of external fragility ( an index based on exports, current account, external debt, and foreign exchange cover ). this external deficit cannot keep increasing with impunity. ultimately the markets would penalise the large external liabilities and deficit position by requiring a larger premium for its continued funding, and the sheer size of servicing our obligations could become an intolerable burden to the country. already we spend around 6 – 7 percent of gdp servicing debt and returning profits off - shore to owners of new zealand domiciled businesses. as the recent imf report on new zealand makes clear, there are a number of aspects of our external position that are unusual by world standards : we have relatively high foreign investment here, but we do not do much investment overseas. we have high levels of private debt, predominantly overseas funded, short - term, but fx hedged. almost all of this debt is channelled through bank lending. we do not save much, with very limited financial savings and stocks and shares. overwhelmingly our household assets are invested in housing and other property. 4. how to reduce our vulnerability if this growth in our external indebtedness cannot continue, then it will not. but rather than await the market descriptions noted above, are there proactive steps that can improve the situation? the diagram shows a highly simplified picture of how the actions of households, businesses, banks and government feed into our balance of payments, in a way that over time drives our net international position. while the actions of government and businesses can be significant, the real impact comes from household consumption and savings, and from the actions of banks. with this is mind, how can we see this external position best being controlled and improved? reducing our external vulnerability is a long - term proposition that would mean running lower current account deficits than we have in the past and sustaining them over an extended period, not just one or two years. our calculations suggest that reducing current account deficits to no more than about 5 percent of gdp on average is necessary to stabilise the net investment position as a share of gdp, while reducing that share over time would require lower deficits to be run. there are many factors that can influence the size of our deficits, some of which are within new zealand ’ s control and some that are not. changes in national savings, the terms of trade, exchange rates, interest rates, and the fiscal balance can all affect new zealand ’ s external vulnerability. most would take some time to

percentage points of gdp between 1999 and 2009. the euro area is a vast continent of more than 331 million citizens. by population size, it is comparable with the other large economy of the developed world, namely the united states, with a population of 310 million. in terms of economic output, the euro area is second only to the united states. it accounted for about 20 % of world output in 2010, twice the share of japan ( about 10 % of world output ), and somewhat less than the united states ( about one - quarter of world output ). second, the euro is a stable and credible currency. for over 12 years now, the european central bank – together with all national central banks – has been delivering what it is expected to deliver : price stability in the euro area as a whole over the medium - term, with an average annual inflation of less than 2 %, but close to 2 %. since we are in kiel, let me add that in germany the average yearly inflation has been 1. 5 %, which is a better result than for any such 12 year period over the last 50 years. bis central bankers ’ speeches we have thereby been safeguarding the euro ’ s purchasing power. this has been achieved despite several headwinds to the european economy : oil prices went up ; the internet bubble burst ; violence and wars have raged in some parts of the world ; and starting in mid - 2007 we had to cope with the most severe global financial crisis in over 60 years. taken as a whole, the euro area performed soundly also when looking at other macroeconomic indicators, or comparing with other large developed economies. adjusted for differences in population growth, per capita gdp growth in the euro area over the last decade has been almost the same as in the united states, at about 1 % per year. the dispersion of real gdp growth rates across euro area countries is comparable with the equivalent dispersion across u. s. states. for instance, the difference between the fastest and slowest - growing u. s. states is not of a markedly different order of magnitude as that between euro area countries. overall employment in the euro area increased by 14 million during the first twelve years, compared with a rise of about 8 million in the united states. and the overall yearly public finance deficit in the euro area is presently about half that in the united states or in japan. the imf projects indeed the euro area ’ s fiscal deficit to reach 4. 4 % of gdp