states and also in the united kingdom. besides the different levels of central bank rates, there are differences in the position in the business cycle and in the intensity of the trade relations with the crisis regions, not to mention the specifically european subject of the convergence of central bank rates. iii however, there can be no doubt that the global environment has become harsher and more turbulent for germany and europe as well in the past few weeks and months. a number of east asian countries are beset by a deep - seated, persistent financial crisis. happily, in some countries that have initiated far - reaching adjustments, encouraging signs of consolidation are meanwhile to be seen. russia is in the grip of a profound economic crisis, which naturally has a very worrying political dimension. in latin america, despite considerable efforts at adjustment in some countries, there are still latent risks of contagion, and the markets have, alas, so far not taken sufficient account of the differences in conditions. and in japan a severe crisis of confidence still prevails, involving substantial potential risks to the world economy. the recent measures to remedy the weaknesses in the banking sector might, however, constitute an important step towards overcoming the difficulties. on the continent of europe, by contrast, conditions have so far been distinctly more favourable. the economic upswing in the future euro area is now more broadly based. internal expansionary forces are in the ascendant. our trade relations with the crisis regions are not so close that the crises there are bound to trigger a recession in europe. but besides the comparatively reassuring perception that those crises are unlikely to spill over to us ( at least in the short run ) through the channel of trade relations, there is increasing concern that the crises might, instead, come right into our “ front room ” through the channel of financial relations, via the global financial markets. that concern also owes something to the fiasco of the hedge fund long - term capital management and to the response it triggered. many people are wondering whether the greater part of the problem is not still floating below the surface, as with an iceberg. and many people fear that the present crises might result in a structural weakness of the financial system with regard to appropriate risk transformation. the first aspect concerns the emerging countries. there is a danger that, as it were, the financial markets will now withdraw from a whole category of countries without distinguishing sufficiently carefully to what extent individual countries have made structural progress. a second aspect - albeit very vaguely might be seen

mr. tietmeyer considers the euro : a challenge to, and opportunity for, the financial markets speech by the president of the deutsche bundesbank, prof. hans tietmeyer, on the occasion of the 21st colloquium of suerf and cfs, delivered in frankfurt on 15 / 10 / 98. i “ educational institutions - explicitly including universities - are not philanthropic islands of abstract debate. ” this maxim of the german president ’ s is borne out by this colloquium. for this is not merely an “ abstract debate ”. the subject is of great practical relevance : “ the euro : a challenge to, and opportunity for, the financial markets. ” and there can be no talk of an “ island ”, either. for this is a cross - border, joint meeting of suerf and cfs. incidentally, the motive is the exchange of knowledge with the financial community ( including central banks ), thus avoiding all suspicion of insular ivory - tower erudition. there can be no doubt that the financial community will likewise benefit from an exchange of knowledge. after all, the euro was and is an intellectual challenge for all those concerned with it. an interesting exchange of views is therefore to be expected. and a debate based on two fundamental perceptions may be fruitful : a consistent monetary policy, committed primarily to the target of stability, is the best contribution a central bank - no matter whether the bundesbank or the european central bank - can make to the viability of the financial markets. without stable money, the financial markets cannot function properly. conversely, it must also be said : monetary policy needs an efficient, highly competitive and stable financial system. in the first place, a financial sector that is susceptible to disruption poses risks to the entire monetary system, and thus also to the safety of the currency. secondly, in a stable environment monetary policy impinges on economic activity more smoothly. that was and is true of the bundesbank ’ s monetary policy. it is bound to apply to the escb ’ s monetary policy as well. ii clarity now obtains in some matters of significance to financial market players concerning the euro. the future framework for economic policy action is now emerging ever more clearly. since its constitutive meeting in june, the ecb governing council has taken a multitude of important decisions. there is broad clarity today about the arsenal of instruments with which the escb will operate. the primary buttress of refinancing