However pleasing the economic recovery may be, it was partially bought on tick, especially in the US. The upswing in many European countries can be partly attributed to stimulus measures, which are finite and may spawn new imbalances. The highly expansionary fiscal and monetary policies – though essential in preventing a global economic collapse – must be wound down as soon as safe to do so.
The credit crisis has clearly shown the need for adequate buffers at public authorities, banks and other institutions in order to absorb new shocks. The imbalances in the euro area, the unrest in the Middle East and the threat of a nuclear disaster in Japan illustrate the current major uncertainties.
The government’s buffers must be bolstered by debt reduction. Some euro countries, which have already felt financial market discipline for some time, must make drastic cutbacks, which are generally coupled with social unrest and resistance. While such reactions are understandable in some cases, the debt crisis in the euro area has demonstrated that there is no alternative. In the fiscal area, the Netherlands is doing relatively well. Let that observation mainly be an encouragement to continue realising the planned consolidation and not to let up.
EU government leaders last week took important steps to strengthen fiscal discipline among euro countries. However, a missed chance is the absence of automatic sanctions on countries that breach the budgetary rules. And much could be gained if the political decision-making process during a crisis were quicker and more efficient in future.
Dutch and international banks became more robust in 2010. Mindful of the Basel III Accord, banks will continue to restore their buffers over the next few years. Good headway was made in tightening supervision. Supervision will be more focused than before on the interaction between the health of individual institutions on the one hand and the macro environment on the other. Dutch pension funds have long been contending with inadequate buffers, witness the lagging indexation and possible reductions in pension entitlements. Life insurers likewise face huge challenges. Rationalising, consolidating and repositioning are the key words here. Moreover, the sector must prepare for a new regulatory framework that also requires larger buffers.
Finally, nationally and internationally, many lessons have since been drawn from the credit crisis. The most important lesson is that today's world calls on financial institutions to maintain higher buffers and on supervisors to adopt a much quicker pace of action than we were used to. At the same time, we must guard against rushed and ill-considered steps. The financial world is too complex, the insight into economic connections too incomplete, and the current imbalances too serious for that. It is our task to maintain the correct balance between thorough analysis and timely action.