dollar against the yen in october 1998 as an example for the logic described above. the dollar had been continuously appreciating in the years before the crash. in the summer of 1998 it was expected that the dollar would rise even further to the end of the year. in combination with a large interest rate differential between japan and the us, many traders took advantage of the situation by borrowing yen, buying dollar assets and make profit on the appreciation of the dollar as well as on the interest rate differential. this kind of trading strategy was pursued by banks, hedge funds and even by bigger corporations. when the russian default set in during august 1998 all agents that had participated in the so called yen - carry strategy in the months before were all simultaneously eager to unwind their dollar positions reinforcing the fall of the dollar and thereby deepening the crises. individually these strategies might have all been rational. what individual institutions and the weather paradigm of financial risks fail to take into account is the fact that the behavior of individuals changes the payoff distribution of all other individuals. since this externality is not taken into account by current risk management technology there are reasons to believe that the models will work poorly exactly when needed most : before and in times of crises. what conclusions can we draw from such an insight? i think the arguments put forward above support the point made in the beginning. if we want to design a regulatory framework that is able to act as a safeguard against financial instability a shift of perspective from individual institutions to a system level is essential. the current strong reliance on individual backward looking risk models has to be questioned and we have to think on how we can supplement such an approach by a form of aggregate assessment that takes the endogenous nature of risk into account as far as possible. summarizing these points i want to conclude that we have to ask ourselves whether we are at the moment perhaps relying too much on the use of internal risk models to determine capital charges. as i have argued, these models are rooted in a risk concept that is particularly misleading shortly before and in a crises because the endogenous nature of risk. at the onset of a crisis the process that drives the data on which risk assessments are based undergoes a structural break and changes its nature. if we fail to take these effects into account we are led to flawed and misleading risk assessments. the problem of hidden aggregate risk exposure another tension between the micro - and the macro - perspective exists in the field of banking supervision. current practice is mostly

all because there is no longer any exchange rate risk and because transaction costs are lower. austria is doing very well in international markets : at nearly 34 %, austria recorded the highest export share of gdp ever in 2000. this ratio had come to only 25 % when the country joined the eu and had risen to just under 30 % before participation in emu. not only did emu and the euro improve the external economic environment, it also required business and industry to make incisive operational and technical changes. companies had to establish new strategic positions on their markets and had to adjust to the more intense competition, which has shifted more and more to quality considerations. the euro and the single market have boosted product and service innovation in many areas and have thus added to europe's competitive strength. turning briefly to the developments during the first three years of emu, they bear impressive testimony to the fact that the smooth interplay between monetary and fiscal policy provides a solid foundation which was well suited to weathering the economic policy challenges of this period. monetary union and the euro have kept the euro area countries from being exposed to harmful intraeuropean exchange rate tensions of the type that many countries used to suffer when external shocks occurred. some of you may have not so fond memories of the ems crises of the years 1992 and 1993. it has become quite obvious that austria's inclusion in the stability - oriented economic and monetary union has protected our country from negative shocks much more adequately than was possible under past regimes. beyond emu – further political integration and enlargement emu represents a quantum leap in integration, a key step in completing the single european market. of course, competition is most pronounced within emu itself. monetary union - and only monetary union - guarantees that the single market can utilize the full potential of its economic power on the basis of a stable common currency and that the growing pressure of international competition on europe is buffered. the deepening of the european union that accompanies emu and the euro is therefore not simply the most suitable response to internationalization and globalization, but also a bulwark against any maneuvers to reverse liberalization in europe. deepening of european integration is crucial especially for small open economies like austria and luxembourg. by introducing the euro, european economic policymakers have assumed the responsibility for exploiting the opportunities and for addressing the challenges this move represents for austria or luxembourg and for europe as a whole. we must continue to observe the provisions of the stability and growth pact,