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,

place in terms of their safety, soundness and stability. yet they are, as the imf has rightly said, a global public good. so, the responsibility of those who operate and regulate such infrastructures is a large one, and one that must hold good at all times. this requires accountability and transparency. likewise, it is important to have global standards for the operation and oversight of such infrastructures, and strong co - operation among the interested countries – not just where the operator is located but also those where firms which use the infrastructure and depend on it are located. the uk – as home to multiple financial infrastructures which are systemic outside the uk, including some of the world's largest clearing houses – takes these responsibilities very seriously. and we have recently enshrined in law our commitment to consider the effects of uk standards on the financial stability of countries where our clearing houses provide services1. a necessary foundation for such openness in the financial system more broadly is robust global standards and trust. i think we have made huge steps forward on this front 2 / 4 bis - central bankers'speeches since the global financial crisis. the standards and expectations are stronger, and the co - operation is real and deep - seated. at the heart of this is the global financial stability board, and the so - called standard setting bodies, the basel committee for banks, cpmi and iosco for payments, infrastructure, securities and investment markets, and the iais for insurance. our two central banks, in ireland and the uk, work very closely together in these bodies. the consequence of all this activity is much stronger standards, and in my view an overwhelming case for rejecting the false allure of fragmentation. so far, i have focused on the big parts of the financial system which rather obviously give rise to risks to financial stability by virtue of their scale and prominence, the obvious things if you like. but i'm afraid that experience demonstrates that such risks to financial stability can arise in less prominent places too. let me give a recent example from the uk, the so - called ldi pensions issue of just over a year ago. there was a serious threat to stability caused by the need of these leveraged funds to meet margin requirements and collateral calls. the cause of these requirements was not the level of interest rates, but rather the volatility and speed at which market rates moved upwards, overwhelming the ability of many ldi funds to the meet the higher requirements. this created a particular