But why should we care about these imbalances? After all, there is no reason why all countries in the world should be balanced at all times, as these imbalances simply reflect the need for funding current or future consumption and investment. However, excessive external imbalances may become a source of concernbecause the funding of deficit countries by surplus economies is subject to “sudden stops” and even reversals.1 Experience suggests that large imbalances are often a leading indicator of subsequent crises and sudden stops. As shown by Philip Lane in one of his numerous contributions to this topic,2 current account balances prior to the Great Financial Crisis exceeded levels consistent with underlying economic fundamentals and thus implied large and costly adjustments thereafter. These vulnerabilities are not confined to emerging market economies: large and persistent current account deficits may also precede financial crises in advanced economies,3 including in the euro area. I will structure the rest of my talk as follows. First I will talk about the determinants of the current account, focusing on the role of the exchange rate. In the second part I will say a few words about the composition of external funding (gross and net capital flows). Finally I will conclude with a discussion of available policy options that could address the persistence of current account imbalances, globally and within the euro area. * * *  1. The determinants of global imbalances, and their adjustment mechanisms The economic and social costs of correcting current account imbalances are potentially dramatic.
Philipp Hildebrand: Switzerland and global competition - an all-purpose strategy Summary of a speech by Mr Philipp Hildebrand, Member of the Governing Board of the Swiss National Bank, at the University of St Gallen, St Gallen, 29 August 2005. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch)  *  *  *  Openness was one of the major factors that made Switzerland one of the richest countries in the world. A significant portion of our industry, and one upon which our current prosperity is based, is the direct or indirect outcome of foreign expertise and the efforts of foreign entrepreneurs. These people were attracted to Switzerland – particularly in the 19th century – by its openness and its stable, liberal environment. Openness promotes competition, innovation and progress, thereby securing sustained prosperity. But Switzerland strayed from the straight and narrow when it began erecting barriers to competition – barriers that provided ever greater protection to its domestic market. The ensuing insulation of the domestic market is probably one of the main reasons for Switzerland's growth slump today. External trade policies are always domestic market policies as well. Consequently, external trade policies have instruments that can be effective in opening up the domestic market from outside. This openness to external trade is of utmost importance, therefore, not only for exporters, but also for the domestic market. Being open towards Europe and towards other trading blocks is not mutually exclusive.