description perhaps seems to suggest that the keynesian ideal of the economist as a dentist might become reality. to quote keynes : “ if economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid. ” i am afraid, however, that this notion of the economist ’ s role will remain a pious hope. most economists are indeed humble or competent people – and sometimes they are both. but in the past few years, insights gained in the field of economics have probably experienced more ardent debate than the latest findings on dentistry. for given the complexity of reality, the dynamics of an increasingly interlinked global economy and the uncertainty that upheavals like the financial and economic crisis in particular generate, there are often no simple answers to economic policy questions. what is more, these answers may change with time. on the one hand, the specific set - up of an efficient competitive order is subject to constant change. as the framework conditions shift, so the regulatory principles i have just mentioned may have to be re - operationalised. at the same time, it is important to weigh other social policy objectives anew against the requirements of a competitive order, if necessary. on the other hand, not even a rule - bound, regulatory policy - driven economic set - up can do without discretionary decisions. generally speaking, therefore, rules are needed to give validity to regulatory principles such as the principles of competition and liability. they have to narrow the scope for action of participants in the economic process in such a way that market forces produce better economic results – results which are also more sustainable and more socially just than those of unbridled competition or of a centrally planned economy. to this end, the appropriateness of a given regulatory framework must be constantly reviewed, and adjustments made where necessary. one such example is agenda 2010. at that time, the rules laid down in employment and social welfare laws had shown themselves to be major obstacles to labour market entry, bis central bankers ’ speeches even in times of an economic upswing. in consequence, unemployment continued to rise across the business cycles until it reached a level that was no longer sustainable. the measures that were then taken boosted flexibility, lowering the barriers to entering the labour market. for example, the liberalisation of temporary employment makes it easier for employers to hire job - seekers. moreover, the amalgamation of unemployment assistance and social assistance and the shortening of the period of entitlement to unemployment benefits increased the incentive

riskier assets in order to increase their return on equity. that will do no favours to financial stability, either. mark carney, governor of the bank of england, therefore favours a pragmatic approach, saying that sometimes both a belt and suspenders are needed to keep one ’ s trousers from bis central bankers ’ speeches slipping. therefore, in his view, a one - size - fits - all rule, in the form of a uniform debt ceiling, should coexist with the current risk - weighting rules. i think this approach makes sense : where there is a threat of major losses that could bring the financial markets even to the brink of meltdown, there is justification – or even a need – for installing multiple security systems. what ’ s needed for nuclear reactors, for instance, does not seem like a bad idea for the financial system, either. it is also important, though, that these security systems cannot be circumvented by moving assets to less regulated areas such as the shadow banking sector. much remains to be done in this regard, starting with the enforcement of extensive reporting requirements. to strengthen the liability principle, it is crucial, too, that a bank which, for instance, does not have a sustainable business model be able to exit the market without putting financial stability at risk. otherwise, competition in the banking sector will be undermined. the implications are shown by a study published as a bundesbank discussion paper 6 absent an effective bank resolution mechanism, banks could become overly generous in their lending decisions and efforts in terms of ongoing loan monitoring could fall short. capital would then no longer be allocated to its most productive use ; instead, there is a danger that particularly risky lending would tend to be overfunded for too long. and that would weaken the forces of macroeconomic growth. an effective resolution mechanism thus strengthens not only financial stability, but also economic growth. the decisive factor here is not to make the taxpayer foot the bill for resolution – indeed both shareholders and providers of loan capital should bear the losses incurred. this is exactly the approach underlying the work conducted at european level on a new banking recovery and resolution directive ( brrd ). however, there may also be reasons why the brrd, adopted at the end of last year, gives countries the option of departing from the directive ’ s strict liability cascade in cases where financial stability is under threat. this is possible, for instance, by exempting certain liabilities or by permitting the use