, for those countries with a government debt - to - gdp ratio of over 90 %, see in particular christiano et al. ( 1999 ). see in particular christiano et al. ( 1999 ). see aizenmann and marion ( 2009 ). see skidelsky ( 2009, chapter 8 ). median gdp growth tends to be about one percentage point lower than it would be otherwise. although at first sight this may appear small, when cumulated over decades it leads to significantly lower standards of living. empirical evidence also shows that higher deficit - to - gdp and debt - to - gdp ratios lead to higher interest rates even when there are no doubts about fiscal solvency. a study by thomas laubach 20 based on us data, for example, estimates that every percentage point increase in the projected deficit - to - gdp ratio results in an increase in long - term interest rates of 20 to 29 basis points, whereas a percentage point increase in the debt - to - gdp ratio is associated with an increase of about 3 to 4 basis points. once again, although such effects may seem tiny, when cumulated over long periods of time their impact becomes significant. another fundamental problem of fiscal policy is its lack of timeliness, or, to put it differently, its implementation lags. whereas automatic stabilisers such as unemployment benefits are built into the system, and therefore have no implementation lags to speak of, decisions concerning taxation and expenditure are legislated by parliament. as a result, as extensively discussed in standard macroeconomic textbooks, a fiscal stimulus may come to be implemented with a potentially significant delay. a conceptually related problem with using fiscal policy as a stabilisation tool is that its need to “ pass through the political process ” inevitably decreases its predictability. fiscal stimulus packages, quite inevitably, become part of a larger bargaining process between competing interest groups, so that not only the timing, but also the extent and composition of the fiscal stimulus become comparatively uncertain. monetary policy has also its limitations when it comes to stabilisation purposes. one problem is that low interest rates, if protracted, may fuel new imbalances, in particular bubbles in asset markets, increasing uncertainty across the board, rather than decreasing it. once again, this is nothing but an illustration of the same general point i previously made with reference to the need to guarantee fiscal solvency : the fundamental limit to government stabilisation policies is that such interventions should never increase overall uncertainty, and they should rather decrease

close to balance, compared with sustained deficits in the us and sustained surpluses in japan. of course, remaining competitive is a continuous challenge. over the past two decades, as low - cost competitors have emerged elsewhere in the world, the euro area – like other advanced economies – has recorded some decline in export market shares. these losses partly reflect the mechanical effect of the new entrants. nevertheless, the euro area does need to adjust the range of goods, services, sectors and industries in which it specialises. euro area countries have changed their specialisation over the last two decades, but not all did so to the same extent. as a consequence, the specialisation of the euro area as a whole has not changed much. we could have expected that the euro area would have shifted more towards higher quality products and products that are more skill - intensive and capital - intensive. the fact that there has not been more progress overall might reflect structural rigidities that constrain firms ’ ability to adjust rapidly and to make substantial changes in their specialisation – particularly towards high - technology products. in particular, rigidities in the product and labour markets make it difficult for firms to adjust costs and prices to changing conditions. the ability of countries to adopt the appropriate specialisation may also be limited by structural issues related to the quality of education and the incentives for innovation. internal competitiveness the general picture for the external competitiveness of the euro area is positive. but this general picture does not necessarily hold for each member of the euro area. overall, looking at competitiveness within the euro area, there have been substantial differences across countries. indeed, the strains in some sovereign debt markets have been compounded by the severe competitiveness differentials that have emerged within the euro area. a convenient way to identify competitiveness differentials is simply to look at the current account balances of each country. current account imbalances could be justified for any country, including those participating in a monetary union, and they do not necessarily reflect a loss of competitiveness. but increasingly, larger current account deficits have resulted from significant losses of national competitiveness, signalling domestic macroeconomic imbalances and deeper structural bis central bankers ’ speeches problems. these losses of competitiveness limit the country ’ s growth potential and hinder its participation in the global trade integration. against this background, rather than financing productive investment in the tradable sector and fostering export performance, capital inflows in some countries with excessive current account deficits