Given that the target of imminent euro adoption is gone, and the large euro zone nations do not provide real leadership on fiscal soundness, there is less incentive for some of the new member states to stick to the consolidation of their public finances from today’s deficits above 5 per cent of GDP. The consolidation plans are already too dependent on a continued upturn. Whether in the old or new member states, there is an additional problem, as we are entering a period of intensifying structural changes. Old industrial patterns in Europe are being changed when confronted with both the boost to productivity from IT, as partly realised since the late 1990s in the US, and globalisation and enlargement, all of which supports this process. These trends will eventually help productivity and growth in Europe to start to catch up with the US again. But in the short term the structural changes will lead to higher frictional unemployment as old industries are more rapidly replaced by new ones. In addition, the recent downturn never led to a dramatic increase in unemployment or decrease in employment in the euro area; hence, the upturn is probably also less likely to lead to rapid job creation. Both factors create new incentives for fiscal policy to focus more on short-term job creation schemes and less on long-term fiscal soundness. So from this perspective, too, the hope that the recovery alone will “fix” the European deficit problem might be too optimistic.
Jaime Caruana: 60 years after Bretton Woods - a central banker’s view Opening remarks by Mr Jaime Caruana, Governor of the Bank of Spain and Chairman of the Basel Committee on Banking Supervision, at the Conference “Dollars, Debt and Deficits - 60 years after Bretton Woods”, Bank of Spain, Madrid, 10 June 2004. *  *  *  Mr Managing Director of the IMF, Mr Second Vice-President of the Government and Minister of Economy and Finance, ladies and gentlemen: It is a pleasure for me to welcome you all to the Banco de España and to the inauguration of this conference, which is jointly organised by the International Monetary Fund and the Banco de España in commemoration of the 60th Anniversary of the Bretton Woods Agreements. For our country, which previously hosted the annual meetings of the Fund and the World Bank on the occasion of the 50th anniversary of these agreements, in autumn 1994, it is a source of satisfaction that this meeting should be held ten years later in Spain. I am also particularly pleased to welcome our distinguished audience - both from Spain and abroad - of representatives from official institutions, from academia and the private sector, who are going to participate in the busy sessions scheduled over the next two days. The Banco de España and the International Monetary Fund are tied by long-standing and deep-rooted links.