way. the european economy is coming back and recovering from the recession. but monetary policy cannot create long - term growth. long - term growth will be driven by productivity gains, well - functioning economies and a reformed economic and monetary union. it is the responsibility of the democratically elected governments to propose and implement the right reforms. mario draghi has insisted in his press conferences that fiscal policy and structural policy are also important, yet some european countries still continue to pursue austerity. could you tell us your opinion on that? as regards fiscal policy, the discussion in the g7 should not just be about increasing spending, it should also be about improving the quality of the budget. the ecb agrees with the idea that “ countries that have fiscal space should use it ”, but many countries do not have this fiscal space. reducing unproductive expenditures and cutting taxes or increasing bis central bankers ’ speeches investment in productive infrastructure, such as education and research, can lead to growth without increasing the deficit. what about foreign exchange policy? the uk pound and japanese yen have been increasing and volatility is very high. what will the g7 do to reduce volatility? the g20 countries have committed not to use the exchange rate for competitive purposes, as confirmed in recent meetings in shanghai and washington. all of us should act in a way consistent with this commitment and which does not add to global uncertainty. emerging markets are slowing down and advanced countries have very low growth rates. what should the g7 and advanced countries do for the world economy? in a low - growth environment globally, there might be a temptation for some countries to grow at the expense of other partner countries. so it is precisely the role of the g7 or the g20 to resist such temptation. there is no “ magic bullet ” for increasing growth. for the g7, it is crucial to send the message to support domestic demand and focus on those structural policies that will be most conducive to growth. you cannot just rely on other countries. the message that we would like to hear is that “ growth starts at home ”. bis central bankers ’ speeches

subordinated debt. if there is still some loss left, then you write down the claims of uninsured, unsecured creditors in one way or another ; the scope of this would need to be made clear in the statutory framework for resolutions. the loss is then covered. but it is still necessary to recapitalise to the bank, so you convert some of the residual claims of the unsecured, uninsured creditors into equity. how much? whatever the microprudential regulatory authority concludes is needed to provide adequate capitalisation for the bank or dealer going forward. this is a technique that will work only in circumstances where the size of the loss could be estimated in the run up to the resolution and where the underlying franchise of the business remains basically viable. but it has the promise of being able to take an essentially viable business with a toxic part, write - off the toxic part and reconstruct the capital structure of the bank or dealer so as to be able to maintain the business as a going concern. for those of you familiar with chapter 11 in the united states for non - financial corporates, this amounts to applying those techniques in a very accelerated way and under the discretion of the resolution authorities rather than through a negotiation mediated by a judge. as i have described it, it is a resolution tool. there is no good reason of public policy why resolution should always involve closing the firm, provided that shareholders, uninsured creditors, the board and management pay the appropriate price. whichever combination of tools is incorporated into resolution regimes, we should expect them to induce changes over time in behaviour of banks and their creditors. there might, for example, be greater incentives to lend to banks against security or at short maturities. as we reintroduce the disciplines of capitalism back into the heart of the financial system, we might have to think carefully about regulatory policies on the encumbrance of assets and on the maturity structure of liabilities. the third point i would make is that even if we were equipped with a decent set of tools for the domestic context, we must be able to cope with the cross - border element of a financial firm failure. within the eu, this should not be the hardest thing in the world and i hope that the commission will be able to develop proposals that will lead the way for the rest of the international community in identifying how we can do this. because within the eu we can enter into more or less binding commitments under the terms of