jean - claude trichet : the growing importance of the asia - pacific region speech by mr jean - claude trichet, president of the european central bank, at the new year ’ s reception asia - pacific 2008 of the german - asian business circle, frankfurt am main, 25 february 2008. * i. * * introduction ladies and gentlemen, it is my pleasure to be with you today a few days after the celebration of the chinese new year. let me take this occasion to wish you and all our chinese friends a happy and prosperous year of the rat! i have been told that the rat, the first sign of the chinese zodiac, was considered in ancient times as a protector and bringer of material prosperity. what better symbol than this to describe the giant steps made in recent years by china – and, along with china, by the whole of the asia - pacific region 1 – towards greater prosperity! as you perhaps know, one of the most famous historians of my home country, fernand braudel, is celebrated for having developed the concept of “ economie - monde ” ( “ worldeconomy ” ), namely that of a centre of gravity for the global economy 2. arguably, this centre of gravity has shifted several times over the last four hundred years in the western world. from antwerp in the sixteenth century to amsterdam in the seventeenth century, to london in the nineteenth century and, finally, to new york in the twentieth century. there is now talk of an “ asian century ” based on the belief that, if ongoing demographic and economic trends persist, the twenty - first century will see a shift in the centre of gravity of the global economy to asia. i leave it up to you to assess which city in this vast region might become the capital of the new “ economie - monde ”, should this development materialise. to be sure, there would be several candidates! i would like today first to offer some reflections on the growing role of the asia - pacific region in the global economy in an attempt to understand how the world is changing and what it might be like tomorrow. i would then like to offer some reflections on the implications of these changes. the asia - pacific region is becoming a larger player in the global economy, which has an impact on the rules of the game. this is notably reflected in important developments in the international financial architecture, the network of institutions and fora involved in the governance of the world economy in macroeconomic and financial matters. ii.

transmission of monetary policy – such as under our outright monetary transactions ( omt ) programme, which is explicitly conditioned on governments being solvent under a financial assistance programme. therefore shock absorption within each member country has to take place either via the private sector, through financial risk - sharing, or by each national government individually through its fiscal policy. there is no doubt that financial market shock absorption must be enhanced in europe, which is one aim of the new capital markets union project. 21 encouraging cross - border financing through equity flows instead of debt flows would clearly make the euro area more resilient. but no one imagines that we will live in a world where risk - sharing through financial markets can absorb all idiosyncratic shocks. hence the capacity to use fiscal policy counter - cyclically is key, which means that governments must have access to some form of asset that acts as a safe haven in crisis times. otherwise, debt - financed fiscal policy will in fact be destabilising, since it will depress sovereign bond prices and trigger ratings downgrades, feeding back into the financial system through the channels i already described. so how can we guarantee that sovereigns retain such market access, while preserving the market discipline on which the euro area depends? again, it goes without saying that the solution starts with governments improving their fiscal frameworks, at the national and at the european level. indeed, if markets are confident in medium term fiscal sustainability, then debt issuance at the bottom of the cycle should not increase credit risk perceptions, but should rather be seen as supporting a faster return of the economy to full employment and hence a stronger fiscal position over time. and again, this has to do with the growth - friendliness of fiscal policies as well as with compliance with european rules. yet it is also clear that we are not starting today from a blank slate. several euro area countries already have high public debts as a result of the crisis, which leaves them vulnerable to losing market access. so we need some form of mutualisation which does not compromise market discipline. many ways to address this have been discussed in the literature, but there are basically two possible models. 6 / 9 bis central bankers'speeches the first model is that we accept domestic sovereign debt as inherently risky, just as for us states. it is in my view unlikely that this model would deliver the amount of fiscal space needed to stabilise the economy, meaning that we would then have to allow the union to borrow and spend for local