of the growth differential. • narrowing of the “ restructuring differential ” between the united states and the euro area economies. it seems to us that although corporate restructuring in europe was lagging behind the united states a few years ago, we are now observing a catching - up process. this leads me to my last point : the undertaking ( and speeding up ) of structural reforms is a major condition for the euro to be a complete success. 4. the conditions for the complete success of the euro : sound macroeconomic policies and structural reforms in this regard, the lisbon european council meeting last month can be viewed as a further important step towards the necessary medium - term strategy for structural reforms in the union. the labour market has become much more flexible in the past few years in europe. while europe has long had a strong tradition of economic regulation, it must be acknowledged that deregulation is well underway in most countries. the change is particularly noticeable in several key sectors such as telecommunications ( mobile phones, long distance calls ), transportation ( particularly airlines ) and the power - supply industry ( electricity and gas ) to mention only a few. major countries have embarked upon an ambitious overhaul of their public sectors. in countries with a large public sector, such as italy or france, ambitious privatisation programmes have steadily reduced the number of state enterprises. in addition to privatisation, state enterprises are changing ; companies that remain government - owned are becoming more profit - minded ( particularly airlines, railways, etc ). tax reforms should accompany the reduction of fiscal deficits within the framework of the stability and growth pact. they have already been initiated in several key countries, especially germany and france. european firms are restructuring and becoming more internationally competitive. european firms are going through a deep restructuring process. mergers and acquisitions have hit new records as companies seek to create national, regional or global champions ( m & as close to usd 1, 500 billion in 1999 compared with usd 500 billion in 1997 ). venture capital and start - ups are booming as investors and entrepreneurs become more convinced that europe can compete with america in knowledge - based industries. heavy industries and large conglomerates are restructuring as never before. finally, new rules on corporate governance are spreading. the outflows of foreign direct investment merely mirror the dynamism of european firms. european firms were lagging behind us firms in terms of foreign direct investment and they are now catching up. european firms have entered a “ globalisation process ” whereby they aim to reach a global size through

summarised as follows. the aim is to enable investors and financial system participants, which include supervisors, to have a better understanding of the risk profile of financial institutions in order to better assess their position. in order to achieve this, financial statements must – in the case of instruments for which it is economically relevant – be sensitive to price signals from markets, which reflect transaction values. i believe that two elements are important in this argument. the first is that financial statements have the crucial merit of providing information. the second is that the rationale of fair value valuation contains within it its own limitations. the concept of " transaction ", which is fundamental in this context and, as a result, that of " market ", should constitute the limits of the scope of application of fair value accounting. are accounting choices neutral? it goes without saying that the greater sensitivity of balance sheets to market fluctuations resulting from fair value accounting obviously has an impact on financial stability. a central banker may legitimately wonder whether accounting conventions are neutral with respect to the behaviour of financial players and market dynamics. the current crisis and volatility that we have been faced with over the past few months suggest that accounting conventions have an impact in terms of financial incentives and may have had a not insignificant impact on financial players'strategies. one example serves to illustrate this point. it is macroeconomic in nature and relates to risktaking by financial institutions. it is the possibility, in the case of some instruments, of recording as of the first trading day all of the discounted future profits even though the risks remain on the balance sheet. if we are to believe the financial industry itself, this possibility has an impact on investment strategies. it cannot be ruled out that because this rule makes it possible to record substantial income flows during cyclical upswings, it has contributed to greater risk - taking by some institutions in order to maintain these income flows year after year. in a more general way, the extension of the scope of application of fair value accounting has very probably, during cyclical upswings, also contributed to many assets being accounted for at market value whereas the intention of market participants to manage these assets on a fair value basis was not clear. my aim here is not to make a judgement about the relative merits of accounting choices. it is to highlight the fact that these choices have implications that go beyond accounting policy. in concrete terms, therefore, the question that we need to ask collectively is : what is the optimum policy response? do