It is also necessary to move towards a fiscal governance framework that allows the stabilising capacity of fiscal policy in the euro area in times of crisis to be increased. For this purpose, countries should take advantage of the current upswing to generate scope for stabilisation in future crises, since national fiscal policy will continue to be the first line of defence. 8/14  In fact, a fiscal union, with shared responsibility for macro-financial risks that are already subject to common supervision, besides improving incentives would be conducive to the sustainability of public finances and macroeconomic stability in the area. However, clear, strict fiscal rules are also necessary for the Member States. Simplification of the complex web of rules and procedures that currently make up the Stability and Growth Pact, more automatic rules and stronger independent fiscal institutions, as well as a stronger European Fiscal Board, could also help achieve this objective. Also, the development of a common fiscal capacity that enables an aggregate fiscal stance to be defined and applied in the area would supplement the scope for national fiscal action and, as I have already mentioned, the stabilising efforts of monetary policy. Completion of the current design of EMU and providing it with solid governance are priorities that will, however, require broad consensus and political will. Monetary policy I would now like to discuss the role monetary policy has played in these years and that which it could play in the response to future crises.
Our fundamental policies are enshrined in the Basic Law: among these are fiscal independence; maintenance of Hong Kong as an international financial centre; and a financial system governed and protected by locally enacted laws. Most important, the Basic Law prescribes a separate currency for Hong Kong - the Hong Kong dollar - which is to continue to be freely exchangeable and fully backed by reserves. These points are worth stressing, because there has been much misunderstanding about Hong Kong’s position. The challenges ahead  I believe we should also look to the future, and not just dwell on current anxieties or deal with the political fall-out from our recent measures against market manipulation. As I see it, there are two main challenges ahead. One is the challenge before every economy in the region, including Hong Kong, to pull ourselves out of the economic difficulties that now face us. The other is a challenge to the global financial community as a whole. For Hong Kong, the challenge is to see through the economic adjustment that is now in train, to continue to promote our competitiveness, and to plan for economic recovery. There is no denial that this is a painful process. Nor can there be any pretence that the current downturn will be over quickly, whatever the positive signs in the markets over the past few weeks. In the financial markets we need to be vigilant against future attacks and to introduce further safeguards in our financial system.