Of course, determined efforts are required on the part of EU governments to reach a consensus on improvements in governance – particularly on the rules governing budgetary policy in the monetary union – and on the provision of bail-out funds. While the discussion and decision process surrounding these matters are often regarded as a weakness in the governance structure, it must also be recognised that the changes involved represent significant levels of assistance to programme countries and also touch directly on issues related to sovereignty. It is perhaps ironic that current problems are in part a side effect of the success of the monetary union, and the benefits it brought about. More precisely the crisis has also been triggered by the misuse of the benefits of monetary integration. The new currency reduced the cost of borrowing in several countries, as credit spreads narrowed and exchange rate risk on intra-euro area borrowing was eliminated.1 The reduced cost of financing public as well as private debt was reflected in higher government debt and private sector leverage. In the wake of risk repricing by the financial markets, there is now the strong tendency for market operators to unwind their holdings of public and private sector debt. This can be seen in Chart 1, which shows as an example the ensuing reduction in the leverage of monetary and financial institutions. The deleveraging process could set the stage for a deterioration in economic conditions. However it also serves to correct past excesses.
We are fortunate in having been able to grab him for a couple of hours today while he is briefly passing through Hong Kong. It is my pleasure to welcome him and to join with you all in the launch of this seminar, which will, I hope, be the first of many organised by the MPC over the coming months and years. 8. Finally, let me record my gratitude and congratulations to all the Committee members of the MPC for the excellent work they have put into the reconstruction of the Committee, and my thanks to everyone here for supporting this event today. 2  BIS Review 3/2001