size distribution, political structure, degree of economic and financial openness, etc. indeed, asia is a very heterogeneous group of economies. in the richest economy, per capita gdp, if this is an appropriate measure of richness, is about 180 times that of the poorest. by contrast, in the euro area it is only about four times. and if one assesses the emerging markets of asia against the maastricht criteria, one can conclude rather conveniently that asian monetary co - operation, implying asian monetary union, is a non - starter. this is even more so considering the virtual absence of labour mobility and the existence of large patches of different degrees of restrictions in capital mobility. but the important thing to realise is that the degree of trade integration, and therefore the degree of interdependence among asian economies, is very high. about half of total trade in asia is intra - regional. this is more or less the same as the proportion of europe ’ s intra - regional trade to total trade when the treaty of rome was signed. and intra - regional trade within asia has been growing rapidly - a trend that is likely to continue in the foreseeable future. there is considerable vertical integration of the production process in asia, driven by foreign direct investment flows within asia and outsourcing of the process to the area possessing the comparative advantage. china is increasingly serving as the manufacturing powerhouse of asian exports, while other asian economies supply the raw materials, semi - manufactured goods and machinery. admittedly, the larger part of intra - regional trade in asia, 56 % according to our internal estimates2, is related to processing trade, some of which is to meet demand from the developed economies in north america and europe. but this reliance on the demand from the developed markets is likely to decrease over time, as rapid economic growth within the region promises to provide a sustainable impetus, helped by the dismantling of trade barriers and the establishment of free trade agreements within the region. this high and increasing degree of trade integration and regional interdependence has clearly not been matched by a corresponding degree of financial and monetary integration. it is, of course, arguable whether there is a need for such correlation or causal relationship, and if so, whether the market can be relied upon to produce the optimum arrangements in due course without official sector involvement. my view is that monetary integration is desirable and, given the role of the state in the monetary system, cannot be

. this development proved to be the catalyst for the rally in financial markets. furthermore, the pace and speed of the recovery, differed vastly across countries and regions, with emerging markets proving to be the engine for global growth. together with record - low interest rates in advanced economies, risk aversion having dissipated and abundant liquidity, emerging market countries started to attract significant capital inflows. however, towards the end of 2009, some headwinds emerged, which more recently intensified with the sovereign debt crisis in southern europe and with markets becoming particularly concerned about a possible default by greece and the contagion effects thereof. was this to be the start of a new crisis? was the nascent global economic recovery now at risk? was the confidence we saw in financial markets misplaced and needed to be replaced by renewed risk aversion? the initial comfort provided by the eur750 billion rescue package announced in early may by the european union ( eu ), imf and european central bank ( ecb ), soon gave way to concerns and uncertainty as to whether the measures taken would be sufficient to resolve the underlying solvency problems and whether the required fiscal consolidations would be politically and socially feasible. budget cuts imposed across the euro zone spurred debate about the sustainability of the euro, the ramifications of fiscal tightening on european economic growth and the impact of a slowdown in the euro zone demand on the overall global recovery. speculative currency positioning now showed aversion towards the eur instead of the usd. the net long eur contracts changed to net short positions of almost 120 000 contracts. over the same period, the eur depreciated to usd1, 21 in mid - may. risk aversion subsequently increased and the vix index spiked to over 40 points in may 2010. equity markets lost ground and cds spreads, most particularly for portugal, ireland, greece and spain, increased. strains in the money market came to the fore once more and the us ois spread ticked up from around 10 basis points to approximately 30 basis points. central banks that had been slowly and carefully embarking on exit strategies from unconventional policies, found themselves pondering about and indeed implementing re - entry strategies. it is clear that there is an urgent need for countries to consolidate their fiscal positions and bring their public debt ratios and fiscal deficits back to within more sustainable parameters. domestic financial markets these developments are important for south africa, being a small and open economy with deep and liquid financial markets.