While markets are currently rewarding those countries which liquefy public debt, they seem to be aware of some inflation “tail risks” and hedge themselves through gold and the CHF – whose prices have reached historical highs. At this stage, therefore, the euro area is paying a double price. One for its mistakes and one for its virtues. The mistake, for governments, was to allow the piling up of debt through unsustainable fiscal policies over a decade, and then to create ex nihilo a doubt as to their ability to pay those debts. And we are also paying the price for our virtue and our refusal to liquefy our debt through massive monetization of our fiscal deficits. Will our virtue be rewarded at the end? I believe so and, to explain why, I need to take a longer-term perspective. In the next decade, the world will be divided into two: on the one hand, advanced economies, with high absorption capacity, low savings and high debt with ratios between 85% and 100%; and, on the other, emerging economies, with high savings, low debt (around 30% GDP on average) and less absorption capacity. Our common prosperity will therefore depend on our ability to create stable channels and mechanisms of financial intermediation between those two parts of the world. That, in turn, will crucially depend on the existence of assets that can be considered safe stores of value.
In these turbulent times, Europe has a special role and a special responsibility. We are at the epicenter of the crisis and very much aware of the necessity to take and implement the appropriate decisions. Like in 2009, however, the crisis itself is more global in nature. A new uncertainty has been created and the interaction between markets and governments has become more complex and more dangerous. We live in democracies and have to accept that political decisions follow their own process and obey their own constraints. In all our countries, rising public debt and the unstable state of public finances is creating enormous anxiety, which, in turn, makes it more difficult to reach the necessary decisions. There are, however, good reasons for optimism. On the supply side, our economies are robust and dynamic. Corporate balance sheets are very strong. Emerging economies are well placed to enjoy strong and sustainable growth in the years to come. Above all, the community of nations seems ready to face the extraordinary challenges we are confronted with. Coming back from the IMF-World Bank Annual Meetings, I am struck by the spirit of cohesion and the willingness to cooperate that has been displayed by all participants. As you well know, central banks themselves are constantly cooperating in monitoring the situation and acting when necessary, as they have done recently to provide dollar funding to international banks. This spirit of cohesion is our best asset in the current environment.