had widespread financial markets implications. it is clear that there is a need to strengthen fiscal discipline significantly. the ecb has called repeatedly for a “ quantum leap ” in this respect that would go beyond current proposals made by eu heads of states and governments, though the package proposed by the european parliament is already an improvement in some respect. this “ quantum leap ” would include quasi - automatic applications of sanctions on the basis of clearly pre - defined criteria and without scope of discretion or waivers. i will come back to that later. these examples show that many policy makers – even today – believe that the “ put your own house in order ” approach is a sufficient recipe for international cooperation. international cooperation is solely an exercise in which the national authorities have the main responsibility for identifying and solving problems, albeit in a process which is monitored by other parties. advocates of such a form of cooperation tend say that national authorities “ know best ”, or that full sovereignty and the absence of finger - pointing increase the chances of achieving cooperative outcomes. moreover, if each party managed to keep its own house in order – the theory goes – policy failures would not occur, negative spillovers would be contained, and crises would not happen. i strongly believe that the “ putting - your - house - in - order ” concept is not sufficient in today ’ s globalised economy. raghuram rajan wrote in his book “ fault lines ” : “ in an integrated economy and in an integrated world, what is best for the individual actor or institution is not always best for the system. ” therefore, just as micro - prudential regulation has failed to identify key systemic risks in international financial markets, a narrow focus on national policies alone is unlikely to deliver the global public good of a stable global monetary system and sustainable growth. failing to properly recognise the impact of domestic policies on others, and the second round feedbacks on the domestic economy can be detrimental to growth and stability. bis central bankers ’ speeches an excessive focus on the domestic economy may exacerbate global economic and financial imbalances, ultimately making future global crises more likely and more severe. this is all the more true for systemically relevant countries, which have a special obligation for international cooperation. 3. what are recipes to prevent imbalances and their spillovers? sound macroeconomic policies at the national level can – of course – help to address external shocks and spillovers. but – as mentioned – there are clear limits of national policies with regard to fully prevent spill

##overs from systemic shocks or economic imbalances in an increasingly integrated world economy. moreover, a global economy requires global policies. the g20 framework for strong, sustainable and balanced growth, which is the first systematic multilateral assessment of global imbalances, is therefore welcome. it is a constructive approach to ensure that macroeconomic and structural policies of key countries take into consideration their external spillovers, and in particular the risks they entail for the global financial system. the recently agreed set of indicative guidelines for global imbalances is an important milestone in that respect. by using structural approaches, the g20 framework will help us in benchmarking acceptable levels of global imbalances, and provide guidance on how to deal with unsustainable imbalances in an orderly manner. it is now of foremost importance to implement the framework effectively, and to fully live up to the expectations that the g20 process raised internationally. multilateral surveillance on domestic policies of systemic countries to ensure their orientation towards medium term stability and sustainability should be strengthened on other fronts as well. the ecb has always been supportive of the imf ’ s multilateral surveillance decision in this respect, and the recently conducted first round of imf spillover reports can be seen as a step towards a broader and more comprehensive framework. moreover, today ’ s multilateral surveillance framework is probably insufficient with respect to disciplining mechanisms, and what is needed is a mechanism that ensures that imf members look beyond their short - term policy goals and internalize their impact on the global system. what is needed more than ever, is a mechanism to ensure that the concept of external stability becomes a cornerstone of multilateral surveillance. this means that it needs to be taken into account whether a country ’ s exchange rate, monetary, fiscal and financial sector policies are destabilising for other countries or regions. this would be a considerable strengthening of international cooperation to achieve our common goal of economic and financial stability. 4. what can we learn from all this for the current situation in europe? also europe had to learn the hard way that loose policies and large imbalances also in the private sector, rather than only the public sector, may have severe implications for public sector budgets and risk systemic crises. especially in the banking sector, our regulatory framework and surveillance turned out to be insufficient. while finance was getting increasingly regional or global, regulation remained mainly in the national realm, and discipline was delegated too much to the markets itself. but in less