devalue ; germany no longer has a deutsche mark to revalue. other things must therefore give instead : prices, wages, employment and output. which brings me back to my original question : which countries have to adjust? the typical german position could be described as follows : the deficit countries must adjust. they must address their structural problems. they must reduce domestic demand. they must become more competitive and they must increase their exports. but this position has not gone uncontested. indeed, a number of renowned economists take a different view. they fear that it would be too much of a burden for the deficit countries alone to adjust. they consequently suggest that surplus countries should shoulder at least part of the burden. to avoid confusion, it is important to make a distinction at this point. a distinction between the adjustment as such and the burden it entails. only the burden can be shared. i think most people would agree that the adjustment itself has to take place in the deficit countries. it is true that surplus countries have benefited through higher exports. but ultimately, it was the deficit countries that operated an unsustainable model defined by a credit - fuelled boom in domestic demand, and this model has to be reformed. not every deficit country needs the same reforms, of course, but all require some sort of adjustment. by contrast, it is sometimes suggested that rebalancing should be undertaken by “ meeting in the middle ”, that is by making surplus countries such as germany less competitive. this suggestion implies that the adjustment as such would be shared between deficit and surplus countries. but the question we have to ask ourselves is : “ where would that take us? ” the competitive edge some economies enjoy did not come for free. it is the result of often painful adjustments among workers and within firms. giving part of it up to ease the pressure on deficit countries might make these countries better off in relative terms. but would it not make everyone poorer in absolute terms? bis central bankers ’ speeches we have to acknowledge that europe is not an island but part of a globalised world. and at the global level, we are competing with economies such as the united states or china. i ask you : how can we, how can europe succeed in this world if we willingly give up our hard - won competitiveness? to succeed, europe as a whole has to become more dynamic, more inventive and more productive. to make a more popular comparison : imagine that in the champions league barcelona

however, would grant the esm far more time to give careful consideration to the question of debt sustainability – and without releasing legacy creditors from liability during this period. a maturity extension would have the added advantage of substantially reducing the need for financial aid under an esm programme. this would also broaden the reach of the existing rescue mechanism. had we already been able to automatically extend maturities by three years back in 2011, say, portugal would have only needed around €43 billion by 2014 instead of the total of €76 billion it received in financial assistance. i am also convinced that when it comes to resolving future crises in the euro area, the imf will arguably play a far less prominent role and could, at most, be involved in an advisory capacity. so this increased clout would certainly be helpful. incidentally, the esm stands for a substantial form of fiscal solidarity. esm chief klaus regling has said that an esm loan costs two - thirds less than an imf loan because the esm – unlike the imf – does not charge a risk mark - up for its loans. in the case of greece, for instance, the saving comes to 5. 6 % p. a. of its gdp. this is an major transfer to governments in need of assistance. but they are not permanent transfers and they are tied to strict conditionality in order to eliminate as much moral hazard as possible. permanent direct transfers are not necessary in a functioning currency area, as the united states demonstrates. quite the opposite, in fact : dividing agents into transfer providers and transfer recipients risks undermining public acceptance of monetary union in individual member countries. ladies and gentlemen, the proposed automatic extension of maturities will only boost the disciplinary role of capital markets if restructuring sovereign debt really is a realistic option. but 6 / 9 bis central bankers'speeches that will only ever be the case if the financial system really can absorb a haircut, because if a haircut brought the financial system to its knees, the community of states would still have an incentive to bail out private creditors. politicians and supervisory authorities in the euro area have, on more than one occasion, faced the following paradoxical situation : a haircut for overindebted countries drags down the banking system with it. but if banks carrying government bonds at risk of default on their books are resolved, the necessary rescue measures will plunge the country into financial distress once and for all. this reminds me a little of the novel catch -