The loans have given many countries the breathing space to implement reforms, however, and it is important that they make use of this. At the same time the EU countries have agreed on a number of measures for stricter budget discipline. For example, reforms have been decided on that will strengthen the current fiscal policy regulations. These are measures that do not have an immediate effect, but which nevertheless manifest a political will that should create long-term confidence in a crisis that has largely political overtones. 8  Reinhart, Carmen M. and Kenneth S. Rogoff, “This Time Is Different: Eight Centuries of Financial Folly”, New Jersey: Princeton University Press (2009). 6  BIS central bankers’ speeches  When we held our monetary policy meeting in April, Greece had been granted a second support package by the EU and the IMF, and had reached an agreement with private lenders on a debt write-down in return for promises of fiscal policy tightening. The euro area countries had also agreed to increase the capacity of their rescue funds, which was a step in the right direction. 9 After that, an agreement was reached at the IMS spring meeting to reinforce the IMF’s resources with USD 430 billion for lending to crisis-torn countries. Building up these financial “firewalls” is an important step in creating confidence in the financial system. There is often impatience with regard to the sluggishness of the political processes dealing with type of problems we are now seeing in the euro area.
At the same time as it will take a while for the euro area countries to bring down their debt levels, it is important to point out that these countries are not alone in facing budget consolidation. The United States is also facing the challenge of improving its public finances. USA – fiscal policy challenges The US public debt amounted to 103 per cent of GDP in 2011, and is expected to rise to 107 per cent in 2012 and 110 per cent in 2013. As a comparison, the average public debt for the 14 largest euro area countries amounted to 80 per cent in 2011, while the forecast for 2012 and 2013 is 82 and 84 per cent respectively. 7 The well-known economists Reinhart and  6  The World Economic Forum weighs together a number of indicators of a country's competitiveness, for instance, the quality of the infrastructure, the level of education, financial development, etc. See http://gcr.weforum.org/gcr2011/ for a more detailed definition. 7  IMF Fiscal Monitor (April 2012), “Balancing Fiscal Policy Risks”. BIS central bankers’ speeches  5  Rogoff conclude in an extensive study that a public debt exceeding 90 per cent of GDP entails risks to long-term growth and stability. 8 When public debt reaches these levels, economic growth is rarely sufficient to reduce the debt, in their opinion. The US economy is thus facing substantial fiscal policy challenges.