from a financial stability angle, two factors are crucial in this respect : developments over time, and the risk level. low interest rates might fuel demand for mortgage loans, which might give rise to a selfreinforcing interaction between lending and prices. however, the results of a bundesbank survey of banks have indicated that the risks inherent in real estate business are hardly procyclical. all in all, mortgage loans grew at no more than a modest pace – at 2 % per year, to be precise – while lending standards have hardly been loosened. what we do see, though, are signs of structural vulnerability within the german banking system. the surveys found that 100 % financing arrangements are certainly no longer out of the ordinary in the surveyed towns and cities. if a decline in urban real estate prices were to coincide with climbing default rates, this would have a considerable impact on banks ’ profits. a scenario like this might well be manageable, were it to occur in isolation. but experience has taught us that real estate crises normally go hand in hand with a downturn in the broader economy. if this occurred simultaneously, it could prove to be very trying indeed for banks. besides continuing to monitor developments in the real estate market, we currently see two areas in which action is needed. first, we are laying the groundwork for closing major data gaps. second, we are evaluating what fundamental legislation is needed to even more effectively counter risk in the real estate market going forward. 6. banking union and financial stability we have taken a huge step forward at the european level this year. the european single supervisory mechanism can apply a consistent and strict standard of supervision and compare banks across national borders, meaning that risks to financial stability can be identified earlier on. while it is true that it is primarily the nation states which decide on the use of macroprudential instruments, the european central bank, too, has been given macroprudential powers, and it can tighten national regulations. that makes sense and averts the danger of not addressing risks to financial system stability in good time. but the banking union also provides answers to another key question : who is to bear risks that have materialised? in the pre - crisis era, there were no effective procedures for dealing with major banks that had run into difficulties. all too often, the cost of risks that materialised were passed on to the taxpayer, while private sector owners and creditors were hardly ever made liable. looking ahead, the single resolution mechanism, the

the deficit countries themselves as it was there that domestic developments became unsustainable in the years prior to the crisis. although the crisis has led to a correction that is not just cyclical, including a cooling - off of housing markets, it is of great importance for the euro - area economy that the adjustment process in the deficit countries continues. against this background, compensatory measures taken by euro - area countries with current account surpluses, like wage increases or a more expansionary fiscal policy stance, would be neither necessary nor helpful. furthermore, it has to be stressed that germany ’ s current account surplus, for example, is the result of decentralised market processes. this is an important difference between emu surplus countries and some emerging economies where a market - driven correction of imbalances is significantly hampered by policy interventions. to sum up, as the underlying causes of global imbalances are mainly still operative, imbalances are continuing to pose risks to the global economy and are incompatible with the g20 ’ s goal of strong, balanced and sustainable growth. the financial and economic crisis has not removed global rebalancing from the global policy agenda. pre - crisis policy advice is still largely relevant. while global rebalancing may have become even more challenging – even more so as major economies have not yet fully digested the recent crisis – it is encouraging that global leaders have acknowledged the importance of the issue. the g20 “ framework for strong, sustainable and balanced growth ” is a sometimes tedious, but important advance in this regard. in contrast to the multilateral consultations that were held in 2006 and 2007, the g20 commitments are backed by the leaders and include all major stakeholders. furthermore, the mutual assessment process could provide the opportunity for exerting peer pressure among members, which is considered to be more effective than institutional surveillance. still, we should not rely too much on the effectiveness of the framework itself. at the end of the day, it is up to the national authorities to implement the necessary measures in order to reduce imbalances. emerging surplus countries as well as oil - exporting countries should pursue measures to increase domestic demand. in some cases, in particular china, it is a well - known fact that more flexible exchange rate regimes would help redirect growth from export to stronger domestic demand. at the toronto summit, emerging surplus economies agreed to undertake reforms to enhance exchange rate flexibility. market - oriented exchange rates that reflect underlying economic fundamentals