The optimal way to reduce the ratio of the deficit to GDP is through economic growth. In turn, faster growth calls for improvements in productivity. In this respect, there needs to be a greater degree of public awareness of the importance of productivity and competitiveness, and a consensus on steps that can be taken with minimal social disruption to enhance the country’s international competitiveness. 5  Thomas F. Huertas, Crisis Cause, Containment and Cure, 2e, Palgrave Macmillan, 2010. 6  Andrew W. Lo, “Reading about the financial crisis: A twenty-one-book review” Journal of Economic Literature 2012, 50:1, pp. 151–178. 7  6  Stefan Walter, “Basel III: Stronger Banks and a More Resilient Financial System”, Financial Stability Institute, 6 April 2011. BIS central bankers’ speeches  As you know, competitiveness depends on the relationship between changes in productivity and changes in costs, including wages. I have to note that unit labour costs (ULC), which are based on the relationship between compensation and productivity, have generally moved in line with those in the euro area. However, in recent quarters, Malta’s unit labour costs have pulled ahead of those in the euro area, as shown in Chart 6. In this respect, the wage setting process and efficient labour market practices are of critical importance. The fact that collective agreements in Malta are negotiated at the level of the individual firm helps to ensure that wage growth is compatible with the realities of the markets where the firm sells its products.
With banks having substantially reduced their exposures in the past decade, largely by reducing their lending to commercial property companies, the resulting losses amounted ‘only’ to £ And following the shrinking of banks’ trading books in the past decade, their losses on trading assets totalled ‘only’ £ The losses resulting from this, and other parts of the stress scenario, would have wiped out the entire banking system in 2007. However, major UK banks have tripled their capital strength. Even after a stress like this, they have more than twice the capital they had going in to the crisis. They can now absorb losses like this and continue to supply credit to the real economy. 5. Are bond markets resilient or might they amplify adjustments? This is the final channel through which stretched markets could affect the wider economy. It would magnify any effect on corporate and bank balance sheets. And it could affect the cost of finance directly, as market interest rates are driven up and credit availability tightened. We have a duty to spot new market developments that could drive this and to simulate, rather than wait for the empirical proof, because by that point it can be too late. And as your mission statement acknowledges, we must move beyond the causes of market fragility in the last crisis. The resilience of markets is not guaranteed by the safety of the banking system and other core intermediaries. To do that, we’re going to have to delve into some of the detail.