##ly on its consistency with a country ’ s domestic macroeconomic and structural policy framework. this being said, the choice of an exchange rate regime should rest on the following principles : – so - called “ corner solutions ” are not necessarily the only available options. free floating rates may help to accommodate volatile capital flows and asymmetric shocks ; however, they might not prevent misalignments leading to balance of payments desequilibrium, they might prove disruptive for the real sector of small open economies, which often lack the size for developing the necessary market infrastructure to cope with exchange rate instability. currency boards can be warranted only under very specific circumstances. – requirements for sustaining pegs have become very demanding in an environment of high capital mobility ; however, “ intermediate solutions ” may still remain a relevant option for a number of countries ; particularly for open economies with close links to a partner country or a partner single currency area that maintains price stability or for countries experiencing high inflation, where anchoring the currency provides a simple and credible rule for monetary policy. needless to say that the intermediate solutions are considered particularly appropriate in the european framework where the belonging to an exchange rate mechanism plays a major role in the preparation to join the single currency. – in cases where countries need to respond to very large capital inflows and related risks of inflation and real appreciation, greater exchange rate flexibility might become desirable. let me conclude these considerations with two observations : – first, we should concentrate all our efforts on implementation of existing codes and standards. implementation is the key word at present times. applying standards and codes in all economies of the world, including emerging economies and economies in transition is an immense, challenging and urgent endeavor. – second, as regards the private sector involvement, i will recommend being as pragmatic and as consistent as possible. pragmatic because a case by case assessment is always needed and there is, in my opinion, no mechanistic “ a priori ” approach which would be advisable. consistent, meaning that once the assessment is made by the international community on the concept of the participation of the private sector in the crisis solution, we have to stick to it. 2. let me turn now to the second topic of my presentation which relates to the economic strengths of the euro zone and its impact on the euro itself more specifically, i would like to stress the three reasons which make me confident in the euro zone and therefore convinced that the euro will significantly appreciate in the future :

european firms were lagging behind us firms in terms of foreign direct investments and they are catching up. european firms have entered in a “ globalization process ” whereby they aim to reach a global size through external purchases. as a conclusion, i would like to make three remarks : on the global financial markets, on the euro and on the people ’ s republic of china. – on the global financial markets, i will draw our attention to one of the most important challenges we have to face up with : the “ herd instinct ” of market participants, which, in certain cases, can amplify considerably volatility, create or augment misalignments and induce large - scale global contagion in case of local crisis. the herd instinct is probably profoundly enshrined in the functioning of the marketplace. in order to minimize its effects, i have three provisional conclusions : • perhaps we should have a second look at the very rapid generalization of day to day mark to market accountings. perhaps a better medium term functioning of the market would call for a clear distinction between various market participants depending on their own time horizons. • it seems to me that it would also be important to reflect upon the consequences of the very rapid increase of mutual funds in some major markets. all the managers of these funds have to prove permanently on a very short - term basis that they are better managed than the average. this creates a very powerful potential herd instinct. • finally, i profoundly think that full transparency is the most efficient tool to counter the setting up of a “ herd ” and to cope with potential “ herd ” behavior. when one knows all about a particular “ signature ” or about a particular country, there is much less reason to embark into blind crisis contagion. here is the motto i would like to be accepted globally by market participants : “ let us judge the quality and creditworthiness of any particular signature upon its own peculiar fundamentals, upon its own, particular, assets and liabilities ”. – on the euro, i want to stress that the euro zone has adopted a sound macro policy and has embarked in a fairly comprehensive program of structural reforms. these reforms will take time to be fully completed. but they have already boosted economic growth, job creation and the restructuring of firms. i am impressed by what has been achieved during the past years and national central banks as well as the ecb are strongly encouraging governments and corporate businesses to foster structural reforms and business restructuring in the future. the