Indeed, by urging governments to aim for a fiscal position close to balance or in surplus in the medium term, the Pact enables them to let fiscal deficits increase during recessions without exceeding  5  BIS Review 81/1999  the 3% reference value. In short, it allows them to create a fiscal buffer during normal economic periods that can be drawn on, if an asymmetric shock occurs. í  The third condition is that all European countries must undertake structural reforms. Continental Europe is experiencing high levels of unemployment, despite the fact that the jobless rate has been declining slightly in most of its economics. According to the IMF, around 80% of this unemployment is structural, that is, generated by our burdensome rules and regulations. The Monetary Policy Council of the Banque de France agrees with this analysis. Just recently, some external observers were still blaming Europe for its focus on the euro, instead of what they considered the more urgent task, namely the implementation of structural reforms necessary for more dynamic job creation. These critics were wrong regarding the untimeliness of the euro, but their assessment of the problems of the European economy is obviously correct. The euro will be a stimulus to structural reforms. Most importantly, the single currency is decisively contributing to achieve the single market in the three markets of goods, services and capital within the euro zone.
The meeting of the G7 finance ministers and central bank governors (held in London, 21 February 1998) called for a “profound and broad-ranging debate on the lessons of events in Asia and their implications for strengthening the international monetary system, building on the reforms initiated at Halifax”. The G7 identified five main areas where progress had to be made. This is not the place to take stock of the proposals that have been put forward. Let me just air a few remarks on certain measures, which I consider as particularly important. I would like to discuss the proposals addressing imbalances and structural distortions in the crisis countries before considering those concerning the international financial markets and institutions issues. Efforts to strengthen emerging countries financial systems making them more resilient to external shocks The main effort contributing to the strengthening of emerging market economies’ banking systems is the adoption of the set of Core Principles for Effective Banking Supervision which have been widely endorsed by emerging countries authorities. The IMF in coordination with the Basel Committee on Banking Supervision is designing indicators to assess progress in implementation by emerging countries. The adoption of the implementation of the Core Principles as a criterion giving access to the newly created Contingent Credit Line is a strong incentive for members to adopt them effectively. The design of Deposit Insurance Schemes is another important measure contributing to reduce or eliminate implicit government guarantees limiting moral hazard on the lenders as well as on the borrowers side.