areas such as industry characteristics, investment in r & d and innovation. differences in the timing and extent of past structural reforms in euro area countries are also a source of diversity. to give you an example, the netherlands undertook labour market reforms much earlier than the largest euro area countries. this enhanced its flexibility and increased its ability to adjust to a wide range of shocks. in some other countries, short - term shocks may have had more persistent effects on growth differentials owing to slow adjustment processes caused by the presence of structural rigidities. differences in fiscal policies and other national policies can also give rise to diverse economic situations. there is an additional source of diversity that may be working its way through the system. after the launch of the euro, some countries suddenly benefited from lower short and long - term interest rates, as well as easier access to more competitive credit markets. this encouraged the purchase of durable and non - durable goods, as well as housing, albeit to differing extents in the various euro area countries. this was equivalent to a one - off shock immediately after the launch of the euro. all in all, the degree of diversity observed in the euro area is not substantially different from that seen in the united states. and neither is it substantially different from that seen within the national borders of several large economies ( such as germany, italy and spain ), which is a continuation of historical patterns. diversity in perspective diversity within the euro area should be put in perspective, and i shall now look at three main types of divergence. whenever possible, i will compare the euro area with the united states, as the world ’ s only other industrialised economy of a comparable size. a ) inflation dispersion in the euro area declined considerably in the 1980s and 1990s and is now on a par with that of the united states. impressive progress has been made, and inflation dispersion among euro area countries has broadly stabilised at a low level since the launch of the euro. to give you an example, the unweighted standard deviation of annual hicp inflation rates still stood at around 6 percentage points in late 1990, but this rate has broadly stabilised at around 1 percentage point since the launch of the euro. this dispersion level is similar to that of the 14 us metropolitan statistical areas ( msas ), but is somewhat higher than that of the four us census regions. although such comparisons are subject to some well - known caveats, i would argue that inflation dispersion in the euro

presidency of nout wellink will result, over time, in higher capital and liquidity requirements as well as in less leverage and procyclicality in the banking system. the proposals on these measures will be issued by year - end. the calibration will take place in 2010. their implementation will be phased in, taking into account expectations for the improvement of financial conditions and economic recovery. but even though this comprehensive package is an achievement, it does not imply that the work is over. the challenges related to finalisation of the package in the coming years should not be underestimated. these include assessing the interplay of the adopted and upcoming measures, and deciding on the overall level of capital in the financial system. what do you mean by the interplay of the various measures, will they complement or reinforce each other? there will be an important interplay of the various measures. we will undertake an impact assessment to analyse their cumulative effect. the aim is not to simply add - up the various measures, but to take into account their interrelation. we need to look at the measures already taken and assess how they combine with the upcoming changes to the definition of capital, the introduction of a leverage ratio and of countercyclical capital buffers. are you not concerned that these measures will hamper efficiency of the banking sector? we need to reach agreement on the overall level of capital in the financial system compared to pre - crisis levels, building on past and recent experience including national stress - testing exercises. in doing that, we need to strike a balance between a level of capital that promotes long - term financial stability without unduly compromising growth and efficiency of the banking sector. this will be no easy feat. we have challenging years ahead of us and i strongly urge the work of the committee to continue at full speed. we mustn ’ t loose either the momentum or the window of opportunity for reform. how will these new regulations contribute to strengthening resilience of the financial system? speaking towards an audience in the netherlands let me illustrate it with an analogy, drawing on a project well known to you. the dutch have through time developed the delta project – a series of defences to protect the stability of the nation, guarding it against floods. what we are trying to build is the delta project of the financial system that will protect it from risk excesses. if i may say, in this sense we are fortunate that the basel committee is chaired by a dutchman!