are restricting its economic potential. this is also a reason why the oecd estimates japan ’ s annual potential growth at only just over 1 %. the situation is compounded by the precarious state of public finances with the government debt level at almost 170 % of gdp. in the case of the emerging economies in east asia, what matters is not the adjustment of existing structures, but rather the creation of new ones. the asian countries must overcome the prevailing bilateralism to be able to benefit from the international division of labour more than has been the case thus far. this includes establishing an institutional framework for their regional cooperation. china ’ s political and economic development will depend largely on how the country deals with its growing internal imbalances, for example, the tensions between urban and rural areas to name just one. in china, the most pressing reform project is the creation of a well - functioning financial system able to channel national savings towards efficient uses and as an important step towards more exchange rate flexibility. furthermore, it is necessary to create a social security system for which the state - owned enterprises have hitherto been responsible as well as a framework for a market - oriented fiscal and monetary policy. v in europe the process of structural reforms has to continue. europe has problems. the most pressing problems include high unemployment, a lack of economic flexibility and an ageing population. however, one should not overlook the fact that more than 10 million jobs have been created since 1997. that is two million more than in the us. there has also been a maturing awareness of the need for reform. reforms have now been introduced in the labour markets and social security systems. following the accession of 10 new members to the european union last year, we now have a large single market which unites the purchasing power of 450 million citizens. however, in view of its possibilities, the euro area ’ s growth potential is low. the oecd estimates it to be about 2 % per year ; by comparison, the us growth potential is estimated at over 3 %. these growth differentials are to a large extent attributable to different rates of population growth. even so, i am optimistic. with increasingly flexible economies, greater efforts in r + d, greater willingness to be innovative and for longer working hours, europe is on the way to becoming an economically more dynamic region over time. not to forget : the eu is an extraordinary success in terms of stabilising the continent politically. despite occasional setbacks,

jurgen stark : the changing global economic structure - a view from europe speech by dr jurgen stark, vice president of the deutsche bundesbank, at the american council on germany, new york, 14 april 2005. * * * it is both a pleasure and an honour to speak to you here today. my remarks will focus on the changing global economic structure. what has changed since the early 1990s? an increasing proportion of economic activity is marketdetermined. within a period of only 15 years, major centrally planned economies have turned into market economies and several previously strongly regulated emerging market economies have implemented radical reforms. all of this has stimulated very strong and ongoing growth dynamics. consolidated and internationalised competitive conditions have ensued from this process, thus continuously placing adjustment requirements on all economies. this challenge is being accompanied in many, predominantly advanced economies by demographic changes which require additional efforts. i under realistic assumptions the us, but in particular also asia, will remain the centres of gravity of the global economy in the next years. however, without changes in the conduct of economic policy this would also mean that the existing global current account imbalances would become even more pronounced. this could result in an increasing risk of sudden exchange rate and financial markets movements. moreover, enormous challenges add to the vulnerabilities connected with the current global imbalances. the changes in the global economic structures in the wake of globalisation are particularly important : 1. production processes can be regionally fragmented to a greater extent than ever before. 2. the number of tradable goods has risen sharply - many services have become tradable. 3. the financial markets are closely integrated on a global scale. 4. economic policies, but also tax systems and regulations, are competing with one another internationally for capital investment and savings. the number of countries affected by today ’ s globalisation processes is far larger than the number involved in earlier phases. this applies particularly to the involvement of emerging markets and developing countries in the global economic integration processes. the shares which these countries have in the world ’ s goods markets, direct investment flows and portfolio inflows have expanded considerably. ii the increasing integration of above all large emerging economies into the global economy means that the volume of world trade and global growth prospects will continue to rise. the so - called bric countries - brazil, russia, india and china - are arousing particular interest in this respect, with the two large asian countries - china and india - assuming a prominent role. while china