This was because (1) the financial markets reacted in anticipation of the fiscal tightening measures—such as the rise in the consumption tax rate and the termination of special tax reductions in fiscal 1997—and this had restraining effects on economic conditions; and (2) there was renewed awareness that various adjustment pressures, especially balance-sheet adjustment pressures, remained strong among small nonmanufacturing firms and financial institutions.
The Bundesbank has long been favouring the involvement of the private sector in crisis resolution. Arrangements where the private sector reaps the large profits of risky business while being bailed out in the event of a risky investment turning sour invite imprudent risk-taking, thereby putting the stability of the international financial system itself at risk.