were to fail. but you have to remember that i was watching the opera over a month ago. perhaps today she would come up with a somewhat more positive answer. turandot's third riddle was " what is the frost that burns … … and makes a king of the one it accepts as a slave? " well for a time that stumped me completely! not that it mattered much by then - i'd already failed the first two of turandot's tests, so i knew i was for the chop anyway! but then i began to reflect on the implications of it all for our own economy here in the uk. and i even recalled that previous occasion on which i had dined with you here at the act dinner. at that time we'd had just 2½ years of growth with low inflation - after the 1990 / 91 recession. i told you that we were determined to maintain price stability as a necessary condition for sustainable growth of output and employment. you all hooted with laughter! your president said it had been the best joke of the evening - even though you'd heard it many times before! well we've now had 10 years of low inflation - with continuous, quarter - by - quarter, gdp growth, and the number of people in employment is at a near - all - time high. what i confess i did not anticipate at that time was the difficult international environment in which we've had to operate over the past four years - including both the global economic slowdown and the persistent strength of sterling against the surprisingly weak euro. it must be that external environment - which has clearly had a dampening effect on demand and output in this country - that is, for us, the frost that burns. there was nothing that we could do ourselves directly to address the causes of these problems which had their origins abroad. what we could do - and indeed have done - is to offset as best we could the effects of the external frost by turning up the domestic heat in our economy, cutting interest rates to their lowest level for 40 years - which is where they've been for the past 12 months - consciously encouraging consumer spending on the back of rising house prices and a rapid build up of household debt. so although we've been reasonably successful in maintaining stability in the uk economy as a whole, we've had to live with a painful imbalance within the economy - between the internationally exposed sectors, including much of manufacturing, which have been

the rt hon sir edward george : turandot - an allegory about the state of the global economy speech by the rt hon sir edward george, governor of the bank of england, at the association of corporate treasurers annual dinner, london, 13 november 2002. * * * this time of the year - between the end of summer holidays and christmas - is always a particularly busy time for me : it's the season of annual dinners and international meetings. this year it's been even more hectic than usual. and it's been a particularly gloomy period - characterised by global economic uncertainty, financial market volatility and a pervasive sense of pessimism in business and financial circles, not to mention of course the media. that won't have escaped the notice of most of you here. so, in the middle of it all, i took time out a few weeks ago to go to covent garden to see one of my favourite operas - turandot. and i thought it might be more agreeable for all of us if i talked about the opera this evening, rather than the prospect for interest rates. i'm sure you all know the story. the beautiful, but somewhat frigid, princess turandot decided to set her many suitors three tests. turandot's tests were in the form of riddles - and she would only marry the man who could solve all three riddles correctly. but if the suitor got any one of the three riddles wrong, then he would be put to death, as indeed dozens of her suitors already had been. but as i sat there enjoying the opera, it slowly began to dawn on me that it isn't really a love story at all - it is an allegory about the state of the global economy. turandot clearly represents the present international situation - potentially very attractive but immediately somewhat chilling. and her unfortunate suitors are obviously the world's woefully misunderstood and under - appreciated central bankers! turandot's first riddle was " what is the ghost, which all the world invokes and is constantly renewed? " as i sat there it seemed obvious to me that the answer must be the us economy. for some years in the late 1990's " all the world " has looked to the us to keep it afloat - through the asia crisis, then russia and long - term capital management, with latin america intermittently thrown