After the crisis began, it took a year before governments in Europe and the United States were persuaded that the problems of their banking sectors resulted not from a shortage of liquidity – that was merely the symptom – but from massively over-leveraged balance sheets. Eventually, in October 2008, banks were recapitalised, albeit, especially on the Continent, inadequately so. But the underlying problems of excessive debt have not gone away. As a result, markets are now posing new questions about the solvency of banks, and indeed of governments themselves. What were the causes of the unsustainable build-up of debt in Europe and elsewhere? They lay in the continuing imbalance between those economies running large current account surpluses and those running large current account deficits. Persistent trade surpluses in some countries and deficits in others did not reflect a flow of capital to countries with profitable investment opportunities, but to countries that borrowed to finance consumption or had lost competitiveness. The result was unsustainably high levels of consumption (whether public or private) in the United States, United Kingdom and a range of other advanced economies, and unsustainably low levels of consumption in China and other economies in Asia, and some advanced economies with persistent trade surpluses, such as Germany and  BIS central bankers’ speeches  1  Japan. The burden of debt will go on rising in the former group of countries until these spending patterns adjust and the latter group will find their loans eventually repaid in depreciated currencies, if at all.
Jean-Pierre Roth: The Swiss economy and financial centre – successes and new challenges Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, at the Handelskammer Schweiz-Österreich und Liechtenstein (Foreign Trade Chamber for Switzerland-Austria and Liechtenstein), Vienna, 25 February 2008. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  Mid-2003 saw the start of a remarkable, broad-based economic upswing in Switzerland which is still underway, even if business cycle uncertainty has increased in the recent period. A number of factors indicate that the long-term growth outlook, too, has improved for Switzerland. These factors include the increasing globalisation of our economy and the opening up of the labour market to the EU. The Swiss economy is participating in globalisation through increased direct investment as well as growing foreign trade. At the same time, there is more competition on the domestic goods market, although a fair bit still remains to be done in this area to complement the opening up of the labour market to the EU. Globalisation and market opening present companies and economic policymakers with challenges that become particularly acute when setbacks occur – as in the case of the current international financial market turbulence.