fiscal compact results in handicapped liquidity support efforts on the part of the authorities and heightened market concerns. rising risk premium leads to explosive debt dynamics, loss of market access and rollover difficulty, which in turn leads to even greater liquidity needs. with the cost of rescue mounting, internal country politics may further delay policy leading to a vicious cycle between rising rescue costs and policy inaction. there are signs that these risks are very real. for example, last month in late july, spanish bond yields recently jumped up again over 7 percent, making the country ’ s debt dynamics unstable. there has also been upward pressure on italian bonds. the ecb came to the rescue by promising to “ do whatever it takes to preserve the euro as a stable currency ”. markets stabilized and yields came down. the us stock market also picked up. nevertheless, the risk that yields could erupt again persists, especially if concrete progress in implementing policy does not take place. in the event of a liquidity seizure, there will be considerable spillover into global financial markets. trade will decline amid the credit crunch that will surely follow. asia, thailand included, will not be spared the turmoil. so that ’ s the extreme scenario. now let me go over the baseline scenario. in this scenario, piecemeal policy averts a systemic crisis and leads to a prolonged recovery. in the baseline scenario, progress in implementing policy remains bogged down by internal politics but makes sporadic progress, especially once the possibility of a systemic crisis becomes all too real. this scenario is basically a continuation of the present state of affairs with which you are all familiar. global capital markets are in flux. and global trade slows down. the recovery process is long and drawn out and the authorities eventually make progress on fiscal integration and banking union. so which scenario will be likely? this is the big question mark. there is considerable uncertainty due to the ups and downs of internal politics. but political imperative to maintain the union has always been strong. and a strong union needs a stable common currency and economic growth. once the crisis becomes imminent and threatens the union, authorities will have no choice but to take decisive action to avert a systemic crisis. so those are of my views of how the euro crisis will play out. let us move to the second question : can thailand grow through the euro crisis? yes, long - term sources of growth remain but adjustment pain will be unavoidable. in a globalized world, nobody is immune from

other assets such as commercial real estate and consumer loans may come under greater pressure, affecting bank profitability. with profit declining, banks may become more risk averse to protect capital, putting more pressure on credit extension and the real economy. so, latest us data point to a weaker outlook ahead with more downside risks in the nearterm. the risks include further correction in the housing market, continued tightening of the credit conditions, and further decline in economic activities. outside the us, the economic picture looks less negative. while the adjustments in housing market are also ongoing in europe, and some european banks have reported losses in cdos, the impact on economic activities is expected to be more limited. for example, consensus forecasts in february, revised downward the euro zone ’ s gdp growth for 2008 by only 0. 3 percentage points from december compared with a 0. 5 percentage point downward revision for the us. for southeast asia, the impact is also forecasted to be limited. latest consensus forecasts for southeast asia ’ s gdp growth is 5. 7 percent for 2008, declining slightly from the forecast of 5. 9 percent in december last year. these forecasts, together with the latest data, suggest that, in the short - term, things will likely get worse before they get better, and the slowing of growth in the us will impact growth globally. the key question, at this time, is how deep can things get before we see a turnaround. this is definitely an important, but a difficult question to answer. market participants as usual will have a range of views, and i personally do not intend to offer another prediction. instead, i want to share with you my thoughts on the current developments and on what this will mean for thailand. to begin, one context that i think is useful in understanding the current turmoil is the unwinding of the global imbalance, triggered by corrections in the us housing market that began in 2006, and is now ongoing. such unwinding is a necessary process to clear excesses and reduce financial leverages that have been built up in the form of high level of the us ’ s current account deficits. economically speaking, to reduce the deficits, the value of the us dollar needs to fall and the levels of us long - term interest rates need to rise. exchange rate adjustment is very much ongoing. the us dollar has declined by about 8. 0 percent in nominal effective terms since 2006. and reflecting this, the us current account began