- sector bonds grew by 45 per cent. the sum of the two aggregates rose to 260 per cent of america ’ s gdp. for the euro, the money supply and the stock of bonds increased by 48 per cent over the same five years, and the volume of assets denominated in euros rose to 235 per cent of the area ’ s gdp. in japan, the money supply and securities grew by 35 per cent ; their ratio to gdp is far higher than in the other two main monetary areas. the expansion of the world money supply and, to an extent, that of private and public - sector bonds in relation to gdp have had bullish effects on share and especially property valuations. consumer price inflation has been held in check by the increase in productivity and competition. the external current account deficit of the united states for the current year is expected to be of the order of $ 700 billion. the ability of the international markets to finance large imbalances between saving and investment in the major industrial countries has increased markedly in the last few years. the world economy will continue to absorb dollar - denominated financial assets ; excessive repercussions on exchange rates and yield spreads can be avoided if the expansion of the quantity of dollars is not substantially greater than that of the other main currencies. important factors, in this context, will be the overall balance sheet position of the private and public sectors in the three monetary areas, the growth expectations for the us economy, and the willingness of global financial intermediaries to increase the share of their dollar holdings further, while reducing that of other currencies and their domestic currency. a large loss of value by the dollar would be harmful for the orderly functioning of the financial system and the world economy. the increase in official interest rates should help to sustain the external value of the dollar during 2005. the resolve of the us administration, which it recently reaffirmed, to reduce the budget deficit substantially is crucial. but in a long - term perspective, a more balanced relationship between the major currencies cannot come about without a return to faster growth in europe and japan. in japan, according to the estimates of the central bank, the increase in gdp will be approximately 2 per cent this year. in the emerging areas the pace of growth is likely to slow somewhat but will nevertheless remain very rapid. according to the imf, growth will diminish to 3. 6 per cent in latin america, 7. 5 per cent in china and

countries with developed capital markets. in the italian market, from the beginning of 2000 up to june of last year, foreign banks managed, through their branches, 30 per cent of the issues of securities by italian and foreign non - financial companies and a quarter of the issues of international financial institutions. foreign banks placed more than 70 per cent of the value of the roughly 200 issues of eurobonds made by italian firms. the leading international banks dominate m & a activity in the italian market. as for retail banking, a dominant role in all the european countries is played by domestic intermediaries. these have detailed knowledge of the legal and institutional context and of the characteristics, needs and creditworthiness of customers, especially those of smaller size. a recent report prepared under the auspices of the g - 10 finance ministers and central bank governors shows that bank mergers and acquisitions mainly involve domestic intermediaries in all the leading economies. in europe most of the few crossborder mergers that occurred were between intermediaries based in countries with institutional, cultural and linguistic affinities or involved a bank in financial distress. when intermediaries of different countries are combined, legal and institutional differences and cultural barriers may hamper the transfer of managerial skills from the acquiring bank to the bank acquired. in italy the fruitfulness of collaboration with intermediaries of other countries is attested to by the extensive participation of foreign capital in the italian banking system, by numerous cooperation agreements for the distribution of financial and credit products and by the significant role played by foreign intermediaries in wholesale banking. the bank of italy examines every proposal submitted to it for mergers or acquisitions of major equity interests to be carried out by italian banks vis - a - vis italian banks, by italian banks vis - a - vis foreign banks and by foreign banks vis - a - vis italian banks. it applies italian and community law ; it performs its statutory mandate of ensuring the sound and prudent management of credit, protecting the stability of intermediaries and of the system as a whole, and promoting competition. in the last few years italian banks have provided financial support to firms, including large ones and some involved in extensive restructuring. they have directed very large volumes of credit to small and medium - sized enterprises, which are an important part of the italian economy. in the financing of such businesses, there has been a steady increase in the proportion of credit provided by banks rooted in the local economy. for italian banks, reducing costs and improving internal organization remain key objectives.