##turn, without breaching the 3 % ceiling for the deficit. beyond these economic underpinnings, other considerations are worth mentioning : a fiscal policy set according to rules adds to macroeconomic stability by providing agents with expectations of a predictable economic environment ; this reduces uncertainty and promotes longer term decision making, notably investment decisions, and economic growth ; in addition, sound fiscal policies contribute to lower risk premia on long term interest rates and thus support more favourable financing conditions ; finally, fiscal discipline prevents spill - over effects from one country to another in the form of higher interest rates. some people argue that fiscal consolidation is detrimental to demand and economic activity. i would maintain that wealth and expectational effects of well - designed consolidation programmes might very much reduce and possibly even outweigh the traditional keynesian multiplier effects of fiscal policy on demand and activity. if fiscal consolidation is perceived by the private sector as a credible sign that public spending will be permanently lower in future years, households will revise upwards their expected permanent income in anticipation of lower future taxes. therefore, current and planned consumption will also increase. in addition, fiscal consolidation might improve long - term financing conditions by way of less demand on the savings pool ( reducing crowding out ) and lower risk premia on government paper. hence, wealth effects prompted by lower nominal and real interest rates would support larger consumption. furthermore, following more favourable financing conditions, private investment is also likely to increase. the case for expansionary effects on the supply side, via an improved competitiveness of the economy, is also important. if fiscal consolidation can induce moderating effects on wage demand, relative unit labour costs might decrease, with positive medium - term effects on real gdp growth through a greater competitiveness of the productive sector. such effects are buoyed if lower expected tax rates and more efficient public expenditure enhance the working incentives and the investment environment. it is also important to recognise that fiscal policies can promote growth and employment via appropriate reallocations of the level and composition of government taxes and expenditures without hampering in any respect the fiscal rules. reducing inefficient public spending can reduce disincentives to work and help to finance tax cuts. furthermore, public expenditures can be redirected towards productivity - enhancing physical and human capital accumulation rather than, for example, the provision of subsidies for declining industries. in this respect, the dramatic acceleration of output in ireland in the post 1987 period can be associated with a vigorous and successful project of fiscal

today consistently adjusts the value of all of its assets based on each asset ’ s contribution to diversification. consequently, for the time being we have decided instead to establish standard estimates of diversification that banks would apply. i know that many members of the industry have accepted that choice as prudent for now, but you have also stressed the need to move forward with an approach that is more consistent with the existing treatment of market risk and the emerging practices in operational risk management. we are ready to start this work as soon as it is possible. still, portfolio theory suggests that an obvious next step to further enhance the risk - sensitivity of the capital framework would be to incorporate calculations of diversification benefits into the framework. in the coming years, and we can start very soon, we look forward to working with banks, with banking associations such as the bba, and with academics and researchers to find ways to move basel in the direction of full credit risk models. likewise, the committee must continue to monitor developments in the industry to be prepared to harness other improvements in risk measurement and management practices. it is at once exciting and perhaps a bit daunting to think about the work ahead for all of us, whether on a national, regional, or global level. indeed, you need only to consider the energy and time that supervisors and the industry have already expended to prepare for the new basel accord to recall that great benefits can be reaped only from great efforts. while many challenges lie ahead, even more lie behind us that we have already overcome. thank you for inviting me to your conference today.