however, in the current situation we need to recognise that we are faced with a crisis of confidence. there has been a partial loss of confidence in our fiscal rules as well as in the will of european countries to consolidate their public finances. moreover, there is the criticism that deficit targets may, in fact, become a moving target. in such an environment it is in my view particularly important for the heavy weights in emu to give clear signals, which boost the credibility of the fiscal rules and agreements in emu and the credibility of their consolidation strategy. but coming back to the countries at the centre of the crisis, both remedies, consolidation and structural reforms, are hotly debated. 3. 1. consolidation vs growth regarding consolidation, many people fear that it will hurt growth. hannes swoboda, an austrian member of the european parliament claimed that : “ austerity measures won ’ t bring people out of the crisis. it is like giving poison to a man or woman who is sick. ” personally, i tend to agree more with christian noyer. he said : “ in the current circumstances facing europe, i believe these concerns are misplaced ”. i, too, believe that these concerns are exaggerated. it is indeed likely that consolidation will have a short term dampening effect on growth. however, to quote mario draghi : ” what ’ s the alternative? ” putting consolidation off would just shift the problem into the future. it would buy time but in so doing also worsen matters today as there is the risk that trust in public finances would erode even more. moreover, a widespread lack of trust in public finances weighs heavily on growth. a study by carmen reinhart and kenneth rogoff implies that debt levels above 90 % will reduce growth. i do not advocate a strict ricardian view here. i do believe, however, that peoples ’ concerns about increasing adjustment needs in the future will affect their spending and investment today. thus, it is important that governments adhere to the consolidation plans they announced. this will inspire confidence, which is an important prerequisite for the economy to grow. as jean - claude trichet once said : “ when you ’ ve lost confidence, when households have no trust, when businesses have no trust, when savers have no trust, then the best way to find growth and jobs is to recreate confidence. ” in my view, this is true not just for the countries at the heart of the crisis. a failure

also recognise a broader responsibility to the community of hong kong, and a duty to promote an understanding of our role and objectives, and to keep ourselves informed of community concerns and open to public debate. to this end, the hkma pursues a policy of transparency and accessibility. this policy has two main objectives : to keep the financial industry and the general public as fully informed of the hkma ’ s work as possible ; and to ensure that the hkma is in touch with, and responsive to, the community that it serves. we have done a great deal over the past year to advance this policy. this applies not just to technical matters, such as the greatly increased transparency of the currency board system or the daily publication, since november, of the size and composition of the monetary base and the virtually real - time publication of the aggregate balance of the banking system. it also applies to the information we issue for general public consumption, whether in print, through the press, on the internet, or in our programmes of educational briefings and seminars. of course, considerations of market sensitivity, commercial confidentiality, and statutory restrictions on disclosure of confidential information place some limits on the amount of material we can make public. given the increasing transparency and the extremely limited discretion over the currency board arrangements, which draws its credibility from a strict rule - based system, a certain constructive ambiguity is also necessary if we are to have the flexibility to deal decisively with sudden crises. within these limits, we are committed to developing our policy of transparency, and to increasing the quality and comprehensibility, and not just the quantity, of the materials we put out for public consumption. the challenges of this year we see it as one of our challenges to seek to maintain public interest in our work, even though it is possible that some of the controversies and concerns that sustained that interest in 1998 will fade away as economic recovery moves closer. this brings me to the prospects for the remainder of this year and beyond. i leave the predictions and forecasts to others in the government entrusted with this task. but i think it appropriate to say something here about the monetary environment. recent months have witnessed the return to a more stable monetary environment in hong kong. speculative pressures on our currency have moderated sharply, allowing a significant decline in interest rates from the peaks last year. as you know, under the linked exchange rate system, our interest rates are closely tied to those in the united states in normal circumstances. in last year ’ s exceptional