that the worst may be behind us. this leads us to the question about the origins of the current financial market turmoil, which is at once the first turmoil in the market for securitised products. contrary to what ulrich cartellieri, at the time a board member of deutsche bank, once conjectured, namely that “ banks are the steel industry of the 1990s ”, meaning that banking would lose much of its importance in a world moving towards capitalbased financial systems, the current turbulence clearly demonstrates that the securitisation of credit risk has by no means reduced the leading role banks play within the financial industry. on the contrary, commercial and investment banks initially benefited from the rapid development of structured financial instruments such as residential mortgage - backed securities ( rmbs ), credit default swaps ( cdss ) and collateralised debt obligations ( cdos ) by actively managing their own credit portfolios, earning fees from originating, structuring and distributing these instruments and earning revenue from market - making and trading. despite such profits, the originate - and - distribute model, that is the ability to distribute credit risk away from one ’ s own balance sheet – through the use of structured products – to investors with an appetite for it, is at the heart of today ’ s financial market tensions. the ongoing tensions have revealed serious vulnerabilities that had long been masked by the fast pace of growth in credit risk transfer markets. first, the originate - and - distribute model induced investment banks as well as other, often unregulated financial institutions such as hedge funds and special purpose vehicles to take on large holdings of credit risk with a high degree of leverage. second, securitisation exacerbated the information asymmetries that are inherent in credit markets. in particular, there is uncertainty about the distribution of credit risk among global market participants and, consequently, transparency about exposures is limited. third, some market participants ’ risk management standards have not kept pace with developments. this cocktail of vulnerabilities may explain the surprising speed with which mistrust among market participants spread around the world, causing several financial market segments to dry up temporarily. however, there is more to the present financial market turmoil than meets the eye of the casual observer. when comparing the ongoing financial market turmoil with similar episodes in the past, it becomes evident that a process is at work in which macroeconomic and financial factors reinforce each other. this is particularly true and visible in the usa. let me

the role and uses of credit ratings • strengthening the authorities ’ responsiveness to risks • robust arrangements for dealing with stress in the financial system these measures are a first step to a regulatory response which aims at tackling those weaknesses of the global financial system that caused the current and severe financial stress. in our g - 7 meeting last weekend in washington, we endorsed the fsf ’ s report. it is now essential that these recommendations are implemented effectively. rapid implementation will help to restore confidence in the soundness of markets and financial institutions. the fsf has not yet made recommendations about the forces that contribute to procyclicality, as this is an issue that requires further study. procyclicality is inherent in financial transactions and means that the monitoring, measuring and pricing of financial and credit risks typically tend to be too optimistic in an economic upturn and are often too pessimistic in an economic downturn. it is well understood that the financial and regulatory infrastructure should not add to or exacerbate the procyclicality of credit and financial transactions. we therefore need to study carefully how the resilience of the global financial system with respect to procyclicality can be enhanced further. economic outlook for the euro area and germany after four to five years of buoyant growth, the global economy now faces a new setting : on the one hand, the us subprime crisis and its repercussions in various financial markets have had a dampening effect not only on the us, but also on the global economy. on the other hand, inflationary pressures, which mainly stem from sharply rising energy and food prices, are increasing on a worldwide scale. they pose a particular challenge to some developing countries, but also give rise to concern in industrialised countries. against this backdrop, the us housing market, and with it the us economy as a whole, has deteriorated further over the past few months. consequently, economists and financial market participants alike are – once again – asking themselves if europe will be able to decouple now that the us outlook has substantially deteriorated. arguably, in today ’ s globalised world where domestic markets for goods and services, as well as labour and capital markets, are becoming increasingly interlinked, europe is unlikely to succeed in isolating itself from the development in one of the world ’ s major economies. and indeed, in the uk, after a decade or more of a non - inflationary consistently expansionary economy ( a