 Okay, so I think we should we should start if we all agree it seems to me that all the speakers are there. Yeah, yeah, yeah. So it's good. I appreciate that we are numerous around the table. So even that we have back benches. It would be very good that we could start as soon as possible. I take it because because we I expect a lot of interaction and that also the reason why the speakers will have eight minutes for their own exposition and no more. And they will forgive me if I try to be sure that we respect the eight minutes and that will permit us to have the most vivid exchange of views because experience has demonstrated that the great interest of this workshop is that we have a lot of exchanges and various and and I would say interesting views that we could all take advantage of. So I mentioned only the fact that when I look at the speakers, we will very much concentrate on the system, the financial economic and financial global system as a whole through very different angles of vision so that we would have a multi ocular vision. And I take it that it is really the way to look at it because what we will address is a very, very impressively multidimensional concept. So I had myself written down a number of of these questions and I'm very happy to see that we will be able to respond to a number of those questions, including the next possible crisis with the view that the likelihood of a new systemic economic and financial crisis will be looked at with what would be the trigger, if any, what would be the likelihood of a global drama of the kind of what we had experience in the past. And I know that some of us are tranquill and speaking of the speakers, others are very much on the side of those who trust that there is a probability that we will have a real major difficulty in the time to come. I am in that camp, I have to say personally, for a large number of reasons, including the level of global leverage that we see presently, but we do not agree all of course on that. We have also the impact of the Trump attitude, the Trump new decisions, the trade, and what exactly the trade will have as well as geopolitical issues in general. So we are in a world which is extremely dangerous, obviously, very new in many respects in the emerging economies as well as in the advanced economy with the rise of populism and the new, I would say, threats and challenges for globalization that are associated with populism. But without further ado, I would like to give the floor immediately to the first speaker, Yide Kiao, on the multidimensional vulnerabilities precisely of the economic and financial system. So you have your eight minutes, sir, please. Thank you, Mr. Cheshire. I believe any economic phenomenon, including financial vulnerability, occurred not due to one single fact rather than multiple facts. So as a moderator said, here I try to use a multi-mansion approach to describe what will happen in the next two or three years. In my mind, the first dimension is the possibility of global economic growth. We heard the news that the third quarter of this year, US growth rate reached 3.5%, which is very strong. But my feeling is the US economy now is approached its highest. It will reach the turning point. The reason is when is a guest federal will continue to increase interest rates. At the same time, the debt ratio has been very high. So that means the company will pay more cost for their financing. So also the tax cut, the incentive will be dramatically reduced in two years or even disappear because so far I guess one trillion US dollar come back from overseas. 50% will make investment. Another 50% will be used to repurchase their stock share. At the same time, Chinese economy under the great pressure of downside, as I mentioned yesterday, the third quarter GDP growth is 6.5%. Relative to other countries, it looks okay. But it is the lowest growth rate since first quarter 2009. So in the next one or two years, I guess Chinese economy still will gradually come down. So if you added the growth US and China, which will occupy 50% of total global growth, if these two largest economy under the going down phase of economic circle, it will drag on the rest of the world economy. Yesterday, Mr. Branchard mentioned Minsky. Actually earlier, the urban fisheries in the 30s of last century have already found that they do have a relation between the economic circle and the financial vulnerability. Specifically, when the economy on the downside, the financial vulnerability will become bigger. So that's I guess in the next two or three years, that's the time we should closely watch what's happening in this regard. The second dimension is about the cross-border capital flow plus debt ratio are very high. Yesterday also Branchard mentioned the global debt ratio already reached the same level just before the global financial crisis. At the same time, I want to mention the cross-border capital in terms of volume maybe not so high that before global financial crisis, but the structure of cross-border capital flow had been changing. Now particularly among the developing countries, cross-border capital went up dramatically. Someone also mentioned Adam Too's last year published a new book called Crash. He rightly pointed out, so far too much attention has been to the current account balance rather than to cross-border capital flow. Particularly he cited an example. Before the global financial crisis, people were worried about the so-called global saving gap or people take care of capital from Eastern Asia to the US. Actually, he found the fact that the more capital between European and US, the volume is double of the capital from Asia to US. Although current account balance of European generally is okay. Also almost parents current account of Europe with the United States, but the capital flow is tremendously. So I guess it's very important. We not only look at the current account, even capital account rather than we should take care of more gross capital flow, which sometimes ignore the details of the capital flow. That will actually gross capital flow will create the financial problem. The last session in my mind that we should consider is of course many people have already described the escalation of US-China trade war. I guess the longer the war is, the bigger its negative impact not only to China and the US, but to the rest of the world. As Mr. Brandschild to mention, the reduce of trade balance is only one part of a problem, one part of a negative impact. Also he mentioned the investment. I can further to point out there will change reaction after the reduction of investment, which will lead the reduce of employment, then the national income will reduce the consumption. That its chain creation will dragon on the global financial, global economic groups. So in my conclusion, I will say these three dimensions will play some role, particularly these factors if they overlapping, which will create economic and financial problem down below the next two or three years. I stop here. Thank you very much. You were fantastic both in your exposition and respecting the time limit. So thank you so much, Kiao. I turn to Jean-Claude Mayer and I understand that you share part of the views which were just expressed. Please. You have the floor. Every forecast on the financial markets has been wrong. Therefore I can give you my own views without any problem. The question is 10 years after the crisis, are we faced with a new financial systemic crisis or not as we are at the end of an economic cycle, at the end of a sort of miracle? As a matter of fact, during the week of October 10th, stock markets have already had a severe correction, minus 7%. Nearly $3 trillion have been wiped off then. And since the beginning of the year, Shanghai stock market has already fallen by 40%. French market has been decreased by 10% in October. At the same time, Nouriel Roubigny, among others, has just predicted a new financial crisis. Olivier Blanchard yesterday very brilliantly outlined his views which are relatively optimistic. I'm less so, like Jean-Claude Trichet. Probably because I prefer to be pessimistic and have a good surprise rather than being optimistic and have a thunderstorm. In fact, we can contemplate only, in my view, two scenarios, no optimistic scenarios, but just two which are the following, a soft landing scenario or a severe financial crisis. A soft landing scenario could occur with three conditions. First, if Fed increases its rates only gradually, step by step, because inflation is moderate around 2%, we could expect just a slowdown. Second, a sovereign debt default would not compulsory generate a systemic crisis as financing from IMF or banks could help and could avoid it. Third, the trade war should not be as tough as anticipated, especially after the trade agreement with Canada and Mexico. And in that scenario, stock markets could stay nearly as we are in a sort of plateau or be lower by 10% to 20% in a very moderate way, of course, with a lot of volatility every day, which is the case right now, as a matter of fact. This is the ideal scenario which would make everybody quite happy. Unfortunately, on the other hand, a much less rosy scenario could lead us to a very deep financial crisis as many ingredients are there. There are six ingredients. First, we are at the end of a 10-year cycle, as we said, with low rates and economic growth, and we enter now in a new paradigm. Everybody shares this opinion and this psychological impact will have many effects. Geopolitical risks, as we see at this WPC, are huge. We have never faced such uncertainty except maybe before last war. Stock market, particularly in the U.S., for the third reason, has so much increased, 330% in 10 years, that it can only fall down, particularly because earnings will decrease, because growth will decrease. The nine-year bull run is finished. Till now, it has been fueled by low interest rates, fiscal year stimulus, and a surge in share buyback, $1 trillion in 2018, which would decrease from now on. The problem now, which we face, is that the U.S. stock market has risen a lot, while the Japanese and European markets have not risen at the same, with the same way. There is a divergence which we all know, so the fall markets will be more painful in Europe and in Japan. The irony of all that is that the fourth point is the trade war. The trade war could affect us a lot. It would affect the growth of U.S., the growth of China, which we notice already, and the exporting emerging countries. Trump's trades will raise the price of imports, leading to inflationary pressure, and as a consequence, higher interest rates stock market down, and thus creating a vicious circle. Again, the irony of all that is that Mao must laugh in his tomb because it's China which is strengthening capitalism. On top of that, confidence, which is key for growth and is needed by foreign investors, will reduce new investments as companies will wonder where to locate, and this uncertainty is exactly what market hates. The fifth ingredient, the debt burden, which we all know, has increased too much since 10 years. Emerging debt market has been multiplied by four. China's debt has been multiplied by five times in addition to his shadow banking problem. This debt has been fueled by low interest rates, huge liquidities coming from quantitative easing. Now that interest rates increase, major problem put a rise, and in case a crisis occurs, governments would have much less room for maneuver, particularly in the U.S. where budget policy has been already used, which will restrict additional munitions when it will be needed by a recession. In fact, low interest rates have been very useful, but a high liquidity has put also the world at risk. A much bigger risk than the subprime crisis because the amounts are huge and could come from state defaults. Sixth ingredient, interest rates. Interest rates will increase by Fed. They have already increased a lot, eight rises since 2015, once more till the end of the year, three times next year in parallel with inflation because of a budget deficit due to tax cuts and therefore the need to attract hot money, especially at a time when China is reluctant to buy treasury bills. The interest rates could rise much higher than expected and there is the risk, the highest risk because inflation would come higher and particularly we must not forget that oil prices which are quite high could become much higher in case of a war, in case of a problem in the Middle East. Because of this rise of interest rates and the dollar as a consequence, emerging countries are badly hit as the economies are dependent on foreign financing and that would be very bad for the world growth because emerging countries are key for world growth, two thirds of the world growth. Growth will be reduced also as financing will be more costly and it would be harder to raise equity. Stock markets will slow down as yields of bonds will be higher than dividends and because of slower growth and increased financing costs. This rise of interest rates is done in a very bad timing as we all expect a slowdown of the economy and a fall of stocks because of falling earnings due to a declining growth versus a huge pile of debt. In addition nobody knows how the shrinkage of liquidities due to quantitative tightening will affect us as we know balance sheet of banks will shrink by 437 billion dollars in 2019. In brief we are very worried by the US situation although booming now as never its growth will be reduced next year and maybe lead to a recession in 2020 and contaminate as usual the rest of the world. We all know that when US sneezes everybody catches a cold. To conclude we should remember what Hyman Minsky has called the paradox of tranquility. When things seem to go well it means that crisis is roaring a severe crisis or a crack might occur. Everybody believes it could happen in 2020 or next year or later nobody knows when of course we should therefore be cautious and be very worried especially as we all know that history is tragic and as Gain said we are all dead in the long run. Christine Lagarde just said October it's not just clouds and the horizon it's a bit more than a drizzle I would say that we are in fact in the fog which is the worst thing for markets. Our only hope is that we will not see deep crisis but just a correction a soft landing scenario. Thank you very much. Well you were quite asymmetric in your presentation with much more on your own but you are catching up at the end with your own wish. In any case I think that Olivier should be prepared perhaps to intervene after having heard all that and this very gloomy perspective you know to rebalance a little bit. Anyway thank you very much Ida and Jean-Claude and I turn to Jeff with view that what we expect from you is your own I would say experience and scientific research in the domain of political economy of global economy national and global economic and financial issues and with populism being present now practically everywhere including in the emerging world which is new. You have a lot of things to tell us about please Jeff. Okay well thank you Jean-Claude. You preempted me because I was going to start by saying I have plenty of opinions about the purely financial and economic issues that have been raised and others as well but as a political economist I figured it would make sense for me to focus on the political. Finance is always political we know that there's a direct connection between politics on both ends and monetary and fiscal policy but it's more general than that the financial system is in many ways a creature of public policy and heavily affected by public policies. International finance is even more politically fraught than finance domestically as we know from long standing that is hundreds maybe even many hundreds of years of conflicts over sovereign debts currently exchange rates we just had a fascinating panel with two of the four to my right and left not geographical right and left on some of the political issues that international financial and monetary affairs raise. The situation we face now is as we all know and Jean-Claude has just referred to that there is now a global backlash against globalization. We've been talking about a backlash against globalization those of us in the area scholars and observers for 20 years because everybody knows that even if and when and as much as we believe that globalization is good for every country we all know that there are winners and losers and what we have found out is that this is what the globalization backlash is going to look like we've seen it now in country after country around the world and finance is directly or indirectly one of its central targets. I think we could focus on the narrowly construed problems of international finance which are very interesting and very important I think we will focus on them that's fine I'm interested in that but I believe that the truly important challenges that international financial markets and national financial markets and for that matter international economy more broadly face are going to come from the evolving political circumstances both domestic and international. Almost everywhere among some substantial portion of the population there is a very strong sense that globalization including very prominently financial integration has not helped them and in fact in many instances has worked against their different forms in different countries different targets in different countries different sources in different countries different political expressions in different countries driven both by differences among countries of course and the different national institutions and the situations they face but just to give you some examples in the eurozone there is tremendous resentment in the former in the debtor countries of the periphery about austerity there is resentment in some of the creditor countries about transfers there is resentment virtually everywhere about what has been seen as a series of bank bailouts whether those were at the purely national level as in some countries or were implicated in or related to the eurozone crisis or bank failures that threaten communities those banks are found in. In a sense Italy is the perfect storm here because the Lega is furious about transfers Cinque Stelle is furious about austerity and everybody in Italy is furious about the failure of Italian banks that threaten in one way or another directly or indirectly the savings of middle class households. So the eurozone is clear in the sense that finance faces some serious political threats there as well and if those threats have not yet as in is the case in some countries been made explicit I believe they will. That finance is an easy target for those who resent austerity, resent bank bailouts, resent fiscal transfers, resent the attempt on the part of well-meaning bank regulators to close up banks that are insolvent. In the US there is continued and growing resentment about job losses that are often related to the mobility of capital both within the country and across borders. Donald Trump famously during the campaign in about half of his stump speeches blamed Wall Street and financial markets for the offshoring of American jobs. He also in well more than half of his speeches blamed the existing political elites for bank bailouts that as we all know were a central part of the attempt to limit the effects of the crisis that began in December of 2007 and stretched out. Bank bailouts remain one of the least popular public policies in the last 30 years in the United States. In the emerging markets Jean-Claude was just mentioning that we've seen the emergence of populism in the emerging markets. I should say that as Olivier mentioned last night to some extent populism in the 20th century was largely America and the Americans invented the term populist in the late 1880s and 1890s in opposition to the gold standard but in the 20th century it was largely in the developing worlds in Latin America that the populists were particularly powerful with their aim largely at the international economy seen as dominated by the advanced industrial countries. The new round of populism in the developing world as represented by people like Duterte and the man who will almost certainly be the next president of Brazil. In the emerging markets there is continuing resentment about currency crises, about austerity, about debt crises, sovereign debt crises in many instances about the role that elites have played in all of those things. So we know I think many of us that to a large extent some of this resentment may be misplaced but that doesn't change its relevance, its political power or its importance. It's not just central banks but the entire financial system as I said that is in many ways a creature of the political order and I'll point out one example which is that Donald Trump and his supporters actually starting with the Tea Party in 2010 had as one of their heroes Andrew Jackson. For those of you who don't know or remember their American politics Andrew Jackson's principal claim to fame was his fundamental hostility to banks and central banks. He closed down the central bank in the United States thereby causing a financial crisis and he came close to closing down all the banks in the country. This was the hero of the Tea Party and of the supporters of Donald Trump in 2016. I have a poster on my office wall that is a picture of Andrew Jackson saying he was the first Tea Party. This is a poster issued by the Tea Party saying the first Tea Party president was Andrew Jackson. So I don't I think that this is the principal challenge that faces international financial actors with public and private. That is to address this resentment because resentment in politics turns into policies turns into politicians and parties that win elections turns into policies that could very well threaten the existence of an integrated financial system. I don't think that persuasion will work. My friends, the economists typically say if we just explain to people things like comparative advantage then they would not worry about the fact that they've lost their job. People have legitimate concerns and legitimate complaints. They may have misplaced villains but their complaints are legitimate and have to be taken seriously. The real challenge I think is that faced by our governments. How do you address these legitimate concerns? How do you provide support for those who have been hard done by the economic and financial developments of the last 20, 30, 40 years? How do you provide compensation for them? How do you provide them a sense that they're being represented in the political arena? So far I have to say being a little bit, well I guess I'd say pessimistic pessimist is a well informed optimist so I don't see any particular willingness to engage directly to take into serious consideration the need to deal with the concerns of those who are the base of the populist movements. To think about what kinds of benefits can be given to those who have been suffering and who are in fact now rebelling in the political order. What I see not to put too fine a point on it if I want to talk about the United States is a great, what's the word, great appreciation for benefits that the winners from globalization have received including things like tax cuts and deregulation and leaving the politics to the politicians. That's not sustainable. Finance will come under sustained assault. An integrated international economy will come under sustained assault. The best defense is to work hard in my view to develop new models of social policies of political representation that go beyond platitudes and that actually work to try to satisfy the real needs of people whose suffering is not imagined but real. If that's not done I think that the axis that has been developing over the last five years, what we might call the Trump-Kaczynski Bolsonaro Duterte Salvini axis, will soon find finance to be the very attractive target. And the target will have no weapons. Thank you. Thank you very, very much indeed. I think you'll have a lot of questions to be more, I would say, elaborating your new models of social policy because I guess that you very rightly are indicating what is the main, main political problem in practically all societies in the world. And certainly in all advanced economies. Thank you so much for this presentation. Can I talk to Daniel now? I understand you will also elaborate on the emerging world perhaps and the developing world. But you have the floor. I have a slide but I'm not going to use the slides. I'm going to go very rapidly. Yeah, please. To a large extent, I'm seeing eye to eye with what Jeffrey has said. The very broad picture, in my view is that we are increasing fragility of the institutional framework of the international arrangements for various reasons. The erosion of multilateralism in my view is not going to be short. Time-wise it's going to continue. It may be that several blocks could relent resilience to the global institutional environment. But in the short while, I think erosion will continue. Because as some people said this morning what's very uncomfortable for the western world is losing supremacy in economic terms. And this is going to continue. And one understands why is not on his own. The syndrome is much larger much more profound. Is the global financial system safer? I have doubts about it and I'll get back to it. Social cohesion is both in advanced countries, in advanced economies and in emerging economies is under strain. And there is fragmentation and this is going to be even more complicated in your area. Political legitimacy is a huge issue and I think Ashok made a good remark in this respect. New technologies can bring about havoc and climate change is also a huge issue. Increasingly central bankers pay attention to climate change. The most recent seminar at the ECB on macro-prudential policy, the SRB, focused on climate change, the first panel. Now I think that unconventional policies have ushered into a new global financial cycle. And as you said the big question is how is it coming to come to an end? The new global financial cycle. Because there is a huge huge rise both in public and private debts around the world. So how will governments and central banks, in my view, central banks will have to intervene again. And what we call now unconventional policies will be revisited. Including printing money. I'll put aside emerging markets. But when it comes to policy normalization I would say I have a very hard time believing that policy rates, monetary policy rates will get back to the pre-crisis levels. It's not going to happen even if the FAD has raised the policy rates quite, I mean when you say more than significantly. And I don't believe the ECB will is going to go to such an extent with raising the policy rates. And not because only Italy is because of the state of the financial system. Now is the financial system safer nowadays? No I'm not going to the slides. Banks are better capitalized and less leverage is true. But it is a very tough call to say that the global financial system is safer. Shadow banking has been on the rise according to estimates made by the ECB and ESRB more than 50% of the assets. Or assigned to the shadow sector, shadow banking sector. The so called non-banks which operate as banks and that's much less severely regulated. We don't have sufficient transparency as to operations of non-banks. Systemic risk evolves in capital markets in my view if I were asked where is the next big shock going to come from? I would say from non-banks, from shadow banking. And I'm asking myself who's going to provide the land of last resort function in capital markets? We know central banks are supposed to do it when it comes to banks. But what about non-banks or big banks? We had the failure of a Swedish central counter party. What if we'll have a failure of a very big central counter party? Who's going to step in? So what I think is also quite dismaying is that it is a new wave of financed deregulation in the United States. Hopefully it will stay small for small banks. But if it's going to be on a lower scale, that would be a historical mistake. Then we have the cyber attacks and so on and so on. Now we're examining a few concepts. Low inflation can be very misleading. If external balances grow, then the country has a big problem. Financial markets do not distinguish between public debt and private debts. It's the overall external indebtedness of an economy. Trust and lack of trust is increasing. The lack of trust is increasing all over the world. What can trigger an additional loss of trust? Hidden vulnerabilities that come brutal into the open. We don't know. What is the state of the European banking sector? We still have doubts about the size of NPLs. The erosion of a central bank credibility. Many central banks are under siege. Politicians attack central banks, including the Fed is under attack. So insufficient buffers, a country needs buffers to run very low deficits and the size of an economy. If an economy is very small, then I would say it's more fragile than a larger economy. Finally, protectionism and erosion of multilateral arrangements can have a huge impact. I believe that there is an in-world-looking syndrome spreading around what you have alluded to. Politicians will have to respond. You cannot continue to tell people you're not smart enough. You don't get it. The benefits are how can you tell to a large number of losers that they are not smart enough? That they don't get it. This assures political stupidity. You cannot explain it to people at large. You have to do something. Public policy, I think, were blindfolded. We're wrong for a very, very long time. Now, a new global order we have to see. In my view, there's going to be several block-based, I wouldn't say multilaterally. We have to redefine multilateralism in terms of block-based arrangements. Brexit, I think we underestimate the impact of Brexit. If it's a hard Brexit, it's going to be very bad for Europe. Over that, we'll stay with us and we should worry about over that. That's our larger than they were in the pre-crisis years. Income inequality create tensions in society and they fuel populism and protectionism. We have redefined globalization, the way we understand globalization and we have to have new policies. Finally, new technologies may destroy more than create jobs, at least in the short run. We should not bet very much on new technologies. We see that there are limits to our models. We have to continue to navigate the waters and I should say we have to pray but I think we have to be much more pragmatic and still be prepared for unconventional policies. I would not refrain from asking central banks if I were a policymaker or a central banker to say it's the end of unconventional policies. Forget about it. It may continue. Central banks may continue to be the only game in town, central banks. Thank you very much. I must say let's pray. It's a very good conclusion obviously for all the very negative views that we have until now. I don't see too much optimism. Again, my dear Olivier, at the time you'll have to speak. I give the floor now to you have the floor and I hope that you will tell us that the lessons we can draw from the Japanese crisis are such that we will get out of the mess. Thank you. Because I have only 8 minutes, I try to be very free. I just speak chronological order. So 1997 we had a very serious financial crisis and the lesson we learned is just too small and too late and political factor was most important. At that time it was almost impossible to just persuade the politicians to just have a very big capital injection or bailout process. I hope our failure of this time may give some kind of a good advice to other countries after 2008 crisis. Now secondly, around 2000 in the period of the IT bubble crash and Japan was just in the edge of entering into the situation. For some reason, Bank of Japan introduced very problematic or controversial race of the policy rate. Maybe Bank of Japan was very unlucky because we had an IT bubble crash in 9-11 next year. But anyway, what happened is it took almost 12 or 30 years for us to get out of the deflationary trap. So once we are getting into deflationary trap, it's very difficult to get out of the trap with traditional policy. Just to remember, Bank of Japan was already zero interest rate policy for this period. So, multi-policy is very important when we are in a critical position of deflation. Now number three is Abenomics, especially Mr. Kuroda came up with this. As you know, the so-called unorthodox multi-policy, maybe combination of two, one is very dramatic expansion of the base money and the other is very explicit inflation targeting of 2%. And that was very successful to change the mindset of the people just overnight. You can just confirm how market changes by looking at GDP or employment numbers or corporate productivity on exchanges and so on and so forth. So that kind of unorthodox or non-traditional multi-policy sometimes may be difficult when necessary, when the economy is in serious deflation trap. Now number four, however also we can, that kind of policy can be very effective to get out of the deflationary trap but we cannot achieve the target inflation level. So the original targeting level is 2% but we are still alone or below 1%. So something is missing here. I don't, there are many discussion here but one of the most important thing is we have to think both supply side and demand side. The monetary expansion is a very typical demand side policy and if we have a very good expanding demand we hope supply side is just catching up but that didn't happen. For many reasons you probably know very well and one of the reason why this is very important is wage is not increasing in Japan and without increasing wage you can't expect just inflation rate just getting higher and you can find many so called the unfunctioning labor market in the case of Japan which is reflected in the wage and this is also very important for us to think about the future of the international economy. I mentioned yesterday that unfortunately the potential growth rate of major country including the United States is not very high. Robert Gordon just mentioned just total factor productivity have been very low but at the same time many countries increase Japan, United States, Europe is just doing very very stimulating demand. So as long as demand is just bringing up the economy is good but once that demand is just losing then there's very big size of the backlash because we dependent so much on demand and so when demand is going down maybe because of the US China to a conflict maybe because of the crash of the financial market whatever so we have to be very careful of the very big magnitude of possible change because of the difficult demand. Now the lesson 5 is most important now in Japan that is the unfortunately quantitative theory of money is not working in short period. It may be true that if we just expand money supply prices eventually going up but it's never run according to Keynes so we have already passed 6 years and this is not going on. Then as time go on and go then the cost from untraditional policy become bigger and bigger and we are now that kind of discussion where you can think of many distortion. One is just market for government bond and stock market. Bank of Japan just buy so much of these assets and you can just identify many difficult problem coming from possible but deficit of Bank of Japan may cause some problem. And second distortion of the very prolonged expansion is long term interest rate. For some reason Bank of Japan introduced what we call yield curve control by which they mean the 10 year government bond that should be around 0%. It may be good for the stimulating purpose however you can easily imagine that is very big hurt hurting to the banking sector. It's not only the profitability of banking sector. Banking sector is a problem of the channel for the credit and also it also has very important implication for fiscal consolidation. You know our debt GDP ratio is about 200% in some category. However if you look at just the debt service of the Japanese government it's surprisingly low because interest rate on the marginal issue of the government bond is 0. So they can borrow money for nothing. And that is a very good story in the short period but that has provided less and less incentive for politicians to thinking about seriously about the fiscal consolidation. So political aspect is very important. So this is the lesson we learn from the audience. Thank you. Thank you very very much indeed. When you were speaking of the difficulty to get increases in wages and salaries so that you will have the supply element for inflation at the target I cannot help reflecting on the case of Europe which is very very similar. Not because the whole Europe is in that situation but because Germany in particular which is necessarily the ceiling for the augmentation of the wages and salaries is very very low obviously. So the ECB has the same problem and the same difficulty and we must understand much better why exactly it is so difficult in your country and others to have what we would expect in such a situation with full employment and so forth. So thank you very very much. I think that we have now to turn to Bertrand and what we are expecting Bertrand is that you would concentrate on environment at least in the best way. Yes and no I'm afraid I will not contribute to the euphoria and I will defer to my Washington neighbor to cheer us up after that. So I will come from a different perspective from the same conclusion as Jeff. So we are ten years as has been said after Le Mans we are also ten years after the bitcoin incidentally. So where do we stand? And I would be very maybe at the risk of being simplistic or too provocative. I see we have not really started to answer the underlying questions raised by the crisis. We have patched up the system. I think we have prevented the collapse of the system and that's a good news. As far as I know we are not on the verge of the Third World War and we should be very happy of that. But I think we have not yet started to discuss what comes next and what is the type of financial system that we need to build. And maybe it's too late. That would be my conclusion if you want to start sleeping now. So we have two questions that needs to be addressed. First one is what is finally the type of economy that we want to finance and environment of course is part of it. And then if we answer that question how do we want to finance that economy? My main concern is that in the past ten years we have not really touched the art of the system. So we have tried to provide an answer on the type of economy that was the big momentum of 2015. Interesting day. A year before the Brexit and a year before Trump when we adopted the sustainable development goals when we all signed the Paris Agreement on Climate. So that was the roadmap. This is the type of economy we want. We want a sustainable economy that benefits everybody on Earth. And that's great on paper. And it's been ratified, but for one on climate, universally. So we have the roadmap and again that's a pretty good news. The bad news is that three years down the road we are not there at all. And neither on the sustainable development goals nor on climate. It has been empty demonstrated by the various reports published in the past few weeks including the one from the IPCC and the UN. So that's for the macro perspective on the question what type of economy we want to finance. On the micro aspect I think we have focused on the piecemeal regulatory approach. So we have treated the bank and then the insurance and the non-bank and insurance etc. But we've never discussed holistic approach to the system. Although we want a system to finance infrastructure gap for instance etc. We have not really dealt with the ethical problem. We have dealt with compliance which is a very poor substitute to ethics. And I think that's something which will backfire. It's not because you tick a box that you prevent the next problem to happen. We have done in fact very little innovation. So we should, I mean there is a lot of market share in the media on the green bonds or social bonds etc. But it's still a tiny drop in the fixed income bucket. So again we have not really made any real progress on that front. And basically we are 10 years down the road so good news not pre-World War situation hopefully. Bad news we are not, we don't know where we're heading to. I think it's a traditional combination of more of the same and too little too late. To a certain extent our conversation actually reflect that. We start now to be obsessed with the tree of the next financial crisis and we have forgotten the forest of the climate crisis and we have forgotten the jungle of the people's anger and resentment. So we are back to the technical consideration of the next financial crisis but the big picture that emerged 10 years ago is still there. It's very difficult to address now because we are in the state of civil war at the global level. I mean you have two models which have emerged and which are in the colliding course maybe not, I hope not. Two new feudalism in a way the US one and the Chinese one. This kind of G2 order is not really an order I would say it's probably more a trap where people might be forced to choose between one model or the other. A transactional template America or if I may be very aggressive I would say it's not a credit to China with the Belt and Road initiative. So how can we go beyond that? How can we really address the heart of the system, the root cause which has made finance, I mean the legitimate scapegoat of this crisis. We have done a little bit on the reporting front. I mean all these boring things reporting, accounting, monitoring etc. We've never discussed that. How do you want to focus on the long term when the basis of the accounting rules are based on liquidity value? How do you want to think 20 years down the road? I mean I've been a CFO for many years. I know you prepare a quarterly report. You prepare things because a quarterly report is what matters for you. Not what happens in 20 years despite everything said by the great leaders. So we have to think about this and the problem is that in today's world I don't see where people will start this conversation on the way the system is run. So in conclusion I think the question of trust has been said by my neighbor and many is central. The problem is that trust is not there. The problem is it does lead to a misallocation of capital at the global level. We have too much money going where it's not really needed. I mean why do people keep buying negative rates German or Swiss bonds today instead of investing where it's most needed in Latin America, in Africa and South Asia? That's a real problem. I mean you can build walls to address this misallocation of capital. It will not last forever. So we have a problem to address regulatory framework. I mean it's not just solvency, it's not just Basel suite, the combination of all this and every day I'm discovering issues in that framework which are just atrocious. I mean not the big ones but even the small ones are terrible. You have these perception issues which we know. We have too much compliance. You have too much risk aversion and you can be risk adverse for 5 or 10 years not forever. So we have to find a way to move there. And if I may really conclude with that it reminded me of the non-French people in the room. But in high school I read a theater play from a French writer called Jean Giraudu who wrote La Guerre de Troie Nora-Palais. The War of Troy will not happen in 1936 or 1937 if my memory is correct. If you remember we are this is the setup, the stage. You have Ulysses or this is in English and Hector we discuss and say it's crazy. We're not going to go to war. And these are the technocrats, the reasonable people because of Hélène. I mean we not have our kids killed for Hélène. But at the end as we know the War of Troy happened and Ulysses has this very tough world. This is a privilege, the privilege of the rich and powerful is to think they can watch a catastrophe from their balcony. I think we are again at the balcony. We are afraid of the next crisis but the real one behind it is not being addressed. So my conclusion is that we have not really started the hard work and the window for me to start this work is shrinking now. And we might have missed the boat and I hope we are on a solid balcony. I'm not sure. Thank you. Thank you very much. I was expecting some kind of happy ending but not exactly the case. And to be frank to all speakers I would say that you might remember the motto of IBM was if you are not part of the solution you are part of the problem. We need solutions now and we should concentrate on the solutions. I don't see our friend. He's out so he will be back. He will be back. So thank you very very much for this exposition. It was really smashing with a lot of issues addressed. So can I ask who wants to take the floor immediately? Yeah, please. With solutions you have the floor. I don't have many solutions. I just want to refer to Barbara Tuckman's March of Folly which starts as the first chapter with the stupidity of government the king of Troy letting in the horse and he shouldn't have known that. I was a bit involved in the Euro crisis and a lot what we did had to do with governance. Governance inside the European Union that is we for instance we transferred a lot of powers from the capitals to Brussels as far as fiscal discipline is concerned and we transferred a lot of national powers to the central bank as far as provincial supervision was concerned. Now I thought about that when Professor Frieden was referring to new socio political models and I was wondering whether we are thinking enough about something which may seem too far fetched given the fact that multilateralism is going down down a slippery slope anyway but that we shouldn't think a bit more about what instruments we can build, we could build over time to try and make sure that the policies one country is following is not harming and hurting too much other countries. That's the basic line we have inside the European Union. The economic policy of an individual country is considered to be a matter of common interest. You cannot do even if you did it turns against you like it was a case in Ireland. So I would like to know Professor Frieden whether there is any thinking on the governance side of all the crises and catastrophes which are looming over us. Thank you. Thank you. I ask the speakers to take note of questions which they are addressed. Thank you very much indeed. Other issues please. Jean-Claude you started by saying that you were concerned about the world economy now and the prospect of a new crisis but you didn't explain why. I wonder if you could do that but let me ask a very uninformed American question which has to do with your assessment that a key to resolving some of the current European problems, Euro problems lies in Germany and inflation. Could you explain that and tell us why they won't do it? Part of your questions is only echoing my own interrogation on Japan and Germany and perhaps the Netherlands countries where the unions in particular the labor force is so keen to reach full employment and not take any risk on full employment that finally you don't have what you would have expected at a certain level of heating or overheating namely the real demand coming from the labor force. In a way this is a phenomenon that we are observing in all countries but it's particularly acute it seems to me in certain culture and in certain culture which are at the level of full employment and where everybody in the social fabric likes very much to stay and doesn't want to take any risk. I must confess myself I made a mistake on the German fabric because I thought that at a certain level of full employment then you would have this kind of request for augmentation of wages and salaries that would augment uniquely the cost that would have would permit Germany to be back to I would say a more normal level of inflation taking into account the current account surplus of 8% of GDP and would permit them to be back to their traditional yearly inflation during the 40 years before the euro which was significantly higher than what we are observing since we have the euro. So my own response provisional would be we are in a situation first where again unions in general and the labor force considers that the wage restraints were extremely effective and efficient in getting full employment and that before changing their own behavior they would reflect a lot and they are still reflecting in some respect. A second explanation which is also new and I am reflecting on that since say 2 years is that we were perhaps under assessing labor mobility inside the euro area. We observed much more Spanish, Portuguese Italian going in Germany than we would have expected and you know that the main criticism of the euro area at the very beginning was you will not have this labor mobility which exists in the US and you will be hampered by that. The paradox is that we had not much labor mobility at the start and that in the crisis because of the crisis we are perhaps observing a high level of labor mobility. I was struck by the fact that it looks like 300,000 workers coming from the euro area came in Germany in your 15. That was not expected frankly speaking and of course it's such a big influx of new labor and you can understand that it weakens considerably the demand of the German citizens that are themselves working in the labor force. So that's for your second question. Your first question was different. Why am I worrying? As you could see it is a sentiment which is quite generalized obviously. If I would concentrate on only three elements say three in order not to embark on eight and nine or whatever because you can go very far. First I am struck by the fact that we still have augmentation of financial leverage at the global level. There are different methodologies, different computations. I myself chaired the G30. I am still an honorary chairman of the G30. We produced a report which was clearly signaling but it was two or three years ago that the pace of additional outstanding debt public and private at a global level as a percentage of global GDP had continued at the same pace as before the crisis. It might not be exactly the same now. The IMF has worked a lot on that and produced figures that are different from the figures we had. The idea nevertheless that it continued to go on at the global level is still there. Another element which is of course a little bit intriguing is that the epicenter of the crisis was in the advanced economy and the advanced economy have leveraged a little bit in some of them at least substantially or less substantially in the private sector but apart from very few cases they continue to augment leverage in the public sector, in the public finance sector. All taken into account I would say that the pace of additional debt outstanding public and private as a percentage of GDP which was 90% before the crisis of the augmentation of debt outstanding is now only 50%. You could say if the pace is the same it is a big diminishing by a factor two of their contribution to global leverage, financial leverage. If you take the emerging economies and all the other economies then they had a contribution of 10% and it's now 50% so it has been multiplied by 5. Of course China is a case in point because we see a very big augmentation of debt outstanding particularly I have to say in the private sector or so-called private sector with an explosion particularly of corporate bonds but all that taken into account of course signals something which is very unhealthy namely that we did not draw the lessons from the fact that the crisis was one of the major dimension of the crisis was over leveraging and I would fully echo what has been said on Fisher and also on Minsky we have their elements that are worrying. Second element of course has set inflation that we have observed in a number of countries and of course particularly in the United States of America so a correction will happen Jean-Claude is particularly I would say worrying on that. I think that many very good American economists are also particularly worrying I have to say and Martin Feldstein in particular regularly says oh something will happen. Of course it never happens at a time that you can predict so when you continue to make money out of the increase of the assets that you have on the share and stocks markets you appear as a stupid guy if you disinvest or if you give good advice to your clients but at the time these these advices will be good but that's what we all always observe. Last point which is not to be neglected is that in the cycle we are in a number of countries ten years after the start of the recovery we had counter cyclical measures that were taken in a number of countries particularly in the United States of America so this is not good in terms of I would say smoothing the cycle it amplifies the possible cycle particularly when time comes for recession and of course when the recession come as has been said you have very meager munitions as regards both the monetary policy I have to say particularly in Japan and in Europe but also in the US in many respect where normally they say I'm speaking of the control of eminent economies that they would need 5% decrease of interest rates to have something which would be significant to combat the recession and they are not there and it's very unlikely that they would be there when time comes and of course the fiscal element in countering the crisis is not there either and only a very few countries in the world can say we have room for maneuvering so you see all these elements but I'm only stick to those three are not putting me in a situation to be very optimistic obviously so thank you very much for your question of course the speakers can intervene any time if they think appropriate I have Renault and then you should I understand from this session that there was too much quantitative easing from the Fed and from the European Central Bank which is a kind of quantitative easing that's my first question and my second question is can we consider that for this crisis that you are all more or less predicting us quantitative easing would not be an efficient tool maybe we could take note of this question and then the speakers will respond and take the last question from that batch of the first question I'm sorry I missed the beginning of the workshop so I may have missed some of the things coming from my perspective I'm a banker I've been a banker for many years I've seen financial services I work for European banks and American banks and my sense I've lived through many financial crises including the last financial crisis and one of the things that struck me is that of course there was a lot of leverage at the beginning of the case of Lehman is obvious there was a leverage of 50 or 40 to 50 now things have improved a lot particularly for American banks I would say it's fair to say that American banks are probably better capitalized than European banks on average but having said that don't you think that we are in a situation where regulation has been implemented. Dodd-Frank nevertheless has some shortcomings and weaknesses I'm trying to reform and my sense would be because you're looking for solutions don't you think that if we want to reduce the burden of some of the regulation we have to increase the capitalization of banks and recently at the opportunity of listening to Alan Greenspan was speaking to the economic club in New York and Alan Greenspan was making the case that we probably need to be in a safe situation and we're talking of regulated institution but also obviously the comment that has been made about shadow banking is very pertinent and absolutely adequate don't you think that the leverage which is now probably I mean the capitalization of banks is about 10% now we said 10, 11, 12% depending for the ciphers it can be up to 12% don't you think that we can request 15 and perhaps 20% to be in a safer environment to be able to take care of all the problems that will come up at some point it's a good question in Europe I think we are approximately at 14% if I take the significant financial institution in the US it's higher anyway thank you very much then we have several questions and perhaps we can make a tour the tab so in the order of intervention perhaps can I ask each speaker whether he has any comment to make or any response to bring to the questions we had you have the floor answer the question regarding the quantitative easing I still think maybe QE created lots of problems particularly as someone claim the QE take care of management first then take care of management later that mean using classical logic but at least QE makes sense to save the whole financial crisis from total collapse in that sense I guess for example in China we don't see don't define the stimulus package in 2009 as a QE but actually the total money China put occupied 12% of GDP of China much more than US I guess US money total in 9% of US GDP in some way it is working although they create lots of negative problem but I don't think there is another better way to deal with these kind of systematic collapse thank you very much indeed so can I turn to Jean Claude now how would you respond maybe I can comment on Renaud's question about quantitative easing but I think it has been a very good thing it has been a miracle that it has been invented both in the United States and in Europe when you stop it it is a kind of drug you have a drug and then you stop your opium and then you feel very bad that's the question we raise which we can raise today when we stop it especially when the things are not very good because again we must not when smoke opium today things are not good today there is a lack of trust there is an anxiety as a matter of fact I wrote my paper beginning of September beginning of October markets 10% less tomorrow not tomorrow because markets are closed but Monday I don't know we are in a new world now in a way I must say from a moral viewpoint it's quite good because it has been obscene to receive a stock market going up every day by 1% with people with 1% being extremely rich and the rest of the pollution who has no stocks in his pocket being poorer and poorer Q, I turn to Jeff I'll try to focus on some of the more political or political economy issues I have to say on the quantitative easing to me the crucial lesson I take away obviously from the economics what's been said the crucial point that I would take away is that this was a result of the unwillingness or inability of governments to engage in a sufficient fiscal stimulus and the fact that the relatively independent central banks carried all the water pretty much for the recovery indicates the very weak political bases that we have for confronting the problems that arise we should have had a much bigger stimulus in the U.S. and European policy was pro-cyclical rather than counter-cyclical so I think that tells us something about the beginnings of the understanding of the political failures that we've seen I wanted to address particularly the point about global governance which after all is the dilemma or the slogan of the meeting it's a very positive view, very straightforward just as when financial markets went from local to national there are public goods associated with financial markets whether it's lab nerve last resort facilities, financial stability in itself is a public good and so we got national financial institutions that provided the public good of financial stability we have global financial markets today there's clearly a demand for something resembling global public goods provision in the national financial system, some could argue that to some extent it's been provided by cooperation at the level of the G7 or the G20 some could argue that it's been provided some aspect of lender of last resort facilities provided by the IMF, augmented by national governments so there's a clear normative argument for something that we would call global governance in the financial system as in elsewhere but the financial system is particularly striking both because the theoretical underpinnings of understanding why there's a need for public goods provision in finance are very strong and also I would say that to some extent it's gone farther in finance than they were else if you had asked me 25 years ago would there be this level of cooperation at the regulatory level with Basel or with the fund, with bailouts, with programs and monetary policy cooperation all this I would have probably said no no way so there's been more progress made the problem is that for the continued provision of those global public goods or even something resembling global public goods there has to be domestic political support people are not going to support government policies that are aimed at some abstract ethereal notion of global financial stability first if they don't see that it's going to help them and second if they believe that it's going to hurt them which they do as an example some of you may remember that there was massive opposition in the US to the bank bailout not the bank ballots but the sovereign debt ballots of the 1990s such that there were a whole series of laws passed which seriously hamstring the ability of the Fed and the Treasury to engage in these packages the sponsor of both significant legislations of Bernie Sanders and he has continued to make the argument that American involvement in these packages is against the interests of the American people and Donald Trump doesn't have that sophistication but if he did and his people do they will make the same argument and this is directly relevant actually to Jim's point or to the question that Jim asked about Germany and the point is not that countries malignantly decide to impose costs on other countries it's that they're concerned legitimately with their own political, economic and social well-being the Germans did not continue to run massive surpluses at a time when they should have been spending them down and running deficits I mean the old line is that the problem of Europe in the crisis was German economic thinking which said that every country in Europe should run surpluses with Germany and Germany should run surpluses with every country in Europe obviously unsustainable but it didn't come from some bloody-mindedness on the part of the German people it came as John club I'd say some people there are arguments in the literature about why some people think that essentially it's a unholy alliance of exporters and the elderly in Germany insisting on low wages and low inflation but you could talk about national cultures as well the point is that German economic policy is driven by the demands of the German people and if you can't get in an integrated in a region as integrated as Europe where Germans support European integration if you can't get a commitment to do something that is essential for the prosperity of other members of the Eurozone out of the German people then the underlying problem of what is the domestic political support for that kind of global cooperation or global government like it did not look good in the crisis it does not look good now we face more difficulties and we now have political movements that are in some cases very very explicitly opposed to anything that looks like global cooperation I want to mention one more thing because people have been talking about leverage I think leverage is always an important issue to me it's not leverage per se but where it is who it will harm and how it will be addressed and people talk about the emerging markets I think that there's a crucial fact about leverage in the emerging markets that has gotten far too little attention the big story of the last 15 years in the emerging markets is that for the first time in modern history sovereigns can borrow in their own currency so there's the old original sin argument that original sin has somehow been atoned for so Peru and it sells all of its government debt to foreign funds so sovereigns are borrowing in local currency but the private sector is borrowing almost exclusively in foreign currency and so when a government faces let's imagine a government let's call it Argentina that faces a crisis that Argentina actually is a case where no one was doing any borrowing so it doesn't come up let's say a crisis like the Argentine crisis happens to Peru and the government finds out is to substantially devalue the soul it's not going to hurt government finances because government liabilities are our own solace it's going to bankrupt the private sector and that's going to be the political challenge that the emerging markets are going to face and by extension that the financial system is going to face when these countries start facing difficulties it's going to be a rerun of the 80s on steroids thank you very much indeed chef I see that no no no I'm continuing the speakers to the table they have to respond so it's Daniel terms I think that one could try to answer at a surface I shouldn't say superficially but taking it as a working hypothesis that basically the system should stay at it is we have I shouldn't say we tinker on the fringes but if we raise capital ratio I mean more capital and Mati and Helbig have been saying for years that banks need to have much more of a cushion of own capital that banks do not have and why because the system in itself the way it's been constructed over the years starting with the 70s the major decision of the American Nixon administration has been increasingly destabilizing I mean financial markets have been increasingly destabilizing economies and one could argue that the global system is over financed over financed and finance has been extracting rents something has to be done about it so this is why there are people and but we're not discussing it almost at all like Mervyn King and others turn it we're saying there is something terribly wrong with the basics of the system we have to change the system but this is very tough it's like repairing the airplane no no I'm telling you the solution I'll tell you what I think should be done when it comes to your area I think we have to complete the banking union the banking union if it is to be completed has to deal with the fiscal arrangements there is no other way a collective deposit insurance scheme boils down to fiscal arrangements you could call a fiscal integration you could say not fiscal integration but it is fiscal arrangement which means basically mutualizing risks Germany I don't see Germany accepting it if it's not done will have an extremely fragile banking union and I think it is a must it has to be done otherwise no I think it has to be done I mean you asked me what I think should be done and I think it should be done secondly and this is what Olivier said this morning this afternoon he said and in Germany it is also to be pointed out is the policy stance Germany is fond of saying rules have to be observed we have to play by the rules but Germany has never accepted that such a big current account surplus has to be addressed the commission has been saying for years the limit is 6% so this also has to be addressed I believe that banks in spite of being better capitalized I think banks should have more capital they should be more robust relatedly we have to deal with the non-banks non-banks have to be tightly regulated many of them they call themselves non-banks but they operate like banks they have to be regulated the non-banks I mean we cannot allow such a big loophole policy coordination Geoff said no way and I agree G20 was capable of doing something now it's much tougher nowadays because of the erosion of multilateralism and we see it's not happening in the Eurority as it should but we just we can't accept it we have to work hard and do something in terms of policy coordination otherwise we are doomed and in addition the example of Japan we cannot clone Japan we cannot say the rest of the world is not like Japan part of the rest of the world may turn into other Japan's when it comes to how many residents hold public debt and saving and so on and so on so that the system should be much more resilient because there is resiliency in the Japanese system but other parts of the world are not Japan okay it's a good transition you have the floor I have three comments one on financial crisis second is on QE and third is a point which I didn't make which is related to inflation now because I'm from Japan I know very well about earthquake it is very difficult to predict earthquake it is impossible to stop earthquake so what we are thinking about is how we can just respond after earthquake now if you use that metaphor can you predict when financial crisis is coming or can you stop financial crisis hopefully but not so even policy mostly is how we can just react in good way after just the financial crisis is coming so yes it is better if we don't have financial crisis maybe the second best is smaller financial crisis and then it should come more small earthquake is coming more then we can just have less earthquake now I have a very good observation of the Korean financial crisis in 1997 it's very bad when I saw the economy but if you look at the data say 5 years later or 10 years later Korean economy just recovered very nicely so you cannot identify very big bad effects of the financial crisis by looking at the data for 10 years so I think the resilience how we can recover from fiscal financial crisis it may be probably more important now second QE I think I just echo to just Chairman's point just because interest rate is so low zero for us if we have some kind of a very big shock it is almost impossible to just respond by interest rate policy so the only remaining policy is quantitative policy and fiscal policy so in that respect maybe quantity policy will become more important when there's some kind of financial crisis now important thing is quantitative expansion is not only just expansion of balance sheet and there's the other aspect that is what you are going to buy you can buy government born or you can buy some kind of just the asset from stock market or you can buy from foreign exchange market now if Japan buy something from foreign exchange market maybe Mr. Trump will be very angry so I don't know whether it's politically easy or not but the stock price for example stock market may be very interesting way to inject the money and also when the financial crisis happen or economy is not very good fiscal policy in some type is very important like when bank has some kind of problem capital injection may be very important and that may help the just negative impact will be softened the last point which I didn't mention but related to the point just was mentioned just the debt GDP ratio now Japan debt GDP ratio is probably around 200% it depends on how you just measure the debt and because we need to just have some kind of balancing of deficit deficit should be maybe below 3% or 2% but even though we have just the zero deficit from some time but still that 200% cannot be decreased without increasing nominal GDP now well it's maybe very good and we can achieve a very high growth rate but unfortunately real growth rate potential growth rate is not very high because TFP is not good so the only solution just inflation so not very high inflation 2% or 3% inflation help a lot because most of the accumulated debt for Japan did not come from aging it just came from just deflation drinking tax revenue because of the economic slum so I think the way inflation targeting should be set is very important not only just because of the short term problem but more of the long term problem and it is very much related to the fiscal consolidation problem also I'm sure I know it's not very easy to achieve high inflation rate thank you thank you the privilege of being last I will try to be short four little comments first I will echo what you just said Jeff you have two issues with debt is the level and what is it used for and as I said we could have used this period of interest rates to prepare the future and we have not right not enough at least and that's part of the issue so the quantitative element is absolutely crucial but if at least it would have been used to do something great that would have been a different story a second point to echo to answer the question of Jean-Claude on banks it's precisely the points I've made again we are back to focusing on different pieces of the puzzle instead of focusing on the holistic perspective of the puzzle I think the ratio of banks are okay today I mean you can discuss with us here and there I think we have to finish the question of the market in the European Union then we started we still have differences in the financing of economies I mean this was one of the issues before the crisis when people argued that in the US markets are leading and in Europe it's banks and China is different and Japan is different it has not really changed so we had the marvelous slogan of the capital market union in Europe which as far as I know is still a magnificent slogan but there is no reality behind it so we have not really addressed that issue so I think we really need what do we need to finance this economy I mean how do we value equity investment versus debt investment we have not discussed that how do we mobilize money for infrastructure how do we mobilize money for the long term we have not addressed that the rules have not changed that's my third element it's more a malicious comment but not that malicious on quantitative easing why did we never discuss green quantitative easing it would have been an interesting occasion to allocate part of the money channeled into buying bonds specific to green I know Central Bank I've had this conversation with Bono actually with more open than I think it was worth discussing I think it was worth discussing and last on Germany I cannot help intervening then you will have all absolutely all social and highly praised investment that will come to you now with the US outside everybody has signed on COP21 it's a global engagement signed by heads of state it's not a kind of I mean you buy 100 billion of green bonds I mean it's at least worth discussing I said it was malicious but I think to have at least this conversation would have been interesting even to talk to the population actually not just to have this technical discussion between bankers and my last point on Germany I love Germany I come from Alsace I have really considered not as a border but as a way to cross a passage bridge my only concern when we discuss with Germany when they add the high moral I do say the moral high ground in the conversation it's not necessarily just rational everything you discuss but we are right because we are right and that's really where it's a little difficult I mean that's again I say that I'm not participating to anything like Europe six years ago but I feel that every time I go to Germany I presented my book a few weeks ago and it was so obvious in the room I couldn't believe it thank you Well I disagree also with you on that point but we will discuss that later so thank you very much we have still something like 25 minutes and I think that we have a lot of discussion to take place so I will interrupt both I would say questioner and in order to be sure that we are exploiting our ideas you have the floor sir I'm going to do this with great trepidation but I want to build on something that Jeff introduced and Bernard took further the way humans behave is to develop a set of heuristics and then apply them consistently until the system fails and when we develop models for the purpose of modeling for simulations and related things that's what we do once again so simulations work brilliantly as long as the underlying assumptions associated with the simulation are effective and the moment those underlying conditions are no longer replicable the simulation breaks down that's our society functions too of revolutions from time to time there's a significant change in respect of social economic and technological circumstances and the institutional response to it is inadequate Jean-Claude has made the point I think wonderfully in the past that in effect the central bankers who had to grapple with the crisis in 2008 did not have textbooks or recently published articles that they could easily refer to and in effect they had to make policy on the hoof and that's why I guess we refer to it as unconventional monetary policy even today but the fact of the matter is policy frequently has unintended consequences and some of those are what we're grappling with in respect of both the unintended consequences of extreme liquidity and the issues that we haven't addressed as a consequence of the crisis on the other now there's nothing surprising about that that's what human systems do but I think what we're failing to recognize in a certain sense is the system around the technical system is broken we're not getting the rise of people from Duterte to Trump from and to add the one from Bolsonaro to everything else because of the fact that unconventional monetary policy produced too much liquidity in the system we are getting that response because the level of trust within society in the political institutions and the economic manifestations of those institutions including monetary policy but it's a relatively small part of the whole no longer are seen by significant segments of many populations as serving a purpose now that's the vulnerability it seems to me within which we will have to face the next financial crisis great or small and the potential for escalation in conditions where social cohesion has broken down dramatically social polarization has increased highly significantly trust in institutions has been appreciably reduced it's going to be far more difficult to come up with technical solutions to technical problems under those particular circumstances so unless we use this moment to drive that debate forward what we are properly discussing in this workshop this afternoon is going to prove likely to be impossible but the trust that you could rely on Jean-Claude back when in 2008 doesn't exist today Bundeskanzler Merkel may not be the CDU leader in January of 2019 the Hessian result is probably going to cause a further loss of roughly 10% to the CDU the Bavarian result produced a similar loss in respect to the CSU and the pressure in respect of all of the centrist parties in the European space before you get to Russia, Turkey, the Philippines and Brazil the pressure that exists on those centrist parties whence our norms come whence that normative framework within which we are expected to deploy fiscal and monetary policy in order to bring about a restoration of stability is fracturing and that I think is the most frightening element of the present moment it's not something that too many people around this table can deal with directly but I think it would be a serious mistake to imagine that technical instruments are going to be adequate to deal with the next crisis. You are absolutely right I think there is a consensus to consider that populism the new wave of populism is something which is now the main challenge for all I would say political parties, leaders and so forth everywhere finally including in a country which is succeeding admirably in terms of employment in terms of cohesion of the society at least seen from the outside and still the governmental parties are vanishing in my own country it's a caricature fortunately it's not the extremists that are taking over but it is a new centrist that is totally eliminating and it's a real issue the traditional right and the traditional left so thank you very much but ok we all agree that it's the problem and of course it's a political problem which cannot have technical response but the technicians have nevertheless to bring about the best possible solution taking into account my own interpretation that I don't want to monopolize the response is that we have this problem probably for the next 30 or 40 years because it the I would say most vulnerable part of the population in the advanced economy the working class less educated than the best I would say member of part of the labor force will have the competition of India, Brazil, Mexico, China and the like and Indonesia and so forth for the next 30 or 40 years until the on top of that plus the changes of values that they observe in society which makes this anxiety gigantic because it's an economic anxiety it's I would say obsolescence of skills and it's also a change of value so I think we have to tell political leaders and parties of all persuasion that they have a structural problem which is really gigantic and they have to think boldly in this respect and again it's not for us unfortunately to give the appropriate response but I think that maybe we could take two or three new question and then we could wrap up let me take all the questioner yes madame you have the floor madame you have the floor no no the first is madame and then you and then do we have other questions no two questions now or remarks or observation I'll share my observation and I have a question thank you for bringing a discussion back to emerging market economy and Jean Claude you talked about the rising levels of debt including and particularly in emerging market economies what I worry about as sovereign debt restructuring practitioner in particular is the quality of the debt and the components of such levels of debt and particular non-Paris club bilateral indebtedness which is kind of obscured at the moment but it will rise as a new problem from my perspective just having been in that space for over 20 years so how would non-traditional bilateral creditors like China and India would respond when their sovereign debtors cannot repay their loans and it will happen they will not be able to repay their loans so I see three options one is negotiating ad hoc arrangements perhaps securing political or geopolitical concessions as a price of forgiveness of such loan option two is joining Paris club and option three is forming a new club such as you know Beijing club of non-OECD members so far for example China the major principal lender in emerging market has dealt with the situation using the first option negotiating ad hoc arrangements just earlier this year and we touched briefly about it in the panels you know China secured 99% of the major port in Sri Lanka plus 15,000 acres of adjacent land a very strategic place in exchange for debt relief for total debt relief of Sri Lanka as a sovereign would Venezuela and Ecuador be the next contenders in using the same option I hope not so what would be the governance issue, the governance solution for that issue so I will be thinking about that I'm just curious what panelists thought about that. Thank you very much madam it's a real question you have the floor and then you sir please madam. I was just going to try and go back to the real economy for a moment and talk a little bit about growth so one of the things that concerned me a bit when I was in the Treasury department was putting out a number like 3% when you know your labor force is growing at .3 or .4 you're putting a huge amount of faith in productivity growth which is of course the key to long term growth in per capita income and what we really in a long term sense are all seeking so I think my question is really is there a role for finance in supporting improving fostering productivity growth has or has finance been part of the problem so sometimes you hear the story that QE and extraordinary liquidity has essentially propped up very low productivity firms for a very long time we really haven't had this kind of creative destruction that we normally have in recessions but this one was just so terrifying that we just had to put a floor in there and a lot of people were supported. You also hear or I've heard that because we're in a more IT and IP intensive environment some of that's a little bit harder to collateralize and so financials are having a harder time lending to those firms or understanding the way in which to lend to those firms so I'd just be curious from the people in the room whether you think finance is part of the problem and also part of the solution and if there are things that should be changing Thank you very very much indeed so the last question if I may and then we will try to wrap up please I come from Germany so it took me a while to take the current question There is no government policy to create a trade surplus so what do you want the Germans to do and I know Mr. Scheupler always talks about the Schwabian housewife who only spends the money that you have previously earned What do you want them to do? So we maybe I will not make the table in order to be sure that those of us that have a response to bring about would do that and we have a lot of new questions and observations and I reserve my right to respond also to some of them but who wants to speak now Jeff? There was a lot of questions which are of a political nature Simple one on the German front is fiscal policy and then the German government plays a role directly in wage negotiations and has been back and forth but I think the two things that have been pointed to the first is would be undertaking a more expansionary fiscal policy and the second will be trying to encourage a loosening of some of the wage restraint that was so central in the early 2000s but is now counterproductive I think one of the most interesting questions is the one that was raised about what China will do when it's debtors start going under we do have as you say the Sri Lanka precedent which is really a debt to equity conversion in this case the equity being some pretty important 99 year lease on some things which some people believe are centrally important in national security and since the amounts involved are very large relative to the country's economies I think that it will raise a whole series of political questions in China it may well find itself in the cross hairs of some nationalist it already has in Sri Lanka but it may find itself in the cross hairs of some pretty powerful nationalist sentiment which might mean that it might want to join the Paris club or talk with the fund about that restructuring under the auspices of the fund I think it would be foolish for the Chinese, this is not advice but it is advice but it's free advice so worth what it's paid for it would be foolish of the Chinese I think to maintain these things on a bilateral basis because the history is that they always become politicized and always in a bad way for the creditor I think yours is the crucial question why productivity was slowing down, we could do something about that I do, I am struck by the fact that no one has addressed the, I want to call it hypothesis, I think it's a fact, but the hypothesis that even today in many countries especially in Europe the credit channel is fundamentally restricted or not functioning fully there's a lot of evidence, we have bank firm loan specific data for Portugal for example that shows that small media enterprises today still cannot raise all the funds that they need to which goes back to the potential misallocation of resources even with zero interest rates, when the credit channel is impeded that means that good projects don't get funded, I think that actually is also true in the US although not to the level of Europe because there were so many bad loans on the books and there's so much reverse conversion in the private sector that good projects are not being funded, so I don't have an answer but I think that would be part of it, it would be looking at the impediment, impediments to credit channel. Thank you very very much indeed, you want to say a word? I just may comment on just a possible role of finance to just raise productivity and growth and it may be related to also the current account surplus problem, now looking at the Japanese case, the so called investment saving, saving investment difference divided by GDP is 5.5% in the last 10 years, so which means corporate sector is accumulating about 60% of GDP for the last 10 years, they don't spend now in order to just mobilize the economy from supply side I think investment is very critical, not only just for expansion of the capability, more important thing is how they can change business model under the innovation, so in the case of Japan, this is very important, so government try to just stimulate just moving money which is already there which is not used to the more active action to the corporate sectors, now in German case the saving investment difference divided by GDP is something like 2.6% so it may be better than us, I mean you save less but still that part, if it can be used to just stimulate the economy for supply side chain that may be more collection of the current account, I don't know how the government policy can just move that but I think the anyway, saving investment difference in corporate sector is very important. Thank you very much indeed. Yeah please. I'm going to address the debt issue from a little bit broader perspective, I recall 40 years ago when China started to open door on economic reform they are also facing the financing issue, fortunately that time I recall the debt crisis in Latin America so China facing, you borrow money abroad or you do FTI track the foreign direct investment, fortunately China is taking second measurement which I think is successful also I guess I just read the book called 329 days I guess load by the personal advisor for former Prime Minister Ko 329 days call the collapse of the Berlin war to the unification of German when I finished reading the book I suddenly recognized why Soviet Union failed in some way because I guess at the last they make a phone call called Gorbachev, they're talking about money talking about how much money western Germany to give the Soviet Union to get agreement from Soviet Union to have a unification of Germany so Soviet Union also get a lot of foreign debt to support their economic reform, so that's the issue also back to the current situation I guess still developing country can do some regulation on private borrowing, overseas borrowing, maybe that's not totally capital account opening, but after the global financial system, IMF will be changing their position allow in some way capital control still in the part of the tool of potential management so in that way for example currently China if private company want to borrow money overseas they have to get approved from Chinese government, that way China can control the foreign debt for private borrowing debt of course is a separate issue, it's relatively can be control. Thank you very much indeed so very rapidly perhaps if you wish Bertrand and Daniel. Two quick comments, first I'm sorry I don't know your name but I would really emphasize what you said I said if by any chance after for the next crisis Odysseys and Hector came to a good technical solution it would be a very hard sell and that's I think a big issue and so I'm afraid we will repeat the curse of the war of Troy that's not to add to a positive note to this end. Second point as finance being part of the problem just one element if my memory is correct the highest weight of finance in GDP in the US and UK was 1929 and 2007 so I think it was part of the problem and now one of the issue after everything which has been put in place is that finance is really echoing the lack of trust in the system again I mentioned compliance but the bureaucracy etc so it takes much more time to do things it's much more complex, it's a drain on the economy and if I take a tiny bit which I spend a lot of time on the World Bank which is correspond banking it's below the radar but it's just disappearing day after day after day so it's basically the relationship between emerging and developing economies and the central system which was endowed by city group JP Morgan Deutsche Bank, one after the other that would be a problem for the global economy which is not visible yet but someday it will surface and then we have another problem and there's a backlash from the population. Let's keep in mind about China China in particular has been behind has been behind creating alternative arrangements to the Bretton Woods arrangements it's happening in Asia and many countries have joined this so I would use this as an analogy for you said the Beijing group, I don't know if it's going to be called it could be Kuala Lumpur group, it doesn't matter, it's going to happen clearly it's going to happen and we should not believe that the guys in Beijing do not understand, I mean it's the pitfalls now secondly about Germany, why Germany has to think about the policy stance? If Germany had its own currency nowadays, I mean the euro is like an undervalued Deutsche Bank, when it comes to competitiveness and industrial strength of the German economy, I mean it's a Germany who would have experience with a much stronger currency, a lot more unemployment so this is something people should understand and it's the task of politicians in Germany to explain it, however unpalatable is for German citizens last but not least about finance, it may be there is a lot which is wrong with finance and finance is not like a bakery, finance has a particular role to play, you could argue that finance has many of the attributes of public utilities, so if finance is frozen nowadays when it comes to reshaping it's redirecting its funding of activities and so on. Now in Germany there is the we're talking nowadays in Europe about promoting promotional banks I think we should set up a range of banks with the backing of the governments we should fund new industries otherwise we're going to be stuck, there is so much risk aversion, there is so much fear then there should be something you go yes this is government intervention, give me a break I mean it's like a case with shop there are promotional banks in Europe, in Germany, in Austria even France, the French government is behind banks so we should not fear it, it is such an extraordinary set of circumstances and we should be bold so I would not fear setting up, even in the United States there is talk about setting up such a public finance institution, why not, what's wrong with this I think if we are blinded by ideology we're going to continue to go in the wrong direction, we should be pragmatic Thank you, in the US you have Freddie Mac and Fanny May which are semi-public institutions are taking a lot of risk and are preventing the banks the commercial banks from taking a lot of risk that are taken in Europe by the banks themselves so we are in a very complex situation as regards the financing of the economy on both sides of the Atlantic if I may try to wrap up, first of all we had a very good discussion obviously a lot of interaction, I cannot help saying a word on Germany, the problem of Germany is really twofold there is a very big recount surplus which is signaling something which is not absolutely normal that being said I shared a view of Wolfgang when he says what do you want me to do finally I don't command the industry and the entrepreneurs, I don't command the unions they have their own deal all what we could do is to encourage the union to be more demanding and by the President of the Bundesbank