##pinned this trend to argue that a new capitalist system would progressively emerge, with the relevance of nation states as economic actors dwindling in importance. in contrast, other observers saw the growing internationalisation of the world economy as part of a broader and longer - dated trend where sharp intensifications in trade and financial exchanges underpinned by growing economic liberalism were not without historical precedent ( for example during the period ranging from 1870 to 1913 ) 5. these observers were thus more bullish as regards the ability of nation states to retain their economic power going forward, consolidating this inter alia through strategic alliances in economic blocks6. in spite of these nuances, the common thread between the two views was that the underlying economic forces were seen as inevitable in the international ( or global ) domain. complementarities between globalised economic performance and policymaking second, following the broad acceptance of the premise that the globalised world would be durable in nature, academics and policymakers devoted their attention to fleshing out the practical implications of globalisation in different policy environments. insofar as monetary policy was concerned, the debate was broadly captured by the relative weight of improved policymaking versus globalised factors in accounting for successful economic outcomes. a first dimension in this regard was backward looking in nature and stemmed from the sharp reduction in the variability of both inflation and output during the 1990s. this phenomenon, which became known as “ the great moderation ”, coincided with both the intensification of according to wto data, the average growth of world merchandise export volumes per annum was 15 % from 1960 to 1990 inclusive, as compared to average real gdp growth per annum of 8 % over the same period. according to unctad data, the world stock of outward fdi increased from usd 564 billion in 1980 to usd 1763 billion in 1990. see the end of history and the last man, book by f. fukuyama ( 1992 ). see the borderless world ( 1990 ) and the end of the nation - state ( 1995 ), books by k. ohmae see for example globalisation, history and development : a tale of two centuries, article by d. nayyar ( 2006 ). the author notes that export shares in gdp for selected industrialised countries ( e. g. uk, germany, japan ) were broadly comparable in 2000 relative to 1913, and that the relative increase in export shares to gdp for these same countries between the periods 1900 – 1913 and 1973 –

monetary developments continue to be fostered by portfolio shifts, reflecting a sustained preference on the part of investors for liquid and secure assets in an environment of high uncertainty. however, the low level of interest rates has also contributed to strong monetary growth. when interpreting monetary trends, particular account needs to be taken of the portfolio shifts towards increased demand for monetary assets for precautionary reasons. the reduction in geopolitical tensions should support an unwinding of these portfolio shifts. a reversal in monetary trends would in any case dampen the concerns regarding the medium to long - term implications of recent monetary dynamics. as a consequence, monetary developments will continue to be monitored closely. overall, it currently appears that inflation rates should decline to below 2 % over the medium term, in particular given the outlook for economic activity and the significant appreciation of the euro. it also appears that the strong expansion of m3 should not adversely affect this outlook, as portfolio shifts have played a prominent role ; in particular, the build up of liquidity should not translate into inflationary pressure as long as economic growth remains modest. hence, cross - checking the information from the two pillars leads us to conclude that the risks to price stability over the medium term remain limited. regarding fiscal policy, developments in 2002 were generally not satisfactory. in particular, countries that had not achieved sound fiscal positions in earlier years when the economic conditions were more favourable are now struggling to keep their budgets under control. looking ahead, it is crucial to underpin the fiscal policy framework with decisive action, strong peer pressure and consistent implementation of the rules of the treaty and of the stability and growth pact. countries should maintain budgetary positions close to balance or in surplus over the cycle, and, where this is not yet the case, take the required structural consolidation measures. this also creates the necessary room for the operation of automatic stabilisers. at the same time, governments are advised to place the emphasis on growth - oriented consolidation policies that strengthen the productive forces of the economy. by strengthening confidence, a credible medium - term fiscal consolidation strategy will also support economic growth in the short term. finally, structural reforms are essential to increase the euro area ’ s growth potential and enhance its ability to better withstand external shocks. indeed, such reforms, which should aim to reduce rigidities in labour and goods markets, could significantly strengthen the degree of resilience of economic activity to such shocks, both in the euro area as a whole and in its regions. renewed momentum in the process