seeing millions of workers unemployed or underemployed for many years. as a society, we should find that outcome unacceptable. monetary policy is working in support of both economic recovery and price stability, but there are limits to what can be achieved by the central bank alone. the federal reserve is nonpartisan and does not make recommendations regarding specific tax and spending programs. however, in general terms, a fiscal program that combines nearterm measures to enhance growth with strong, confidence - inducing steps to reduce longerterm structural deficits would be an important complement to the policies of the federal reserve. global policy challenges and tensions the two - speed nature of the global recovery implies that different policy stances are appropriate for different groups of countries. as i have noted, advanced economies generally need accommodative policies to sustain economic growth. in the emerging market economies, by contrast, strong growth and incipient concerns about inflation have led to somewhat tighter policies. unfortunately, the differences in the cyclical positions and policy stances of the advanced and emerging market economies have intensified the challenges for policymakers around the globe. notably, in recent months, some officials in emerging market economies and elsewhere have argued that accommodative monetary policies in the advanced economies, especially the united states, have been producing negative spillover effects on their economies. in particular, they are concerned that advanced economy policies are inducing excessive capital inflows to the emerging market economies, inflows that in turn put unwelcome upward pressure on emerging market currencies and threaten to create asset price bubbles. as is evident in figure 6, net private capital flows to a selection of emerging market economies ( based on national balance of payments data ) have rebounded from the large outflows experienced during the worst of the crisis. overall, by this broad measure, such inflows through the second quarter of this year were not any larger than in the year before the crisis, but they were nonetheless substantial. a narrower but timelier measure of demand for emerging market assets – net inflows to equity and bond funds investing in emerging markets, shown in figure 7 – suggests that inflows of capital to emerging market economies have indeed picked up in recent months. to a large degree, these capital flows have been driven by perceived return differentials that favor emerging markets, resulting from factors such as stronger expected growth – both in the short term and in the longer run – and higher interest rates, which reflect differences in policy

liquidity crises ” to introduce in sovereign bond contracts collective action clauses. the g7 endorsed this recommendation. efforts undertaken recently by the g10 deputies to design concrete steps to implement this proposal should also be supported. another way to promote private sector implication is the voluntary roll - over or restructuring of short - term debt coming to maturity. the korean experience has been replicated, yet in different conditions, with success in the case of brazil. such a solution worked well after the brazilian authorities committed firmly to, and implemented, fiscal adjustment. the use of financial innovative techniques should also be considered : for instance, the introduction of roll - over options in debt contract ( buiter proposal ) or put options associated with significant debt reduction. as to the role of the international community : the imf has a central role to play in macroeconomic surveillance which is its main mission. the conditionality associated with financial assistance is essential to give economic agents a clear assessment of the efforts made by members committed to implement adjustment programmes. furthermore, the imf can improve its action as regards prevention. improvements in the sdds and more transparency regarding article iv reports, letters of intent and policy papers will certainly improve risk assessment. this could help prevent economic problems from turning into crises and to prevent contagion to other countries. progress has to be made as regards incentives for sound management. the creation of the ccl is a step in this direction. designing appropriate incentives is the more effective way to make members adopt more prudent debt management, effective banking supervision … given the large number of institutions and fora involved in the efforts aiming at a better global financial architecture, the creation of the financial stability forum reflects an important effort to coordinate work in progress and identify issues not yet addressed. the european monetary union will yield a substantial contribution to better economic and monetary equilibrium in the world the introduction of the euro six months ago is the other major event i would like to deal with now. the irreversible nature of this change has convinced an increasing number of political and economic actors that the success of the euro is a necessity for europe. it is a keystone of the single market. it is clear that, now and for the future, we have to face a number of challenges to make this success sustainable. i would like to draw your attention to the following issues : i first, the euro area will have to face up a number of challenges to confirm its initial success ; i second, the success of the euro will make a contribution towards