can see that on average firms have become more resilient and stronger. the problem is that this average can mask large differences. for that reason we are now looking at firms ’ balance sheets ‘ bottom up'the imf does this too. that is the only way we can simulate – firm by firm – whether they can survive a large rise in interest expenses following an ecb rate increase. we see great progress in countries like spain, but more needs to be done. but the incentive to reduce debt, whether for firms or governments, is small. these debts aren ’ t costing them anything, at the moment. in general remarkable efforts have been made in the last years. nevertheless some firms but also governments are delaying restructuring. sometimes we have the feeling that we are ‘ the only game in town'and that the others are not doing their job sufficiently. but how can we be held responsible for others ’ lack of courage? but isn ’ t it still a fact that the ecb is buying time and a breathing space, but the euro area governments are not making enough use of this breathing space to implement reforms? this sort of reasoning is dangerous. the ecb is an institution that was given its mandate – to 4 / 6 bis central bankers'speeches keep prices stable – and our independence also means that we decide on our policies on the basis of our mandate, not on the basis of other considerations. what can you do then? warn people. we send a clear message that we take our task seriously. this means that as soon as inflation threatens to increase above our objective, we will intervene just as forcefully in order to prevent that happening too. we will not hesitate to do that, even if it means that interest rates will increase and those with a lot of debt are going to feel it. do economic problems keep you awake at night? i have been worried about things all my life, eventually you get used to it. but what worries you the most? i am most worried about the governments that are reforming too slowly. in some european countries structural reforms are really needed. yesterday i was in paris. president emmanuel macron ’ s reform of the labour law is impressive. what is very good is that there is broad support for it. but we now have to see how it will work in practice. there is still a lot of work to do, also elsewhere in europe. has the time come for the ecb to taper its stimulus? not yet, we are saying. this

mistakes or shifts in the international economic environment. currently, there are no deep, liquid and mature debt markets in asia for the intermediation process to function more efficiently. the process has begun in the last few years, and with the building of better financial infrastructure, this round of turmoil should add greater impetus to greater cooperation in building better regional financial intermediation. 13. as we all can see in hindsight, the risks involved in international capital flows are exacerbated when short - term capital flows are all attracted to the asset markets. this has led to asset bubbles, with all the painful consequences of asset price deflation. 14. but what is much more evident in asia is that the process of hedging, arbitrage and “ carry trade ”, whereby arbitrageurs borrow in one market and invest in another market that offers higher interest rates, has created both regional and global contagion. portfolio shifts mean that when asset prices change ( and in this i would include : consumer prices, interest rates, exchange rates, debt and equity prices and property prices ) funds will flow in and out to follow the “ law of one price ”. this suggests that open economies must adjust to global prices. the speed of such adjustments is only determined by the degree of openness of the domestic economy and financial markets. in other words, whether we like it or not, we are being priced globally by the market. 15. many of us have not fully appreciated the full logic of this. the financial turmoil suggests that while the real sector causes of the stress is global competition, the financial effect is stress on domestic banking systems, as the banks intermediate the global portfolio adjustments. in an open economy, capital inflows will increase the deposit base of domestic banks which may be channelled through credit mistakes into fuelling domestic asset price bubbles. there are two implications. first, asset price inflation eventually feeds into domestic inflation and erodes external competitiveness. second, excessive lending concentration into less productive assets, either real estate or over - investment in infrastructure and production capacity, exposes the financial institutions to huge risks. 16. from the viewpoint of financial intermediation, there are three major risks in asia that underlie the shocks there : • first, maturity mismatch - - asian markets made the mistake of borrowing short - term capital flows to finance illiquid non - tradables, such as property, thus exposing themselves to huge liquidity needs when capital flows reversed.