contribute to global economic stability. therefore, the recent appreciation of the chinese renminbi is a welcome further step towards appropriate valuation. higher exchange rate flexibility should, however, be supplemented by structural reforms, especially as their positive impact is more sustainable. in the case of china, this includes, for example, measures to reduce precautionary household saving by improving social security or measures to strengthen corporate finance. the advanced g - 20 states have pledged to halve their public deficits by 2013 and to stabilise their debt ratios by 2016. the deficit countries among them have committed themselves, beyond budget consolidation, to supporting private savings, to strengthening their export sectors and to maintaining open markets. in the united states, private savings have already increased, whereas the public deficit is still high. budget consolidation will be challenging but will be good for the u. s. and help rebalance the global economy. the surplus countries, in turn, have committed themselves to strengthening domestic sources of growth, in particular by implementing structural reforms depending on national circumstances. germany is a case in point. comprehensive and sometimes painful labour market reforms have helped to make the labour market significantly more flexible. the dividend from these structural reforms was a robust labour market during the downturn, implying comparatively robust private consumption. meanwhile, the unemployment rate has gone back down below its pre - crisis level and economic growth is increasingly based on domestic demand. boosting demand by means of further macroeconomic stimulus measures would, however, be inappropriate and, at least in the case of germany, highly procyclical. 3. conclusion let me conclude. global imbalances still pose significant risks to the global economy. the unwinding of global imbalances is therefore one of the major challenges on the global policy agenda. it is a joint task of surplus and deficit, of advanced and emerging economies. thank you for your attention.

domestic savings and investment. for countries with an ageing population like germany, it is a matter of rationality to save more than to invest domestically since the number of investment projects with good prospects is declining, whereas households want to maintain their level of consumption in old age. similarly, countries that export an exhaustible resource would be well advised to invest some of the proceeds abroad so that future generations can benefit from the resources as well. current account surpluses will therefore fade out over the medium to long term and probably eventually turn into deficits, as the accumulated net foreign assets are gradually reduced. on the other hand, countries that are catching up on economic development usually invest more than they save. given a wide variety of investment opportunities but scarce capital, they rely on foreign inflows of funds. in such cases, temporary current account imbalances are fundamentally unobjectionable. by allowing economies to separate domestic absorption from output – which is, by definition, not possible in closed economies – current account imbalances are welfare - enhancing since consumption is smoothed over time and because capital flows from economies with net savings to countries where the marginal return on investment is higher. this, however, requires a productive use of the capital inflows in the deficit countries. overall welfare will be adversely affected, for example, if capital inflows mainly fuel a speculative housing bubble. it has now become obvious that unproductive use of foreign capital was widespread in the years prior to the financial crisis and that several countries have been living beyond their means. regarding the debate on whether global imbalances were among the causes of the financial crisis, i do not, however, consider them to have triggered the crisis. rather, i think that deficiencies in the financial system were at the core of the crisis, whereas global imbalances intensified and accelerated the resulting chain of events. indeed, many of the persistent high current account positions that have emerged over the past decade are neither benign nor sustainable. the large u. s. deficit is due, first and foremost, to low national savings. on the other hand, the current account surpluses of major emerging economies are, to a significant degree, the outcome of exchange rate policies that helped merchandise exports to grow. rather than investing the financial surpluses domestically, china, in particular, continues to accumulate substantial foreign exchange reserves – mainly denominated in us dollars. whilst this may possibly be not irrational from the surplus country ’ s point of view, it is