2  See also “Comparing the recent financial crisis in the United States and the euro area with the experience of Japan in the 1990s”, Monthly Bulletin, ECB, May 2012. BIS central bankers’ speeches  1  Both episodes clearly share elements of a “balance sheet recession”, where strong credit expansion ends with a sharp correction in asset prices, thereby triggering the need for significant balance sheet adjustment. Yet, the scope of the required adjustment in the euro area when viewed at the aggregate level differs markedly from that in Japan, even if some euro area countries struggle with excessive leverage. In Japan, the sharp fall in equity prices from the peak of 1989 led to losses of almost 80% in the two decades that followed. Real estate prices also precipitated, with urban land prices declining by about 40%. By comparison, at the euro area aggregate level, equity prices fell by about 50% and have already rebounded from their post-Lehman trough, while residential property prices have fallen by a mere 3% since their peak in 2008. Moreover, the levels of indebtedness across sectors clearly differ. As for fiscal imbalances, the fiscal response in Japan meant an increase in public debt from 67% of GDP at the start of the 1990s to about 240% in 2012. For the euro area as a whole, the increase was much smaller, with aggregate debt increasing from below 70% in 2008 to 92% in 2012.
For banks in particular, the majority of the Basel III work – let’s say 80% – has already been done in 2010–2011. However, discussions remain ongoing on the question of the measurement of risk on bank balance sheets. It is in the strategic interests of France and Europe, which has always promoted international rules, to conclude a final agreement on Basel III. We are working hard towards a fair and reasonable agreement. But beyond Basel III, we should finalise measures that target non-banks. We must ensure a balance between financing channels. The priority has now shifted from the solvency of banks, which has improved substantially, to the liquidity of the shadow banking sector, particularly funds and asset management companies that are exposed to the risks of sudden panic-driven runs. Let me conclude my speech by quoting a French Philosopher, who spent many years in the Netherlands: René Descartes. He was both the father of “l’esprit cartésien” – having a clear vision of our aims – and a pragmatist, with this useful principle: “divide each of the difficulties under examination into as many parts as possible and as might be required in order to resolve them better”1. Indeed, we must not get bogged down by misunderstandings, sterile debates and considerations about which of the intergovernmental or community method to use. But in order to move forward, we should combine a holistic vision and a stepwise approach to implementation.