It was clear that advances in information and telecommunication technology had a major impact on the financial services industry, generating various financial innovations and new business methods, such as internet banking, electronic money, on-line broking services and electronic trading systems. For the real economy, however, the impact was much harder to assess, not least due to a lack of reliable statistics and interpretation difficulties regarding “new economy”-related developments in productivity. As Nobel Prize Laureate Robert Solow said in 1987: “You can see the computer age 2 everywhere but in the productivity statistics”. The difficulty in interpreting these developments therefore suggested caution on the part of policy-makers. The interaction of the “new economy” with developments in financial markets Let me now turn to the interaction of the “new economy” with financial markets. It has been long debated what role the development of financial markets played in fostering belief in the “new economy”. In most industrialised nations, on the waves of financial liberalisation and globalisation, capital markets have been growing tremendously over the past two decades, both in terms of volume and value of transactions and in the development of new types of securities. For the euro area, the preparations for and the actual introduction of the euro have undoubtedly been an important catalyst, improving the efficiency of the euro area capital markets and, to some extent, reducing existing information asymmetries, for both the equity and debt markets in the euro area. This has certainly been a very positive development which I wholeheartedly support.

At root was the rapid enlargement of stock market capitalisations in the latter part of the 1990s that arguably engendered an outsized increase in opportunities for avarice. An infectious greed seemed to grip much of our business community.”  BIS Review 23/2003  3  5  the widespread use of certain reward mechanisms such as stock option schemes. As Alan Greenspan aptly put it: “The highly desirable spread of shareholding and options among business managers perversely created incentives to artificially inflated reported earnings in order to keep stock 6 prices high and rising”. Trust, as has been demonstrated for example by Francis Fukuyama in his best-seller Trust: The Social Virtues and the Creation of Prosperity, may be invaluable for economic processes, as it facilitates 7 economic interactions and lowers transaction costs. Recent economic research is increasingly emphasising that social capital represented by trust may be as important as physical capital for 8 economic growth and prosperity. Policy-makers and regulators can help to restore trust in financial markets and auditing processes by enhancing corporate governance mechanisms. I fully support measures which promote adequate governance of corporate behaviour and thereby contribute to the restoration of trust in financial statements and capital markets. However, at the end of the day the crucial contribution to restoring trust has to come from the corporate sector itself. The sector has to recognise that easy profits are like killing the goose that lays the golden eggs. Executives in private business have a collective interest in promoting high standards of ethical behaviour.