The question then arises of what sorts of safeguards and rules should apply to that trade? I mentioned earlier that one of the offspring of Bretton Woods was the GATT, subsequently the W TO. The focus of activity was for some considerable time on trade in goods not trade in services. Both goods and services trade depend on robust standards and the regulation of those standards, but trade in services is almost entirely about such standards. This trade has been substantially supported by the global standards to which I referred earlier, and which has allowed countries to defer to each other in terms of the prevailing rules and regulations. This means deferring to the rules of others to protect our citizens or firms when they choose to do business there. There is no doubt in my mind that the work done on global standards since the financial crisis has made this process easier to support and safer and improved the level of trust we have in each other. The European Union has pursued the approach of so-called equivalence, which on the face of it allows for deferring to other authorities where appropriate. The EU’s framework of equivalence in financial services is a patchwork across many different pieces of financial services legislation, taking different forms in different sub-sectors, and in some not present at all. Nor do the equivalence measures prescribe how the judgement should be made. As is well known, the post-Brexit equivalence process between the UK and EU has not been straightforward.
In the aftermath of the crisis, global imbalances were reduced as a consequence of the financial retrenchment and the severe downturn in activity worldwide. However, a large portion of the correction is likely to have been merely cyclical. As a matter of fact, as the global recovery is taking hold, a new widening of imbalances is starting to be perceived this year and is foreseen to continue into 2011. Indeed, the basic structural factors underlying global imbalances remain essentially in place; but the crisis has brought about some potentially important changes in the nature of the imbalances. As trade and capital flows experienced a sudden stop during the crisis, the immediate impact was deeper in those economies more open to trade – which collapsed – and those with higher net external financing needs. When trade recovered, export economies tended to  BIS Review 172/2010  1  rebound strongly, but countries with large external deficits generally lagged behind. In many advanced economies, particularly in those running deficits, private domestic demand remains severely impaired by the adjustment process and the need for the private sector to deleverage. As a result of this process private sector saving rates have increased sharply and public sector balances have rapidly deteriorated. In the end, external deficits do not reflect anymore the large financing needs of the private sector – as they did before the crisis – but those of the public sector.