Switzerland is an exception In Switzerland, despite the difficult economic environment, there is currently no tension between monetary and fiscal policy. There are two reasons for this. First, public finances are very healthy. Second, monetary policy has always been focused on stability. The healthy state of public finances is mainly due to fiscal rules at cantonal level and the debt brake at federal level (cf. chart 7). The debt brake was introduced in 2003 to halt the growth in Swiss public debt that had taken place in the 1990s. 11 The core element of the debt  8  Cf. Alesina and Summers (1993) and Klomp and de Haan (2010). 9  Cf. Jordan (2011, 2012a). 10  Cf. Bernholz (2003). 11  Sovereign debt grew from CHF 39 billion in 1990 to over CHF 120 billion in 2002, peaking at CHF 130.3 billion in 2005. In 2011, it stood at CHF 110.5 billion. Cf. FDF (2012). BIS central bankers’ speeches  5  brake is a simple expenditure rule: Expenditure must not exceed receipts over the course of one economic cycle. The advantage of this is that no specific debt level needs to be defined or aimed for. I would like to point out that, rather than limiting fiscal policy’s room for manoeuvre, the debt brake increases it. It combats excessive debt, leaving fiscal policy in a better position from which to act, should it need to.
I didn’t expect to say “those were the days” about 2007. It was natural that the first response to the financial crisis in terms of reforms was focused on the bedrock prudential issues of capital and liquidity in banks. This has been supplemented by the drive both internationally and domestically to solve the too big to fail problem through a combination of resolution measures at the centre of which is agreement on total loss absorbing capacity for those banks which require such a bulwark to ensure orderly resolution in the event of failure. This is crucial to break the dependence of failing banks on injections of public money and likewise to break the impact of solvency problems in banks on the public finances. This is an international as well as domestic agenda of reforms aimed at fixing the fault lines that caused the financial crisis, building a more resilient and open global financial system, and deepening and building trust across jurisdictions. I have said before, but I think it justifies repeating, that we are unwavering supporters of an open global financial system which finances the investment and trade necessary to support strong, sustainable and balanced growth. As we see and seek to deal with new risks to the world economy and to global financial stability it is always important to remember that free trade and free capital flows are the foundation of a successful world economy with all the benefits that brings for the welfare of people.