Unwinding public interventions after the crisis

Speech by Hervé Hannoun, Deputy General Manager of the Bank for International Settlements, at the IMF High-Level Conference on "Unwinding Public Interventions - Preconditions and Practical Considerations", Washington DC, 3 December 2009.

Abstract

The "leverage-led growth model" - a combination of excessive leverage in the financial system, overindebtedness of households, low interest rates and global imbalances - was at the heart of the crisis. But the paradox is that the policies that have been adopted to remedy the crisis consist, all in all, of even more of the same: borrowing, debt, leverage. This raises questions about the risk of overcalibrated stimulus. This in turn has a bearing on the issue of the timing and speed of the unwinding of crisis-related public interventions. Experience suggests that the biggest risk is exiting too late and too slowly or, in the case of fiscal policy, not exiting at all. Finally, the paper discusses the areas where international coordination of unwinding is essential.