We had to manoeuvre through uncharted waters and we may not yet have arrived in the Promised Land”. I take these words as a prophecy, made in those heydays, when things seemed to move into the right direction all by themselves. The outbreak of the global crisis had not yet exposed the fracture lines of the European construct, which originated in the incomplete institutional architecture of the Economic and Monetary Union, as reflected by the weakness of fiscal rules and the absence of transnational instruments to monitor cross-border private capital flows. Many a times I heard Professor Issing talk about the need to address the vulnerabilities of the monetary union project, particularly in the area of public finance, where monetary policy more than often overlaps politics. To what extent the Eurozone is now closer to the Promised Land than in 2006 is debatable. On the one hand, euro area enlargement continued at a sustained pace, so that it now encompasses 19 countries from 12 originally. On the other hand, for the non-euro area EU Member States, recent experience has made the benefits of euro adoption become less visible than its costs. Thus, in the pre-crisis period, euro area membership was seen as automatically delivering lower risk premiums, thereby helping achieve faster growth rates. In retrospect, the then benefit should not be viewed otherwise than as a consequence of improper risk assessment – financing costs for several euro area member countries have been exceeding those of some non-euro area Member States, Romania included.

By its nature, trend following amplifies the imbalance that may at some point affect a market, potentially leading to vicious circles of price adjustment and liquidation of positions. Moreover, increasing numbers of participants are able to access financial markets directly, while the expertise to deal with a wide range of technical information is not evenly distributed. This may also reinforce the role of “gurus”. Index management, as a fund management technique, has proven very popular on equity markets and may have contributed to exacerbating fluctuations in financial asset prices. Because their goal is to mimic the performance of indices, “passive managers” constantly strive to match the composition of their benchmark. They thus help to amplify market trends, buying more as the market rises and increasingly liquidating as the market drops. It can be argued that index funds distort the prices of the targeted indices and that, as a result, the indices end up creating rather than measuring performance. The impact of risk management techniques on market dynamics is particularly enlightening with regard to the question of asset price overshooting. Value-at-risk calculations have become a crucial element  13  Leading indicators of currency crisis in emerging countries - BURKART, COUDERT - Notes d’Etude et de Recherche Banque de France - 2000. 6  BIS Review 2/2003  of the standard approach used by market participants to evaluate the risk inherent in their market activities and to set up exposure limits. Of course, central banks and financial institutions should continue to encourage the use of these instruments.