erkki liikanen : global rebalancing, asset prices and policy responses speech by mr erkki liikanen, governor of the bank of finland, at the fifth high - level seminar of the eurosystem and latin american central banks, madrid, 10 december 2010. * * * due to the strike and weather conditions the speech was distributed in written form. some background global imbalances are certainly not a new policy concern. the most visible manifestation of these imbalances is the large current account deficits and surpluses, but these are not the whole story. current account positions reflect a number of deeper, more fundamental problems. therefore, the inevitable future rebalancing has to involve deeper structural changes in the countries involved. the risks caused by the global imbalances have been well documented in research and policy papers over the last ten years. also, the imbalances have long been among the central agenda items in several international meetings. most recent serious efforts to address them include the imf - led multilateral consultations in 2006 and, today, the ongoing g20 mutual assessment process. such rounds of discussions have successfully established a broad agreement over the key policy objectives to resolve the problem. at their simplest, these are remarkably straightforward. national saving needs to increase in the major deficit countries ( such as the united states ), and be reduced in the major surplus countries ( such as emerging asia and the oil exporting countries ). it has also been acknowledged that for both deficit and surplus countries, meeting these objectives requires significant policy adjustments. however, the multilateral initiatives to address global imbalances have so far suffered from an obvious lack of traction to actual policy outcomes. since the onset of the global financial crisis, the imbalances have admittedly undergone a certain reduction. but recent projections indicate that the imbalances tend to persist – or even grow – well into the future. it appears that the imbalances have become an even more persistent characteristic of our economic environment than was previously thought. the nature of the imbalances international surpluses and deficits are not, of course, harmful as such if they remain reasonable. they are a natural reflection of financial integration. they provide flexibility to savers and investors. by that, they are welfare enhancing. however, very large current account deficits, when persistent and growing, fuel concerns of external sustainability. two main risks to the international community have been extensively debated for almost a decade. first, sustainability concerns may

of the costs of the drying - up of the interbank market, which hurt even the fundamentally healthy banks. on the resolution side, if clear ex ante rules for dealing with problem banks had been in place when the crisis hit, the resolution of unviable banks could have been enforced more quickly and more efficiently. the bail - in tool would have been available to reduce the cost of the crisis to taxpayers. also, favouring of “ national champions ” would have been avoided, so recovery and resolution policies would have been more consistent and effective. healthy competition in the banking sector could have been restored sooner without compromising the stability of the system. to conclude : bygones are bygones, but by learning from the past we can prevent or at least mitigate many risks and problems in the european banking sector in the future. this requires unifying our regulatory structures to match the european financial market. we should avoid the use of taxpayers ’ money and leave unfounded national interests aside. the nordic region should certainly be no exception. bis central bankers ’ speeches