According to research, the productivity rise was mostly due to what we call "total factor productivity", that is improvements that can be attributed neither to capital nor to labor, but to specific organizational, technological and institutional changes that result in productivity rises and GDP growth. In the past few years, the new EU member-states register trends of positive influence also of the labor to the economic growth, while among the SEEU countries this contribution is still mainly negative. 3 Structural and institutional reforms also had key influence on the accelerated productivity growth. Transition indicators of the EBRD that are commonly used for assessment of the reforms indicate that the new member-states have already reached the level of the developed countries in the fields of privatization, price liberalization, trade and foreign exchange systems (although they are still lagging behind with respect to the enterprises restructuring, competition protection, banking reform and liberalization of the interest rates and financial markets and institutions, as well as the overall infrastructure). 4 On the other hand, these indicators clearly point to the fact that the SEEU countries, are significantly lagging behind with the reforms in all these areas, except price liberalization and to a certain extent trade and foreign exchange systems. The process of accelerated income increases, that is the process of real convergence, also initiated the process of nominal convergence.
The Basel Capital framework was flawed: it didn’t provide adequate loss absorbency in going concern; and it failed to consider what would happen in gone concern states of the world. The global framework remains in that position until we can get agreement on, and implementation of, a Total Loss Absorbency framework. This is our single most important objective, at the heart of the global work of the FSB in respect of the largest banks – the globally significant. The huge effort to secure what will be an historic agreement comes to the table in Brisbane next month. I’m not going to  2  BIS central bankers’ speeches  tempt fate; but my fingers are crossed, and I should add that this is the nearest I get to insider trading, as I know the impressive quality of the work that has gone on in the FSB. The second area on which I will comment concerns the insurance industry, namely the introduction of Solvency II. It will happen in 2016. It is a major step forward as a framework for risk assessment. It is not the first time that insurance firms will be using models to assess safety and soundness and policyholder protection. That would be an absurd thing to say for an industry that has modelled from the outset. But, it does represent a step change in the use of models in the prudential process. Very briefly I want to be clear that we will be using these models in an appropriately diagnostic fashion.