A lot has been made of the fact that no sovereign stress was made on the banking book. And indeed, as regulators, we did not want to give any credibility to a scenario that we consider unacceptable. However, there was full, total, and transparent disclosure of exposures to sovereigns for each in individual bank. Everybody is free  4  BIS central bankers’ speeches  to make their own assumptions and calculations. With knowledge of the exposure, it does not take a rocket scientist to figure out some scenarios. It turns out that such calculations would produce very reassuring numbers. But, for some reasons, they never were publically made by most analysts. Just as an illustration, the total exposure of French banks to sovereign debt in the southern part of Europe is 38% of total tier one (13% without Italy). I’ll let you make your own conclusions. Even in an apocalyptic scenario, only a small fraction of French banks tier one ratio would be compromised. The same results apply, with some variations, to other countries. Conclusion Let me know conclude. Like all other major advanced economies, the euro area is facing big challenges in adjusting to the post-crisis environment. For all, those challenges relate to long term fiscal sustainability. They are neither bigger nor smaller for the euro area than for the US, UK or Japan. They may be more complicated to solve because, by nature, our governance is more complex and we face specific collective action problems.
The German mark – the euro since January 1999 – has depreciated by about the same between 1995 and autumn 2000. The Japanese yen has been particularly volatile. 4  BIS Review 20/2002  Smaller countries have also experienced fairly wide exchange rate fluctuations. The Swedish krona has depreciated by more than 10 per cent since summer 2000. The Australian dollar has weakened by over 30 per cent since spring 1997. The UK, Canada and New Zealand have also experienced wide exchange rate fluctuations. The Norwegian krone exchange rate, on the other hand, has been relatively stable. Countries whose exports include a large component of raw materials tend to experience considerable volatility in their exchange rate. Australia is one example. Fluctuations in commodity prices entail changes in countries’ terms of trade, which measures the ratio of export to import prices. Changes in the terms of trade have an impact on the exchange rate, which in turn curbs the effects of changes in commodity prices on profitability in the business sector. Hence, the exchange rate serves as a buffer against changes in the terms of trade. Norway’s terms of trade also fluctuate considerably, primarily reflecting changes in oil prices. However, a substantial portion of petroleum revenues is invested in foreign equities and bonds through the Government Petroleum Fund. Changes in oil prices influence the size of the Fund, but  BIS Review 20/2002  5  have little effect on the use of petroleum revenues at home.