from 1937, in the aftermath of the great depression, when he said : “ just as it was advisable for the government to incur debt during the slump, so for the same reasons it is now advisable that they should incline to the opposite policy ”. 1 fiscal consolidation and growth are not mutually exclusive. i disagree with the view that reducing public expenditures will hinder economic growth. on the contrary, prudent fiscal management provides the basis for balanced and sustainable growth. stability - orientated fiscal policies will foster confidence among households, entrepreneurs and investors, which will ultimately increase our welfare by creating new jobs. 2. how should we address european modalities of today ’ s global challenges? i have outlined three key areas for efforts to shape the contours of the post - crisis world – reform of the institutions of global governance, reform of the financial system and reform of public finances. these are global challenges affecting in particular the industrial economies. i would now like to explain how europe specifically is responding to these challenges. an ambitious agenda lies before the continent. it is not only a visionary agenda : it has to be pursued with determination right now. we have to demonstrate the same spirit with which the european union was progressively developed over the past half - century : setting objectives, agreeing deadlines and mobilising the necessary political will within parliaments. europe ’ s governments are committed to pursue fiscal consolidation. those within the euro area have formally declared that they will take “ all measures needed to meet fiscal targets this year and the years ahead in line with excessive deficit procedures ” ( euro area heads of state or government declaration of 7 may 2010 ). some of them have made precise additional commitments to accelerate fiscal consolidation and ensure the sustainability of their public finances. fiscal consolidation is being put in place at the same time as we strengthen the resilience of the european banking sector. publication of the detailed results of a harmonised paneuropean stress test is an important step in the right direction. these tests will increase transparency and enhance investors ’ confidence in europe ’ s banking sector. they will also contribute to restoring the important intermediation role of the interbank market in channelling funds within europe. 3. where next? so where do we go from here? as i have indicated, collectively as european and global policy - makers, we need to ensure economic recovery and renewed confidence, while reducing fiscal deficits and remaking the financial system into one that supports the real economy. this

interests are at risk. banking in this country is, in most areas, highly competitive, and the industry has proven itself to be highly resilient. to survive and be effective, banks must be willing and able to take risk. revenue, shareholder equity, and if necessary the bank insurance fund are there to deal with mistakes. put differently, while public policy needs to limit the financial and social costs of bank failures, we should not view every bank failure as a supervisory or regulatory failure. it is not our role to prevent all failures, let alone to guard against every earnings decline. indeed, to do our jobs well, we should understand that the essential economic function of banks is to take risk, and that means mistakes will sometimes be made. a perfectly safe bank, holding a portfolio of treasury bills, is not doing the economy or its shareholders any good. the experience of the early 1990s illustrates the process of recovery after a period of excessive risktaking. a decade ago, many regional and money center banks were reeling from excessive commercial real estate lending and still - substantial holdings of weak foreign country loans. meanwhile, many agricultural banks were only then recovering from their own bout with problem credits that had proved too heavy for hundreds of other banks to bear. the fdic was reporting that the bank insurance fund was nearly drained, while the general accounting office was saying that, in substance, it already was. banks nationwide were tightening their credit standards and cutting access to credit for many firms, producing a “ credit crunch. ” it was clear that change was needed. the industry needed to resolve its problems, improve its risk management practices, and construct new strategies that would provide more stability in lending markets and more competitive, long - term returns to investors. for their part, bank supervisors needed to pay more attention to emerging weaknesses and deal with them more quickly. solving the immediate problem of weak asset quality and improving the industry ’ s overall profitability was, of course, the first priority, and fortunately that was accomplished sooner than anyone expected. by the mid - 1990s, u. s. banks were enjoying stronger portfolios and higher earnings than they had seen in recent memory, attesting to the underlying strength and resiliency of our banking system. during the past decade, the industry ’ s profitability has arguably climbed to its highest level ever, as large banks finally joined small ones in achieving annual returns on average assets in excess of 1 percent. to be sure, no one wants to repeat the experience of the