spending and the economic and social pains that the de - leveraging process generates. ( e ) while the government should step in to help if the financial system or the whole economy gets into trouble, this is feasible only if the government has the fiscal headroom to foot the bill. if the government itself is already heavily indebted or has incurred a huge amount of debts after bailing out the private sector or introducing measures to stimulate the economy, the market may start to doubt the sustainability of its fiscal position. a case in point is ireland, where the government incurred a huge amount of liabilities by bailing out the banking system, calling into question the government ’ s fiscal sustainability and triggering the sovereign debt crisis. ( f ) the crises unfolding in the us and europe are not new to asia. this region had its share of suffering during the asian financial crisis of 1997 / 1998. in hong kong we went through almost seven years of painful economic adjustment after the burst of the property bubble in late 1997. our economy shrank by 8. 7 % in five quarters. unemployment increased fourfold from 2. 1 % to 8. 5 %. property prices dropped by 70 % in six years while the general price level fell by 15 % in five years. the hard lesson we learned from our experience is to face the reality, take the pain in stride and do whatever it takes to restructure the economy, to increase productivity and improve competitiveness. if this can be done, it should be possible to return to the track of sustainable economic growth. bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches

sheets are repaired. i believe that us households still have some way to go in repairing their balance sheets through de - leveraging, before they regain confidence in consumption and investment. at the same time, the us fiscal conditions have deteriorated since 2008 and this has restricted the headroom for the government to launch further fiscal packages to stimulate growth and create jobs. the situation in europe is in no better than the us. the sovereign debt problems of the eurozone have already spread to spain and italy, and have even threatened the stability of the debt markets in the core countries of the eurozone. it now appears that the rescue package announced by the european union in late october is no longer sufficient, and hence the market is expecting the european union summit tonight to introduce stronger and more effective solutions to resolve the european debt problems. the situation remains highly unstable and the market is showing little confidence in the european leaders ’ resolve and ability to bring an end to the debt crisis. the situation is very worrying. 6. once a country gets into the habit of spending beyond its means, relying on debts to finance its expenses and rolling over old debts with new ones, it is a matter of time that the country would run into trouble. the only way out is to reduce debt and endure the excruciating pain of de - leveraging. while leveraging or borrowing normally produces intoxicating feel - good effects, such as job and income growth, buoyant consumption and investment, strong credit demand, asset value appreciation and business boom, deleveraging has exactly the opposite effect, creating very unpleasant and painful consequences. the injection of ample liquidity into the banking system by central banks to suppress interest rates is certainly helpful in alleviating the pain of those debtors who can refinance their loans with lower interest rates and thus reduce their interest and repayment burden. however, many households in the us are denied access to cheaper and falling mortgage rates because they are in negative equity and cannot afford to refinance. lower interest rates are thus of little help to them. moreover, pushing interest rates to close to zero also deprives prudent savers of the interest income that they can earn from their savings. many savers, including pensioners, have to cut back spending because of the sharp fall in their recurrent interest income. this will offset the impetus to consumption and investment provided by the near - zero interest rates. 7. some academics believe that the effectiveness of the quantitative easing policy in the