##isation package will not significantly increase capital requirements : we expect to see a slight increase of 0. 7 percent for large institutions. this is because we did not have a mandate for tighter rules in general, but for more risk - adequate rules. and i think that, in the end, we fulfilled this mandate. the second reason why finalisation took so long are the differences i mentioned earlier. across the globe, you can find various kinds of financial sectors with plenty of regional disparities. add to this different supervisory cultures and policy traditions and you have a mix of opposing views that are, by nature, difficult to reconcile. financial sectors differ in that some are bank - based while others are more capital market - based. they also differ in terms of how high their standards for collateralization are. supervisory cultures differ in the emphasis they put on short - or long - term developments. and they differ in that they are more open or more sceptical towards model - based solutions. this obviously means it takes longer to achieve a common ruleset. tough compromises had to be found. for example, the way we combine risk modelling with standard approaches and the leverage ratio proved to be a tough issue. german authorities were strongly advocating the principle of risk sensitivity, which we saw threatened by potentially overarching limitations on internal risk modelling. for this reason, we opposed an excessively high output floor. and let me be completely honest : in this respect, the final result is not what we had advocated. but there comes a point where it isn ’ t worth jeopardising an overall agreement over strongly held 2 / 5 bis central bankers'speeches convictions. even if reaching compromise sometimes hurts, there is great value to it. other members of the committee and i were convinced that having common global rules is a crucial long - term investment in financial stability at both the global and regional level. this is what unified us. the final agreement restricts the use of internal risk models while preserving the principle of risk sensitivity. i welcome this from a german point of view. due to the long transitional periods, banks have plenty of time to adapt to the new regulatory framework. for german banks i can say that adaption will be a challenge but nevertheless feasible in face of their solid capital base and the long transition periods. now it is of utmost importance that all member states of the basel committee implement the new framework. we should not forget that the basel agreements are implemented not only by the members of the committee, but

somewhat larger impulses on euro area export growth than have been incorporated so far. similarly, the quasi - technical assumptions for variables such as exchange rates, interest rates and certain commodity prices, which forecasts tend to be built on, might need to be revised in order to bring them into line with the latest developments. rather than precisely forecasting numbers, my explanations should therefore be seen as relating to the general picture of the outlook which is likely to be much more stable. the favourable outlook for euro area growth is essentially based on the prospect that the initial impulses from external demand and the sustained domestic demand within the euro area reinforce each other in a beneficial way in the current upturn. this is exemplified by the fact that, together with the brightening picture on the external side of the economy, there has been a strong rebound in industrial confidence. following steady increases up to the first months of this year, most of the previous decline in industrial confidence has now largely been reversed. the cyclical pattern of consumer confidence was fairly subdued and confidence remained at a level close to its all - time high throughout 1999. continued employment growth and further reductions in unemployment should help to sustain it at this high level. taken together, the prospects for a strengthening of domestic demand growth appear to be good. in this context, it is worth pointing to a key feature of the euro area economy, namely that its degree of openness, and thus its dependency on foreign demand, is much lower than that of individual member states. developments in the world economy will nevertheless remain important, in particular through their repercussions via financial markets, and need to be monitored carefully. but if conditions for growth are right from the domestic side, the euro area economy should, in principle, be fairly resistant to potential shocks to foreign demand. let me now turn to developments in prices. looking back, the average rate of increase in consumer prices in 1999 was just over 1 %, the same as it had been in 1998. and most of the forecasts currently available from private and international institutions, while projecting a somewhat faster rise in 2000 and 2001, expect inflation to remain below 2 % on average. so, is there any reason to worry? the bulk of these forecasts was made in the autumn of last year and is subject to the caveat of the potentially outdated forecasting assumptions already mentioned earlier. in a number of cases, these forecasts also incorporate the assumption of rising short - term interest rates in 2000. prices are now rising