this means that we cannot pause, and certainly not change direction, in our attempt to maintain a low deficit. raising the deficit is not an option, especially because our public spending level is already one of the highest, if not the highest, in the world. our estimate is that in the current year, 2001, our ratio of public spending to gdp amounts to 54 %, compared to an average of 42 % in 20 of the oecd countries, where all of the individual countries ratio are lower than ours. so what can the government do, given the current slowdown, to help the economy get out of the recession? the only viable option is to change the composition of spending so that growth - enhancing expenditures will get priority. government investment in infrastructure, for example, ought to get precedence over government programs to support those who are not working. this does not mean that these programs should be scrapped altogether. but it does mean that they should be refocused. the question should not be how the state can help those who are not working to maintain a modest standard of living, but rather how the state can help them join the labor force. another example, often quoted, relates to the efficiency of our public education programs. international comparisons indicate that, in some instances, we get less for our money, compared with other countries. furthermore, we still grapple with the question whether, and to what extent, there is room for private sharing of educational expenses - not necessarily to save public money but, for example, to focus more on education in development towns. these are only some aspects of fiscal discipline or, as it is sometimes called, fiscal consolidation. they serve to illustrate why it seems, sometimes, easier to bypass the need to be more efficient, and just increase overall government spending and the deficit. * * * a good reason to resist the temptation to give up fiscal discipline is its implications for financial markets : - the first, and most immediate, effect of increased deficit is an increase in the interest rate on government instruments to finance the deficit. this has already started to take place in the last few months. the outcome holds not only for the increase in public debt, but also for that part of the debt that needs recycling every year. interest payments take already some 15 % of the government current resources, and are larger than the education budget and very much larger than government investments. - the increased interest on government instruments reverberates to private ones. this is the second effect. we

regulators and to the government that will support the stability and proper functioning of the financial system. the bank of israel will lead and manage the committee ’ s work, and for that purpose, a division was established four years ago at the bank of israel to deal with the area of financial stability. that division will do most of the staff work of the committee and will support its activity. the discussion of financial stability is often considered something that serves the financial entities, but this is not so. maintaining financial stability first and foremost serves the customers of the financial entities, the economy, and the public as a whole. maintaining financial stability means that when we deposit our salaries in the bank, we can sleep quietly and be certain that we will be able to withdraw it whenever we want. it means that when we save for retirement, those savings will be available to us. and it means that when a business or factory owner receives a commitment, it will be honored. in conclusion, this is the first significant amendment to the bank of israel law in its new format 1 / 2 bis central bankers'speeches since the law was legislated through this committee seven years ago, under the committee chairman of the time, who is also the committee chairman now. i am certain that the discussions will be matter - of - fact and will lead to legislation that, in the end, will serve the public in the optimal manner. permit me to offer you, as we always do, the bank of israel ’ s professional assistance in this important legislative process. 2 / 2 bis central bankers'speeches