Fiscal multipliers were large at the start of the adjustment process, as the IMF has shown.9 But analytical work also shows that an increase in the estimated short-term fiscal multiplier can be triggered by an impaired credit channel, high spreads and a non-credible fiscal policy.10 Moreover, increased political uncertainties and a lack of implementation of structural reforms can lead to a loss of confidence, undermining demand and investment. The related output losses should not be attributed to fiscal consolidation. Let me elaborate further on the credibility issue. The improvement in structural fiscal balances that I talked about earlier needs to continue so as to ensure that the debt dynamics remain sustainable. This is part of the fight against the loss of market confidence. Progress in fiscal adjustment has already boosted market confidence, as successful bond issuance by Portugal and Ireland indicates. There is no credible alternative to this, as imbalances need to be unwound, access to market restored, and debt made sustainable in order to return to robust and sustainable growth in the medium term. High debt is bad for growth.11 The output losses we have seen in recent years are also caused by excessive public and private debt accumulated until 2009. Let me turn to the credit channel now. We have evidence of a further significant fragmentation of the credit supply since mid-2010; this has been shown by the ECB’s Bank Lending Survey as well as its biannual survey on the access to finance of SMEs in the euro area (SAFE).
Still, we are working with the same timetable.” A storm of criticism from banks, academics and politicians in recent months has strengthened expectations that the final draft will not be completed until some time in early 2004, instead of end-2003 as planned. Critics blast the rules as fearsomely complex, too prescriptive and incurring costs far greater than the potential benefits. Some areas require more work, such as risks posed by highly diversified banks and on credit derivatives. Regulators were prepared to adapt the accord as they gained a better understanding of new risk modelling techniques, said Caruana. “Certainly there will be issues that will be important that we cannot manage now,” he said. “We have recognised that the Basel II process is an evolutionary approach.”  2  BIS Review 39/2003  The Basel II accord, so named because it will replace the 1988 Basel Accord, would update existing rules on how much capital large international banks must hold to remain sound and reflect changes in financial services over the last 15 years. Due for implementation in 2006, it would set standards for how bank capital is supervised and what type of financial disclosure institutions must make. Experts say that a delay in publishing the final draft of even several months could throw the target implementation date back by a full year if it means domestic rule-making and legislative deadlines in Europe cannot be met.