know for certain that the growth of gdp per capita is highly correlated with productivity growth, and that without an increase in productivity, there can be no further progress or growth in living standards. what is happening in europe regarding economic growth and productivity? the good news is certainly that the imf expects a gradual acceleration of economic growth and a slowdown in inflation in the euro area, as well as in other eu countries with which we 1 / 4 bis - central bankers'speeches have strong trade and financial ties. such developments should positively affect serbia's growth prospects and lead to lower inflation. however, there is always a " but... " although economic growth in europe is on an upward trajectory, the report that the colleagues will present today highlights that it is still below its potential, and that the rate of growth of potential output is low. specifically, per capita income is 30 % lower in europe compared to the united states. the income gap reflects the declining productivity growth in europe, which extends to individual companies, as well as to the breakthroughs in information and communication technology and research and development, which are better utilised by american companies. this report by the imf serves as a kind of alarm to take appropriate steps as soon as possible to boost productivity growth and stimulate the european economy more strongly. and not only that. the report outlines economic policies that should improve growth prospects and the reforms that need to be implemented across europe to create conditions in which european companies can continue to grow, develop, and leverage economies of scale and advanced technology. in this regard, i find particularly important what is highlighted in the report, and it is here that i see opportunities and potential benefits for serbia as well, namely : 1. the fact that a deeper and larger single european market would enable productivity growth ; 2. that european integration in the two previous waves of eu enlargement ( 1995 and 2004 ) brought tangible benefits ; and 3. that further accession process could have a similar effect. the fund's analysis indicates that income gains after 15 years of enlargement amount to about 30 % in the new eu member state and about 10 % in the eu countries that have been members since its founding. so, we are talking about significant mutual benefits. serbia is a candidate country for eu membership, and we have clear goals. through responsible economic policies, the implementation of structural reforms focused on productivity growth, and diversification in every sense, we are accelerating the process of convergence to the developed market economies of europe

adequate cushion against losses, especially during times of financial instability or stress. supervisors should continue to support approaches that minimize the negative consequences of risk taking by financial institutions, particularly those institutions that could contribute to financial instability. one such approach is the basel ii framework. by now most of you are aware that last month the u. s. banking agencies released their latest proposals with respect to basel ii and are now seeking comment on those proposals. i imagine that many of you have already read these extensive documents. the u. s. banking agencies are eagerly awaiting comments on the proposals and now expect to engage in a continuing dialogue with all interested parties as to whether the proposals meet our stated objectives and how they can be improved. we hope that those reviewing the documents understand that basel ii is intended to promote the stability of the u. s. financial system by ensuring the safety and soundness of the largest u. s. banks. thus, the ability of basel ii to promote safety and soundness is the first criterion on which the proposed basel ii framework should be judged. indeed, the federal reserve's main reason for pursuing the advanced approaches of basel ii is the growing inadequacy of current basel i regulatory capital rules for the large, internationally active banks that are offering ever more complex and sophisticated products and services. we need a more risksensitive capital framework for these particular banks, and we believe that basel ii is such a framework. in addition, basel ii promotes risk - management enhancements and improves market discipline, as well as providing supervisors with a more conceptually consistent and more transparent framework for evaluating systemic risk, particularly through credit cycles. basel ii should be able to establish a more coherent relationship between regulatory measures of capital adequacy and day - today supervision of banks, enabling examiners to better evaluate whether banks are holding prudent levels of capital given their risk profiles. the reasons for pursuing basel ii also provide justification for the recent basel revisions to the 1996 market risk amendment ( mra ). since adoption of the mra, banks'trading activities have become more sophisticated and have given rise to a wider range of risks that are not easily captured in their existing value - at - risk ( var ) models. for example, more products related to credit risk, such as credit default swaps and tranches of collateralized debt obligations, are now included in the trading book. these products can give rise to default risks that are not captured well in methodologies required by the current rule specifying