Moments that made the year: A Far East crisis that could hit Western growth

In terms of its speed, unexpectedness and its potential effect on the lives of people all over the world, the East Asian economic crisis was the crisis of 1997, and it is certainly not over yet. What began in July with the collapse of the Thai baht ends the year with the continuing plummet of the Korean won having, in between, caused varying degrees of mayhem in Thailand, Indonesia, Malaysia, the Philippines, Japan, Singapore and Hong Kong.

Despite $100bn of promised aid from the International Monetary Fund (IMF), the plunge of the region's currencies shows few signs of bottoming out, but the response to the crisis outside the region has fallen into two distinct phases.

For the first few months of the crisis, much foreign comment treated it as a spectator event, an object of fascinated, but abstract, interest and more than a little schadenfreude.

It appeared to confirm a fashionable argument, most trenchantly argued by the economist Paul Krugman - that the "Asian tiger" model of high growth and aggressive investment is unsustainable in the long run.

But since November, when the contagion spread to South Korea and Japan, the focus has shifted from the theoretical to the practical: what effect is Asia's pain going to have on the rest of the world?

For those without specialised business interests, a weak Thai baht means little more than cheaper holidays in Phuket. As Indonesia followed and, to a lesser degree, Malaysia and the Philippines, so did cheap holidays in Bali, Penang and Mindanao.

But when the contagion spread to Korea, it was a different matter. People don't take package tours to Pusan. And the pain of the squeeze on South Korea, the former eleventh largest economy in the world, is being felt around the world. The stifled sniggering at the difficulties of the tigers was silenced this week with a prediction by the IMF, that the Asian crisis will cut 1 per cent off growth next year throughout the world.

Korea's credit rating has sunk below those of Croatia and El Salvador, making it impossible for companies to fund their ambitious overseas plans.

In Britain alone, the huge Samsung and Daewoo conglomerates announced the "postponement" of billions of pounds' worth of plants and jobs. And the crisis is not purely an economic one: what began as a series of events in the financial markets, is also throwing up political problems.

Despite their eclipse by the chaos in the markets, Asia's political tensions remain, and they are exacerbated by financial insecurity - if the reunification of North and South Korea looked a tricky and expensive proposition before, it appears doubly so now, with the South's economy on its knees.

The financial uncertainty also distracts attention from other urgent political issues. But the bigger problem is the psychological effect of the collapse of the Asian tigers, and the tremendous blow they have suffered to their self-esteem.

Responsibility for managing this tension will fall in large part to Britain, as new European Union president, and host of the second Asia-Europe Meeting (Asem) in London next spring.

The shock of sudden collapse has understandably strained nerves and tempers, and there have been ugly and sinister outbursts made worse by the West's gloating.

The insinuations by the Malaysian prime minister, Mahathir Mohamad, that the whole thing was part of a Jewish conspiracy orchestrated by the speculator George Soros did nothing to restore the faith of investors in his country.

In Korea, demonstrators have accused the IMF, and its American and Japanese backers, of economic "imperialism" in making conditions for the bail-out of their country.

The world has seen nationalist movements flourish before on the back of economic collapse. It seems, for the moment, a distant fear - but then a year ago, so did the present state of affairs. Either way, the history of the 1997 crisis will not be clear until well into next year.