was to begin with ; and the same is true, to a lesser degree, of ourselves, here in the uk, with sterling also stronger against the euro ( though weaker against the dollar ) than it was a year ago. so there was nothing much - as i say - that we could have done directly to affect the weakness of the global economy and the resulting weakness of external demand on the uk. but what we were able to do - given that inflation was marginally below target - was to try to compensate for that external weakness by stimulating domestic demand here in the uk. the bank sought to do this by cutting interest rates to buoy up consumer spending. and the government has stepped up its own spending, which is helpful in the present international environment. although we couldn't avoid an overall slowdown altogether we have managed to keep the uk economy as a whole moving forward despite the recession in the internationally - exposed sectors of manufacturing. in fact overall gdp growth in the year to the fourth quarter of 2001, at 1. 9 %, was by some margin, the highest among the g7 countries, and the rate of uk unemployment is currently the lowest, on a comparable basis, in the g7. and interest rates are the lowest they've been in this country in a generation. of course we'd all have been much happier with better balanced growth. stimulating domestic demand to offset the external weakness - the only option available to us - was very much a second best option, and not without its own risks, but it was better than doing nothing at all. that would have meant a much sharper slowdown, and probably recession, in the economy as a whole. and, given what was happening on the inflation front, it would have meant a quite unnecessary loss of overall output - and income and employment. in effect we took the view that unbalanced growth was better than no growth. the question now, of course, is where do we go from here. there have recently been encouraging, but tentative, signs that the worst of the global slowdown may now be behind us, and that the us and eurozone economies are now beginning to bottom out and are likely to pick up as we go through this year, perhaps to around trend. and the euro, which has, as i say, been puzzlingly weak since soon after its introduction 3 years ago, still seems likely to strengthen eventually. as it becomes clearer that the international environment really is improving, and that external

broad spectrum of improved profitability is one reason for my generally optimistic outlook of banking sector stability in the near future. the second topic i would like to draw your attention to is an interesting paragraph in the report that reflects on the links between large banks and hedge funds. here, new practices are arising and are quickly establishing themselves as common standards. the report mentions e. g. the introduction of multi - asset platforms, portfolio - based cross - product margining and the prime broker services as the principal counterpart in hedge funds ’ transactions. as analysts of banking sector stability, we have to take into account that the links between large eu banks and hedge funds are intensifying. it cannot be excluded that competitive pressures may have forced some prime brokers to compromise on due diligence when dealing with hedge funds. continuing vigilance therefore remains essential for banks to ensure that they retain a good grasp of their overall exposures to unregulated financial institutions. however, in terms of financial market resilience, i tend to answer that the markets – and here i refer to a point i made before – have been making enormous progress in understanding the specific risks and in aligning their risk management systems accordingly. while banks ’ risk management systems have improved over recent years, there are some uncertainties about the ways in which risks have been redistributed by credit risk transfer products, both within the banking system and between banks and other financial institutions, as well as about how the market for these products would perform in a more challenging macro - financial environment. i would like to close my remarks with a cautious but positive outlook. the mostly positive assessment of financial conditions of banks outlined in the report is confirmed by forward - looking market - based indicators that continue to suggest a robust outlook for the eu banking sector in terms of profitability and credit quality. thank you for your attention. i am looking forward to receiving your questions on our assessment of the stability of the eu banking sector.