully protect financial stability. i refer to the rules that are designed to make banks resolvable without systemic disruption. such reconstruction is sometimes so delicate that we might think of it as open heart surgery on the patient bank. given the scale and sensitivity of this issue, the fact that the recovery and resolution regime has been globally agreed and will soon be implemented across europe is an outstanding achievement. it was created to solve the problem of “ too big to fail ” banks and to protect taxpayers from having to bear the costs of a failure. this resolution regime is a vital step forward in acting on one of the key lessons learned from the financial crisis : the much - discussed issue of moral hazard – a problem that arose because institutions that were previously “ too big to fail ” could not be held accountable for their actions. looking ahead, there won ’ t just be recovery and resolution plans for credit institutions : clearly defined liability cascades will be established, too, so as to ensure that the taxpayer really is last in line to foot the bill – that is to say, after shareholders and creditors have been bailed in, and then only in absolutely exceptional cases. but, to put this theoretical resolution model into practice, institutions will need to hold a certain amount of additional debt which, should the need arise, will be transformed into loss - absorbing capital. bis central bankers ’ speeches for global systemically important banks, this will be achieved by a standard for total