A second reflection is that the presence of and adherence to a legally sound, open and stable institutional framework that is respectful of creditors' and debtors' rights is the only way to generate the confidence and support of international financial markets in such a way that domestic saving shortfalls may be financed. My third reflection considers the need for clear, credible criteria beforehand as to how to distribute the costs of crises. Such criteria should strike a balance between both domestic and foreign private creditors. Coverage of the shocks experienced by the international financial system last year would be incomplete without some reference to the set of shortcomings highlighted in the so-called ENRON case, which goes beyond the particular scope of this company and reveals weaknesses of a more institutional and systemic nature. These events were significant since they showed that, even in economies with more sophisticated institutional arrangements, some types of conduct with great destabilising potential may occur. The ENRON case was important not only in quantitative terms but also, and especially, in qualitative terms, witnessing a series of legally dubious practices which go beyond the strictly financial field: conflicts of interest, serious corporate governance shortcomings,  6  BIS Review 38/2002  excessively ad-hoc accounting practices deviating from prudential principles and from what is a fair view of the real economic situation, manipulation of information, etc. And all this set against the inoperativeness of the internal and external control mechanisms of the company.

This greater ability has been partly due to increased transparency in the emerging countries themselves, as a result of reforms in recent years including the application of statistical codes and standards of good practice. It is also partly attributable to improved risk management by investors on international financial markets. 2  BIS Review 38/2002  In sum, behind the greater resilience of the world economy in facing adversities, it appears there are positive factors which have tended to increase economies' capacity for spontaneous adjustment, the responsiveness of macroeconomic policies and the discipline exerted by international financial markets. Hence the importance of persevering in the coming years along these lines, especially bearing in mind the growing economic and financial interdependence of different countries and regions and their exposure to global shocks. Euro area and monetary policy The euro area fell prone to the slowdown affecting the world economy in 2001, although the impact on the euro zone differed from that on other areas. The initial idea that the euro area could sustain growth on its own has not held up in reality. Indeed, some particular features of the area (such as the notable falling off of residential investment in Germany) exacerbated the slowdown in activity in 2001. Nonetheless, the euro area does appear to be emerging from this slump relatively satisfactorily, helped by the absence of significant imbalances and by an economic policy response which have contributed to shortening the recessionary bout and tempering its impact on employment.