trade increased from 11. 7 % in 1998 to 17. 2 % in 2005. also the increase in extra - euro area trade in services was remarkable : from about 7. 5 % of gdp in 1998 to around 9. 5 % in 2005. turning to extra - euro area outward fdi stocks 2, their growth in the same period proved equally remarkable rising from 21 % to 34 % of euro area gdp ; albeit the rise was somewhat less rapid than the one observed for intra - euro area fdi. the financial openness of euro area is also confirmed by ratios of external assets and liabilities to gdp ( respectively 135 % and 145 % in 2005 ) 3, which exceed those of us. taken together, these stylised facts underscore that euro area countries are fully involved in the globalisation process so that we can easily conclude that we are not witnessing the creation of a “ fortress euro area ”! stocks of fdis outside euro area owned by euro area residents. net international investment position of the euro area was - 10. 1 % of gdp in 2005. change in factor intensity of euro area exports globalisation fundamentally changes world patterns of production and trade, providing a lot of opportunities as well as challenges for the euro area countries. the crucial question therefore is how the euro area tackles these challenges and opportunities. in other words, the euro area global competitiveness and trade specialisation in comparison with that of its trading partners is of great importance. the results of our latest research on the comparative advantage according to factor intensity show that, between 1993 and 2004, the export specialisation of euro area exporters seems quite broad. while the euro area does not specialise in raw materials - intensive exports, its comparative advantage lies predominantly in capital -, research - intensive, as well as labour intensive categories of exports. the specialisation in the latter category does not seem to be fully in line with the capital - labour ratio of the euro area, which is much higher than in emerging economies. partly, this reflects the export specialisation of some euro area countries in lower - tech sectors such as textiles and paper. by contrast, the united states and japan have a strong specialisation in research - intensive exports, in line with their relatively large share of r & d spending in gdp. in addition to this, japan is also specialised in predominantly capital - intensive goods, reflecting its large capital - labour ratio. unsurprisingly, china, but also other emerging asia and the central and eastern european

stability and sustainability. this has exacerbated domestic and external imbalances and, ultimately, heightened risks to the global economy. some observers were aware that risks were rapidly building up and sent early signals. back in 2004 the ecb warned in particular about the “ uncertainties ” created by “ persistent external imbalances in some regions of the world and their potential repercussions on the sustainability of global economic growth ”. 3 repeated efforts to draw attention to the risks posed by global imbalances culminated with the launch in 2006 of multilateral consultations among systemic economies under the umbrella of the imf. for sure, there was no lack of analysis or discussion. but there was a lack of corrective action, and a lack of enforcement of the agreed corrective policy measures. what we are witnessing today is a disorderly unwinding of the past build - up of imbalances. not only are growth forecasts being revised downwards sharply, but so are current account projections. consider just one figure : the november international monetary fund projections suggest that the us current account deficit could come down to 3. 3 % of gdp by next year. this is almost a full percentage point less than the figure projected in april. importantly, this is nearly a halving from the peak deficit reached two years ago. but this adjustment is accompanied by several powerful factors : considerably heightened risk aversion ; significant real estate, financial asset and oil price corrections ; sharp reversals in the direction of capital flows and exchange rate movements ; mounting pressures on external financing for some emerging economies ; and, last but not least, a marked deterioration in global growth prospects. see e. g. michael p. dooley, david folkerts - landau and peter garber, “ the revised bretton woods system ”, international journal of finance and economics, 4 october 2004, vol. 9, pp. 307 - 313. see the editorial of the january 2004 ecb monthly bulletin. hence, while we are only now starting to fully understand the imbalances in domestic financial sectors, we have been aware of the external imbalances for some time. but little was done about it, the attitude being that it was somebody else ’ s problem. had we taken these symptoms more seriously, and had we taken appropriate preventive policy action, we might have been able to avoid or at least significantly lessen the adversity of the current crisis. the mutual reinforcement of domestic imbalances and external imbalance