Considering these figures, it is clear that Europe has the resources to face a manageable financing gap in some parts of the region. And yet, it is in turmoil. The answer to this paradox can be found by considering the true nature of the crisis. Most observers would simply see the fiscal imbalances in peripheral economies. These may have been the trigger. But we are now looking at a true financial crisis – that is a broad-based disruption in financial markets. To understand what is going on, it is necessary to take a step back. Europe is the most financially integrated area in the world. There is full capital mobility inside the EU. Financial regulation is almost totally harmonized, financial infrastructures and payment systems are closely interconnected. Europe is truly a single financial market and, more importantly, a truly single financial system. The single capital market has brought significant benefits to Europe. Capital has been flowing to peripheral countries, triggering investment and growth. Financial integration has supported and underpinned the broader process of trade and economic convergence. At the same time, capital mobility has been used to postpone fiscal adjustment. Capital inflows have fueled credit and asset booms. Current account deficits have been financed through fragile sources of funding. The easy access to financing has created insensitivity to current account imbalances which, in turn, have weakened the incentives for preserving or improving competitiveness. An integrated financial system may be efficient, but not necessarily robust.

Strengthening the international infrastructure Integral to the efforts in the development of Islamic finance has been the development of the supporting international Islamic financial architecture. The establishment of the Islamic Financial Services Board (IFSB) in 2002 to set the prudential standards for Islamic finance, and the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) established in 1990 has been key to ensuring the soundness and stability of the Islamic financial system. The IFSB and AAOIFI have had an important role in the harmonisation of prudential and accounting standards across the different jurisdictions. They are also instrumental in instituting international best practices in the global development of Islamic finance. The Islamic financial institutions are also subject to the requirements on anti-money laundering and anti-terrorist financing. Opportunities through greater international financial integration The globalisation of Islamic finance has gained significant momentum in this recent five years. While the early development of Islamic finance was domestic centric, its internationalisation is now manifested by increased cross border flows, greater participation in international Islamic financial markets, the increased presence of financial institutions in new jurisdictions and more recently, the increased number of Islamic financial institutions which have shareholders from multiple jurisdictions. Greater financial integration has essentially been facilitated by the more rapid pace of liberalisation that has been supported by the progress that has been achieved in the development of the international Islamic financial infrastructure. This trend has also been prompted by the need for greater diversification of risks in the management of funds.