have thus eventually been invested outside the region, such as in bonds in the united states and developed europe. to put it in a different perspective, the asian financial sector remains highly dependent on banks, indicating the underdevelopment of regional bond and other capital markets. owing to such an unbalanced market structure, asian economies are exposed to the risk that domestic asset prices become volatile because of rapid global capital flows, resulting in a sharp increase in the volatility of foreign exchange rates. also, the immature local derivatives market makes appropriate risk - taking transactions difficult, as risk - hedging instruments are limited ( slide 4 ). moreover, owing to their less - developed securitization markets, asian economies do not sufficiently enjoy the merits of the securitization schemes that attract a variety of investors depending on their risk - taking capacities ( slide 5 ). ( authorities ’ efforts to address vulnerabilities ) how have the asian authorities responded to these vulnerabilities? i would like to explain their efforts in three aspects. to develop local currency - denominated bond markets the first is a project aimed at developing liquid bond markets to provide a bridge between abundant local savings and local investments : the abf of emeap, and the abmi of asean + 3. the executives ’ meeting of east asia - pacific central banks ( emeap ) established the asian bond fund ( abf ) investment trust in 2003, and became the initial buyers by investing in sovereign and quasi - sovereign bonds in the eight member jurisdictions. when it was launched, the fund was limited to investment only in u. s. dollar - denominated bonds. however, since 2005, the fund has begun to include those denominated in the local currencies of the eight members. in addition, emeap launched an exchange - traded fund ( etf ) called the pan asian index fund ( paif ). the paif was first listed on the hong kong stock exchange in 2005, and later cross - listed on the tokyo stock exchange in 2009. 2 as part of the asean + 3 process, the authorities have launched the asian bond markets initiative ( abmi ), 3 aimed at promoting bond markets. the most notable recent achievement is the establishment in november 2010 of a trust fund in the adb called the credit guarantee and investment facility ( cgif ). the cgif plans to start its credit guarantee operations for local currency - denominated corporate bonds issued in the

euro area or eu level? or do they prefer to maintain their national seats around increasingly irrelevant tables? these are not easy questions to answer, nor easy decisions to take politically. in a system where national prestige has still a political meaning, in the sense that it brings votes, and that political accountability in europe remains based mainly at national level, it ’ s not easy to transfer responsibility to a higher level of government. this is a dilemma that europe, and its member states, have to face, whether they like it or not. but it ’ s better to have this debate out in the open than to fudge it by creating hollow structures. the problem for the eu is that its citizens do not see it as helping to solve their everyday problems. the way to address this challenge is not to choose the middle ground, which would ultimately penalise the european “ construction ”. either it must be understood and clearly stated that certain policies and instruments are better performed at european level and the corresponding competencies transferred to that level, as has been the case with monetary and competition policies. or those policies and instruments should remain unequivocally in the hands of national governments, and the inevitable process of coordination, even if strengthened, should not overshadow that level of responsibility. looking ahead to the next ten years, it ’ s better to ask some hard questions than to paper over the cracks and sow confusion. there are several areas where these questions need to be asked, especially in respect of international financial institutions and policies, and banking supervision. the time might not be ripe for making substantive changes in some of these areas. however, it will have to be made clear why certain solutions are not followed. this is what accountability is all about. let me provide an example : people are facing a variety of problems resulting from the rise in commodity prices, in particular a decline in their purchasing power. one solution – in my view, the only solution for commodity importers – is to increase productivity in the goods and services sector. there are substantial margins for improvement in the services sector, especially if one compares europe ’ s economy with that of the us. how can we achieve these improvements? each country can look after itself and adopt specific measures, as long as they are compatible with the single market. the eu, with the consensus of its member states, can launch its own initiative to increase competition in the services sector throughout the eu. this solution might be more efficient, but it has partly failed in the