Chart 8 indicates, however, that much of that is attributable to the substantial fall in imports associated with the collapse in domestic demand, rather than a rise in exports (although to the extent that there was excess demand before the crisis – as Chart 4 suggests – part of that decline in imports will be warranted). Moreover, the necessary sectoral reallocation of resources is harder to achieve in a currency union than in a country with its own currency, as the exchange rate is not free to adjust to expedite the necessary adjustments in prices and quantities. Absent a supply-side miracle to  2  As productivity tends to rise faster in manufacturing than services, unit labour costs on average rise faster in non-tradables than tradables. But, as Chart 7 makes clear, the gap was much greater in Spain than Germany. 2  BIS central bankers’ speeches  raise productivity in the periphery, the necessary reversal in the movements in relative unit labour costs needs instead to come about through wage and price adjustment, which may require a sustained period of spare capacity in the periphery together with excess demand in the core. There is, however, an inherent asymmetry, noted long ago by Keynes, that when credit flows dry up, adjustment is compulsory for the debtor but only voluntary for the creditor. Moreover, not only does the creditor lack the urgent need to adjust, they may also feel that the debtor ought to bear more of the burden of adjustment on moral grounds.
The concordat recognised the greater roles of host supervisors for supervising foreign banks that operate via locally-incorporated subsidiaries. Some home country supervisory in fact referred to the host supervisor as the banks' "intermediate home supervisor". The framework also recommended a high level of reliance by host supervisory on the works undertaken by the home supervisors in their oversight and monitoring of the soundness of the foreign banks' branches in their jurisdictions. These important principles have become the foundations for the current cross-border supervisory framework and have been the basis for the formulation of the HighLevel Principles for the Cross-Broader Implementation of the New Accord issued in 2003. The Principles have sought to further reinforce the responsibilities of home supervisors in conducting consolidated supervision of financial conglomerates and the greater expectation on host supervisors in the supervision of individual subsidiary banks in their country. The new capital accord is yet another significant development that would challenge the robustness of the cross-border banking framework and principles. The real test would be in translating the principles into detailed policies and action plans that are both sound and practicable. The main challenge in applying the new accord uniformly across the globe is, indeed the complexity of the framework itself. While the underlying intention of the framework to promote sound risk management and best practices is not in question, countries, particularly the emerging markets, are at different levels of readiness to cope with the extensive changes and potential implications of Basel II.