board ’ s majority. but as observers and market players become more accustomed to how we operate, such differences of opinion are likely to attract less attention. still, monetary policy signalling clearly cannot be arranged in quite the same way as before and in this respect we will presumably become more like the ecb and the bundesbank, where individual statements do not automatically constitute a collective signal from the central bank. for those who are interested in following us and our assessments, however, we strive to provide a good foundation by publishing — at intervals of approximately six weeks — either an inflation report or a lengthy press notice on the majority view of inflation prospects. fiscal policies in the euro area let me now turn to the conduct of fiscal policy in the euro area. a judicious monetary policy is not sufficient to ensure that the monetary union functions properly. the single currency will make the national economies more interconnected than before. the formation of fiscal policy in one country will affect the overall picture of economic prospects and thereby monetary policy. in the maastricht treaty the countries accordingly agreed on certain common rules for economic policy and these have been fleshed out with additional legislation and political agreements. besides fixed and binding undertakings for each country, there are regular common processes for producing more general guidelines and standards for economic policy. the national convergence or stability programmes each member state presents to show how it intends to follow the guidelines supplement the latter, which can be likened to a common budget statement for the euro area. it is envisaged that the countries will exert peer pressure to bring about a good economic development in each country and thereby fulfil the common objectives of sustainable growth with high employment and stable prices. a central issue here is the formation of fiscal policy, for which there are binding rules. in the maastricht treaty the eu countries agreed that budget deficits and government debt relative to gdp are to be limited to 3 and 60 per cent, respectively. in summer 1997 the eu finance ministers agreed to clarify and tighten the existing fiscal policy goals so as to guarantee a sound development of government finances in the union. the background to this was that the rules of the game once the monetary union had been established were less clear than the criteria for participation in the euro area. more specifically, there were worries that once they had joined the euro area, countries with a high debt ratio would implement a less vigorous policy because their incentives for exercising restraint would not be as clear. the pressure on these countries to consolidate their budgets

constraint, the local board has much more than a rubberstamping role. another important policy requirement that we are developing to protect the new zealand financial system relates to the growing practice of outsourcing core bank functionality. here, i am referring to the tendency for foreign - owned banks to move large parts of their functionality to the parent bank or to third parties - which are often in another country. in new zealand, this has been occurring on a significant scale. and it has not just been confined to the obvious areas, such as it systems, accounting functions and the like. outsourcing to the parent banks has also included the movement of risk management capacity, some treasury functions and some senior and mid - level management and technical expertise. outsourcing makes it more difficult to supervise a bank effectively on an ongoing basis. this is especially so where core risk management functionality has been migrated offshore. in these circumstances, there is a limit to what any supervisor can achieve in seeking to promote sound risk management structures within the local bank. it also has the potential to weaken the role of the local board, thereby compromising the ability to ensure that governance arrangements are adequate to protect the interests of the local bank. but when the storm clouds gather, the effect of outsourcing can be very serious for a host banking system. in a situation where a parent bank is in acute difficulty, it is likely that its foreign operations will also be in difficulty. if the parent bank is unable or unwilling to provide financial support to the subsidiary, and if the home authorities are unable or unwilling to extend official support to the foreign subsidiaries of the parent bank, then the host authority needs to have sufficient functionality in the bank in its jurisdiction to maintain systemically important functions. a bank that relies substantially on outsourced services to its parent, or on inadequately outsourced arrangements to unrelated third parties, will not have that capacity. it will be substantially dependent on the outsource provider in order to maintain even quite basic functions. in a situation where the outsource provider is in serious strife, there is no guarantee that the bank will be able to maintain essential functions. in this situation, the host authority has limited scope to manage the crisis in its own jurisdiction. for these reasons, and in accordance with our legislation, we have initiated an outsourcing policy for application to all systemically important banks and potentially to some of the other banks. in essence, the policy will require banks to maintain sufficient functionality within the