jean - claude trichet : preventing spillovers on the global economy speech by mr jean - claude trichet, president of the european central bank, at the bretton woods committee, international council meeting 2011, washington dc, 23 september 2011. * * * ladies and gentlemen, it is now four years after the outbreak of the global financial crisis, and three years after the collapse of lehman brothers, which were stark reminders of how much financial integration and globalisation made all economies interdependent. this interdependence creates benefits but also adverse spillovers which may arise in all domains, from inadequate macro policy choices to private market imperfections. i will focus today on two key areas of policy interest to address spillovers in the global economy : ( 1 ) reforming global finance, and ( 2 ) strengthening policy discipline at the domestic and global level, before turning to how the euro area can contribute to global stability. 1. reforming global finance at the pittsburgh summit in 2009, g20 leaders agreed “ to do everything needed to repair our financial system and to maintain the global flow of capital ”. the november 2011 g20 cannes summit will take stock of where we stand in terms of implementation of this important reform agenda. in a number of areas, important decision have already been taken, notably as regards the improvement of bank capital with the agreement on basel iii, and the development of macroprudential frameworks. in other areas, we are close to concluding our work, in particular as regards a new global framework on systemically important financial institutions ( sifis ). in those areas where decisions have already been taken by the international community, implementation is now key. the g20 yesterday committed to full implementation of basel iii along the agreed timelines. the eu has already started this process early with the european commission putting its proposals on the table for the so - called capital requirements directive iv, which will translate basel iii into the legal framework of the eu member states. in terms of macro - prudential framework, the european systemic risk board has started its operation this year. all jurisdictions must ensure timely implementation so that we can ensure that we have done everything to make a difference as regards the resilience of the global, regional and national financial systems. let me briefly highlight three key areas on which we need to stay committed and where swift progress is of the essence. the first challenge may come from the shadow banking sector. the introduction of more stringent capital requirements may provide incentives for banks

bubble in the second half of the 1980s. the bubble burst in the early 1990s. low growth and deflation continues to this day in spite of repeated measures and monetary easing to stimulate the economy. a recovery appeared to be hampered by adjustments involving the “ legacies of the past ” – that is, the excessive level of debt, production capacity, and employment coupled with the large housing loans held by households and the massive amount of nonperforming loans held by financial institutions. the situation, however, remained unchanged even though the balance - sheet problems had more or less been resolved by around 2000. the reasons for the low growth must lie elsewhere, and i believe that it must be the critical changes that occurred during this period – namely, the decrease in the working - age population, which peaked in 1995, and the rise of emerging countries as rival producers of manufactured goods. b. overcoming low growth and deflation i have already pointed to the gradual loss of the favorable environment as the cause of the downward trend in the growth potential of the japanese economy since the end of the highgrowth period. the favorable environment consisted of three factors : the easily attained latecomer advantage ; the increase in the working - age population ; and the absence of competitors in the production of manufactured goods. regaining this environment might put japan back on a fast growth path. such an attempt would be impossible, however, as the world has changed profoundly and the need has arisen to build a new growth model suitable for the new environment. bis central bankers ’ speeches japan had long gained from the latecomer advantage in acquiring manufacturing technologies, and it became one of the world ’ s major exporting countries ; however, there is still much more to learn from other countries, particularly regarding enhancement of the standard of living. the united kingdom, germany, and australia have overcome long - term economic stagnation by implementing a range of social and economic reforms, while scandinavian countries have achieved a high level of satisfaction among their citizens as a result of their comprehensive welfare systems, supported by high taxes. the asian nies have improved their standards of living by achieving high economic growth through market competition. there is no shortage of lessons to learn from abroad to establish a new growth model and improve the standard of living. institutional reforms and revisions are required in order to increase the working - age population, to raise the birth rate and put a brake on the population decrease. this undoubtedly is the correct approach, but it takes time to produce results. the measures