the financial system properly performs its functions of allocating capital and risk, even if put under pressure. thus, robust financial institutions are one cornerstone of financial stability. a resilient market infrastructure, incorporating payment and securities trading systems, is another cornerstone of financial stability. and last but not least, there are transparency and market integrity. thus, the three panels of this symposium - basle ii, market structure and ifrs - neatly cover three major facets of financial stability. why has financial stability attracted so much attention recently? during the second half of the 1990s a series of international financial crises set the spotlight on financial stability and its significance for steady economic growth. financial instability comes at a great economic cost. monetary policy makes use of the financial system to transmit changes in official interest rates into the real economy. in a stable financial system, monetary policy signals are read and acted upon fast and reliably, thereby facilitating the pursuit of price stability. financial stability is a necessity. a modern necessity, yes, but not at all a new one. financial stability in part is a new catch - all phrase for a set of tasks that have been conducted by central banks for a long time. in many respects, financial stability is little more than just the same old thing in a new guise. it is just a new way of looking at old things. this is not to ridicule financial stability. quite the contrary. i regard this concept as very useful to describe the second leg of central banking - the first leg, of course, being price stability. if financial stability is so crucial to our economic well - being, then how can it be maintained? in a nutshell, it ’ s the framework for the financial system that counts. a suitable framework for financial stability boils down to sound institutions and a proper set of incentives. key institutions in this regard are • first, central banks that deliver price stability • second, a system of financial supervision that ensures the strength of financial intermediaries, as far as supervision can do that • third, safe and efficient state - of - the - art market infrastructure • and, finally, a trustworthy legal system. as regards the incentive structure, financial stability can benefit tremendously if market forces are strengthened. furthermore, this approach is the one that is most compatible with a market economy. ideally, financial market participants foster financial stability as a by - product of their pursuit of their own best interests. if, for example, financial institutions expect to be bailed

be detected on the labour market. the causes of the german labour market problems are primarily structural. this can also be seen by the comparatively large number of long - term unemployed. wage formation is mainly geared to the interests of “ insiders ” who already have a job and not to those “ outsiders ” who would prefer moderate wage settlements. the accelerated adjustment of east german wages to the west german standards is one example of insufficient wage differentiation. it is precisely in the lower wage groups that it would be important to structure wage substitutes in a more incentive - friendly way. from a current perspective it remains an open question whether the establishment of european monetary union will ultimately also lead to a reduction in labour market rigidities. however, i should add that we are witnessing a gradual erosion of industry - wide pay bargaining at least in eastern germany. and we also observe working hours becoming more flexible. however, further steps will have to follow so that a wage policy which is in line with market requirements can help to stimulate employment friendly growth. furthermore, the non - accelerating rate of unemployment, or nairu, could also fall in germany. in the united states all the signs indicate that the nairu declined significantly during the long boom. according to the bundesbank ’ s calculations, which may like other calculations be regarded with some degree of uncertainty, nairu has risen in germany almost throughout the entire period since the end of the seventies. in western germany, it is likely to have been above 8 % towards the end of the 1990s. when i now come to the second area of my comments, “ growth and productivity ”, i do not have to tell you about the us economy ’ s success story in the 1990s. it is well - known to you. in short : output and productivity growth has been very buoyant especially since the mid - 1990s - that is in an advanced phase of the upturn. the scale and the timing of these productivity increases can scarcely be explained in terms of the normal cyclical pattern. i wonder whether schumpeter would have already interpreted the available evidence as a long wave. in germany, the gdp growth rate in the 1990s was almost 1½ percentage points below the corresponding us figure. currently, the difference in the trend growth is likely to be slightly more than one percentage point. 3 when considering the individual components of demand, the different momentum of capital spending is particularly striking. whereas real investment in machinery and equipment in the united states has been growing at an annual average of almost