gertrude tumpel - gugerell : policy discipline and spillovers in an interconnected global economy speech by ms gertrude tumpel - gugerell, member of the executive board of the european central bank, at the snb - imf high - level conference on the international monetary system, zurich, 10 may 2011. * * * ladies and gentlemen, first of all, it is a great pleasure to be here today at this conference. in may 1351 – so from today almost exactly 660 years ago – zurich became the fifth member of the swiss confederacy, which at the time was a loose confederation of de facto independent states to better coordinate policies and lawmaking among these states within the confederacy. this example links nicely to the current need of better policy coordination and collaboration in today ’ s world of growing global integration and interconnectedness through trade and financial links than ever. the topic of today ’ s session “ policy discipline and spillovers in an interconnected global economy ” is therefore extremely timely both from a global and european perspective. in my intervention, let me, therefore, briefly touch upon four questions : 1. under what circumstances can a lack of policy discipline lead to macroeconomic imbalances with destabilizing effects for the economy? 2. how can such imbalances spill over to other countries and the global economy? 3. what are recipes to prevent imbalances and their spillovers? 4. what can we learn from all this for the current situation in europe? so let me turn to the first question : 1. under what circumstances can a lack of policy discipline lead to macroeconomic imbalances with destabilizing effects for the economy? prior to the crisis, the deficiencies of macroeconomic policies and the lack of sufficient international cooperation led to the build - up of unsustainable external imbalances among key deficit and surplus economies. such global imbalances paved the way and contributed to the financial crisis to unfold. this has not only revealed insufficient policy discipline and cooperation, but also the lack of an effective mechanism to influence macroeconomic and structural policies in key countries where those appeared unsustainable from the standpoint of global economic and financial stability. the global economy has become increasingly interconnected and its degree of integration will most likely continue to increase in the future. [ foreign trade is projected to exceed the pre - crisis levels next year, reaching a new historical high of about 64 % of the world ’ s gdp. financial openness

rates, involving a gradual and orderly appreciation of their currencies vis - avis the major convertible currencies, is also in the interests of the emerging economies concerned and in the interests of the international community. isn ’ t there a risk that the fiscal consolidation in the majority of european countries will slow down the economic recovery? no, i don ’ t think so. a consolidation of the recovery and a return to sustainable growth crucially depend on confidence : the confidence of households, the confidence of firms and the confidence of savers. the pursuit of credible and reassuring fiscal adjustment measures will contribute to the consolidation of the recovery because such measures inspire confidence in all those on whom economic prosperity depends. but has sufficient account been taken of the social risks involved? the main problem consists of the level of unemployment. as i said, a return to confidence, in particular fiscal confidence, is essential for the consolidation of the recovery and thus for the creation of lasting employment. the confidence to which you refer is measured in particular by the credit rating agencies. isn ’ t it necessary to reassess their role? why can ’ t the eu have its own credit rating agency? this is one of the major areas that is being looked into at the global level. past events have shown how risky it could be to rely blindly on the analyses of the credit rating agencies. financial institutions and investors must assume overall responsibility for the decisions that they take. how can monetary policy and eu economic policy be better coordinated? we have a monetary federation, which has provided monetary stability on a continental scale for 330 million citizens. necessarily, this must be accompanied by very close monitoring of fiscal policies and strict compliance by fiscal policies with the reference framework that we set ourselves. on behalf of the governing council, i have always asked for strict compliance with the stability and growth pact and the introduction of closer monitoring of developments in competitiveness within the euro area. today, we ask the european commission and president van rompuy, who have been charged with this task, to put forward proposals that go as far as possible in this regard : we need to significantly enhance fiscal and economic governance in the euro area. does global governance simply mean the convergence or merging of the approaches followed by the main international bodies? a lot of changes are happening in this regard : the imf is in the process of reforming its internal governance, with emerging countries being granted more seats. the european countries have agreed to reduce their representation. with regard to the informal governance of the