##ly ; ambitious structural reforms in the areas of education and training, the labour market and welfare and, lastly ; the continuation and strengthening of a policy aimed at containing unit production costs in the economy and improving corporate competitiveness. these guidelines are equally valid for the entire euro area economy as for the french economy. with regard to the first two conditions, and without forgetting the major achievements in the fight against unemployment in recent years, the banque de france is convinced that we could have even lower unemployment - as low as in the best - performing economies in europe and the world - if the level of public spending ( which can be likened to the overheads of our economies ) was lower and if the labour market functioned in a way even more conducive to job creation. it should be recalled that our monetary policy council recommends, as an essential first step, that our public spending be reduced to below 50 % of gdp as quickly as possible ( it came to 52. 4 % in 1999 ). note also that the stability and growth pact recommends that public finances be “ close to balance or in surplus ” in the current period. this is not yet the case in france. at the end of 2000, it probably will be in at least four euro area member countries and in a total of at least seven european union member states. turning to the third condition, it is important to remember that the considerable improvement in the cost competitiveness of the french economy in the 1980s and 1990s played a very large part in the recent success of our economy, a fact that we perhaps tend to neglect a little today. if the french economy has grown more quickly than the other main european economies between 1997 and 2000, whilst recording the largest external surplus in europe and the second largest in the world over the last three years, it is to a large extent because, thanks to our low inflation, average unit wage costs in the manufacturing sector have, since the start of 1987, increased significantly less in france than in the euro area as a whole ( some 16 % less ), as can be seen from the following graph : competitiveness of the french economy unit production costs in the manufacturing sector ( unit wage costs ) relative to monetary union member states jan. 1986 jan. 1988 jan. 1990 jan. 1992 jan. 1994 gains in competitiveness jan. 1996 jan. 1998 jan. 2000 nominal exchange rate : from the franc to the euro ( base 100 in 1987 ). indicator for the trend in unit production costs in the same monetary

of equity. it protects the system from risks that we might think are low but in fact are not. we are big fans of a leverage limit here in canada. we had one going into the crisis, and it served us well. but as the leverage ratio is finalized by the basel committee on banking supervision over the course of next year, it will be important to get its calibration right. the belt and suspenders approach of the new capital standards and leverage ratios establishes two tests for the maximum amount of assets that financial institutions may hold relative to equity. at issue is which of these should typically bind first. the leverage ratio was initially conceived as a backstop. risk - weighted assets would normally be the binding constraint. the role of the leverage ratio is a simple, fail - safe second line of defence. some, however, are arguing that the basel iii capital framework is too complex and are reluctant to put their faith in risk - weighted assets. they point to recent studies by the basel committee that show significant variations in risk weights applied by banks across jurisdictions for similar portfolios of assets. they argue that the simpler leverage ratio should be calibrated as the binding constraint. while this appeal to simplicity may be ostensibly attractive, it is likely to have a perverse effect. if the leverage ratio normally binds, the incentives for banks to manage their risks will diminish. banks will load up on riskier assets and push other assets off their balance sheets. the result will be more risk, not less. we need to embrace risk management, not avoid it. in practice, this means three things. first, the industry has to invest in risk assessment and analysis, including robust financial modelling. second, supervisors need to invest in strong oversight of all elements of good risk management, including the risk culture and risk - governance framework. third, there is work to be done at the basel committee and on the ground to improve the consistency of risk - weighted assets across jurisdictions. with a determined investment in risk management, this is achievable. bail - inable securities the higher capital standards in basel iii, combined with a well - designed leverage ratio and appropriate liquidity requirements, will substantially reduce the probability of failure, but since failures will still happen, we must also reduce their impact. bail - inable securities are part of the solution. bis central bankers ’ speeches a bail - in regime can help authorities maintain critical banking operations by returning to viability institutions that are perceived as being too big