policy responses. of course, greater economic integration in europe has been accompanied by greater institutional cooperation. although now supplemented by the ( still untested ) chiang mai initiative, the framework for economic policy cooperation in asia involves less deep and intense collaboration than in the european union. the single monetary policy in the euro area is the acme of europe ’ s economic integration. and the situation in the 1990s in asia was much less developed than now. several asian countries ( notably malaysia at an early stage ) introduced capital controls in the face of the financial crisis, something which cannot be done in europe given the depth of financial integration and the commitments made to the free movement of capital within the single market in the eu treaties. 4. policy responses to the crises the much deeper set of economic and institutional linkages within the eu and euro area today compared with those that existed in asia in the mid - 1990s has important implications for the policy responses. in particular, the lack of a regional framework in asia placed the responsibility for addressing the financial crisis in the 1990s immediately and squarely on the international financial institutions, notably the imf. by contrast, the close cooperation between eu countries has meant that the imf has played a less prominent role in the recent crisis, even though it makes a significant contribution to the design and implementation of the adjustment programmes implemented in greece and ireland. i am sure that the density of the eu framework of integration and cooperation has played a very positive part in tackling the crisis. via both inter - governmental mechanisms ( such as the european financial stability facility, efsf ) and supranational initiatives ( such as the european financial stabilisation mechanism, efsm ), the eu and its member states have created an important source of external financial support for the domestic adjustment programmes introduced by greece and ireland. the availability of this support has also bolstered and underwritten consolidation measures implemented at national level. the financing programmes have imposed strict conditionality on the recipient countries. they insist upon the implementation of essential measures, namely fiscal consolidation, financial sector restructuring and broader structural reform. while the eu is an equal partner with the imf in imposing such conditionality, the eu countries that have provided financial support to countries in distress have insisted on imf involvement because of the credibility this lends to the conditionality of the programme. its involvement in asia would be much more difficult. note that the eu component of the financial support does not enjoy preferred creditor status – a situation unthi

deterioration in growth performance, rendering the fiscal and financial burdens imposed by past behaviour unsupportable. second, the financial tensions led to a disruption of domestic financial intermediation, with severe consequences for both private and public financing. in greece, the banks – which were reasonably strong in a “ stand - alone ” sense – were undone by revelations about the weakness of public finances. in ireland, causation ran in the opposite direction : the bloated and failing domestic banking system imposed an intolerable burden on what, prior to the crisis, had been a superficially strong fiscal position. regardless of the causation, the consequences were the same : as confidence eroded, the inflow of foreign capital dried up. subject to a “ sudden stop ” in external financing, 4 the european sovereign debt crisis – itself inextricably linked with problems in the financial sector – erupted, forcing greece and ireland to seek financial assistance from the european union and imf. 3. what can we learn from the emerging market crises of the past thirty years? the developments i have just described might give those of you living in emerging economies a sense of deja vu. and indeed it has become commonplace to draw comparisons between recent events in europe and the periodic financial crises seen in emerging market economies ( emes ) over the past three decades : latin america ’ s debt crisis in the 1980s ; the mexican tequila crisis of 1994 ; the asian financial crisis in the second half of the 1990s ; and the argentine crisis of 2001. extensive economic literature has analysed these events and identified important roles for many of the phenomena i have just described. 5 it is therefore useful to explore parallels between the emerging market experience and what we are currently seeing in europe. here in hong kong, it is natural to focus on the asian experience in the mid - to late - 1990s, although events in latin america are also useful to bear in mind. to set the stage for a discussion of policy responses, allow me first to set out what i see as the key similarities and key differences between these episodes. similarities between euro area and eme experiences the accumulation of financial imbalances and vulnerabilities prior to the crisis is an important feature of both the european and asian experience. over - optimistic expectations of longerterm growth performance stimulated a surge in credit expansion and economic activity, associated with massive inflows of capital from abroad ( chart 11 ). 6 the risks associated with these capital inflows were