##uaring ahead of the holidays in the northern hemisphere ; developments in specific emerging markets ; and higher returns now being possible in developed markets. it is too soon to judge the possible extent and effects of this sell - off – hopefully it would not disrupt financial markets in affected countries. however, having painted such a rosy picture, one cannot help but also highlight the risks and uncertainties that currently face the world economy and financial markets. at the forefront of everyone ’ s minds is most definitely the behaviour of the oil market. it remains to be seen for how long the general level of inflation can withstand the current high oil prices, and recent comments by prominent central bankers the world over seem to point to increased concern about the impact of oil on inflation, going forward. south africa is no exception, and in the most recent statement of the monetary policy committee of the sa reserve bank, rising international oil prices were once again highlighted as a key risk for inflation. the effects of the very high oil prices are likely to increase if inflationary expectations start to react. secondly, the world remains plagued by geopolitical uncertainties in the middle east and other parts of the world. partly as a result of these tensions, combined with inflationary concerns starting to increase, the gold price has recently surpassed a series of 25 - year highs, trading above usd730 per fine ounce early in may 2006 before retracing to just below usd700. there are some in the market whose forecast is that the gold price might test the usd1000 per ounce level in the near term. a third risk to the global economy is substantial further increases in interest rates. despite various degrees of monetary policy tightening in industrial countries during the past two years, monetary conditions can still be described as relatively accommodative. any exogenous or endogenous factors that could lead to a sharper increase in rates could well threaten the strength of the global economy. in such circumstances, volatility and risk premiums are likely to pick up. a fourth concern that again surfaced recently was the issue of rising global imbalances, and in particular the widening current account deficit in the us, combined with significant surpluses in most of the asian countries, in particular china. the fact that the us has to date found it relatively easy to finance the current account deficit through capital inflows has to some extent obscured the risks associated with this imbalance. however, the us current account deficit, which according to the latest numbers amounted

in the euro area and, as jorg has said, expectations there have remained very well anchored. but as in japan, people in europe are talking about a lost decade. cœure : there is a risk of a lost decade in europe, if the right reforms are not undertaken. but the challenges and answers are very different from those in japan. it is true that the crisis has been a step backwards [ a setback ] for the european economy, but the underlying problems, such as declining trend growth and unsustainable social promises, were there before. the crisis has only uncovered them and has shown the need for answers more clearly and more urgently. but the high level of unemployment is certainly worrying … asmussen : yes, the level of unemployment is unacceptable. but the question is what we can do about it. we have a strategy in europe that is based on stable prices, sound fiscal policies bis central bankers ’ speeches and growth and employment - enhancing structural reforms. it will take some time to see the positive effects, but i don ’ t see any viable alternative. cœure : the high level of unemployment, particularly youth unemployment, shows the urgency of taking forward - looking reforms at the national level and, collectively, at the euro area level. with the crisis, differences between countries are becoming clearer and larger. is it a challenge for friendship between european nations? asmussen : we must acknowledge the resurgence of national stereotypes. that is worrying. the cliche that the greek people are lazy, whereas all germans are hard - working, is simply false … reality is more differentiated. cœure : we see the risk of nationalism in european discussions as well, with the temptation to defend narrow national interests. but politicians can overcome this temptation and make progress. take the banking union, for example. it is the most important step to be taken in european integration since the inception of the euro, perhaps more important than the single currency itself. it will have far - reaching consequences for national economic models and national legislation. so there is room for optimism if we succeed in taking that quantum leap forward. isn ’ t that overly optimistic? what can germany and france do to overcome these challenges? asmussen : you have described the challenges rightly, but the answer to them can only be more integration. france and germany have a leading role to play, because they stand at the core of european integration. they jointly, but only jointly, fulfil the definition of a superpower : if