compensatory measures by surplus countries would neither adequately address the problem nor would they bring notable relief to deficit economies. what can european policymakers contribute? in the long run, procedures to ensure fiscal policy commitment will have to be strengthened, for example by enhancing the stability and growth pact. more effective macroeconomic surveillance and the development of a crisis resolution mechanism would, at least in the medium term, also be helpful. thank you for your attention.

same time, the deficit countries have to increase labour market flexibility and consolidate government budgets. in the end, domestic absorption will have to return to a sustainable level. proponents of a symmetrical approach say that surplus countries must also act. they claim that these countries have to boost domestic demand and, consequently, imports by using fiscal policy stimulus. it is also argued that surplus countries should raise wages, which would further increase domestic demand and at the same time reduce their competitiveness. however, when taking a closer look at these proposals, it becomes apparent that they are based on invalid assumptions. to demand measures that would boost imports neglects the fact that trade flows are highly diversified. given the current trade structure, an increase in german imports by 10 % would improve the current account balance in spain, portugal and greece by a mere 0. 25 percentage point. the current account balance in ireland would improve by 1 percentage point. the proposal of raising wages to support domestic demand and reduce competitiveness does not only neglect that wages are not a political control variable. moreover, simulation studies show that the effects would be confined almost entirely to the home economy in the form of changes in employment. finally, the argument that fiscal policy should be used to stimulate internal demand and imports overlooks the fact that public finances in surplus countries are also strained and that ambitious consolidation efforts are required in these economies as well to restore the sustainability of public budgets. when looking at the international discussion, we must also bear in mind that the current account surpluses of china and, for instance, germany are of a different nature – germany does not manage its exchange rate nor does it impose capital controls. nevertheless, what i just said does not imply that there is no need for reforms in surplus countries. germany, for example, would benefit from more flexible labour markets and deregulated services and product markets. improvements to the education system would also raise the economic potential. but these measures will not ease the need for adjustment in deficit countries. 4. conclusion ladies and gentlemen, let me summarise my speech. the large current account imbalances in emu are mainly due to structural domestic imbalances in deficit countries. given spillover effects in integrated euro - area financial markets, the imbalances are a serious strain on the monetary union as a whole. they must therefore be corrected. the relevant reform agenda has to centre on deficit countries. they will have to align demand and potential output more closely and, at the same time, consolidate government budgets.