As some of you might remember, I was here in Madrid five years ago to give a speech on “The challenges for the European economy in 2004”. At that time one important issue was whether the economic recovery that had become apparent in the second half of 2003 would gather momentum.
In those Asian countries currency weakness led to very serious problems because, previously, as I have noted, currencies had been actually or virtually pegged to the US dollar. This led borrowers to take on large unhedged US dollar liabilities these looked very cheap at the time and, with the explicit or implicit guarantee that there would be no currency depreciation, devoid of currency risk.