Курсовая: European Monetary System

Курсовая: European Monetary System

European Monetary System and European Currency

Based on selected papers kindly provided by the European Central Bank

Compiled by Dm. Evstafiev

for the students of the School of Political Science

at St. Petersburg State University

St. Petersburg

1999

Developments in the Financial Sector in Europe

following the Introduction of the Euro

Speech by Dr. Willem F. Duisenberg,

President of the European Central Bank,

to be delivered at the Third European Financial Markets Convention

Milan, 3 June 1999

1. Introduction

The period of the five months following the introduction of the euro has been

very rich in new events, with significant developments taking place both in

the continental securities markets and in the financial system as a whole.

Although experience has been gathered over a relatively short period of time,

I am tempted to make two observations of a fundamental nature.

The first observation is that developments following the introduction of the

euro do not imply that the euro area is set to become a financial fortress

whose financial markets and institutions would be cut off from the rest of

the world. In fact, market participants residing outside the euro area seem

to be taking a keen interest in the financial markets of the euro area. "Core

Europe", so to speak, has become more interesting to outsiders as the breadth

and liquidity of its financial markets has increased.

The second observation is that the euro can be expected to have a significant

influence on the structure of the financial system by bringing about more

securitisation. A traditional feature of the financial system of continental

Europe has been a marked dependency on the funds intermediated by banks. This

feature contrasts with the financial system of the United States which is

much more securitised. For instance, corporate bonds have not been very

widely issued in the euro area, and stock market capitalisation - relative to

the size of the economy - is much lower in the euro area than in the United

States. There are good reasons to believe that a process of securitisation

will gather pace in the euro area now that the single currency is in use.

This view seems to be shared by many observers and I shall, in the course of

my remarks, provide some arguments in its favour.

In my remarks today, I should like to discuss the structural changes in the

financial sector, in particular those that have occurred as a result of the

launch of new product types and the changing nature of public and private

institutions. I shall address developments in the money markets, the bond

markets and the equity markets as well as the process of adaptation of

banking institutions to their new environment.

2. Money markets

The money markets of the euro area became rapidly integrated after the

introduction of the euro despite the fact that their structures had

previously been quite different at the national level. Transaction volumes

and measures of bid-ask spreads on the various money market instruments both

indicate that the markets reached a very high level of liquidity very rapidly

in the course of January 1999 and have subsequently retained it.

The high degree of integration of the euro area money markets is, first of

all, a result of the single monetary policy, which is conducted through the

harmonised operational framework of the Eurosystem. This integration has also

been made possible by the significant and increasing integration of payment

systems. Cross-border payments processed by TARGET accounted for more than

37% of the value of all real-time payments (domestic and cross-border)

effected by credit institutions in March and April 1999. Moreover, the

continuously high use which our counterparties make of the correspondent

central banking model (or CCBM) for the cross-border transfer of collateral

in monetary policy operations is an important indication of area-wide

integration. This is evidenced by the fact that cross-border collateral

currently represents around 25% of the total amount of collateral in custody

in the context of the Eurosystem's monetary policy operations.

Taking a closer look at the various instruments traded in the money markets,

a feature that is worthy of note is that market participants in the 11

countries of the euro area have shown an increasing tendency to demonstrate a

similar reliance on each instrument type. For example, what we call

"overnight indexed swaps", which are swaps indexed on the overnight reference

interest rate EONIA, have become an important derivative instrument in the

money markets of the euro area. This can be seen from the low level of quoted

bid-ask spreads and the high turnover relative to other major international

markets. Both indicators show a high level of liquidity in this instrument.

Another type of instrument of interest in the money market (but also at the

fringe of the bond market) is that of the repurchase agreement. The

development of more integrated repo markets in the euro area will obviously

accompany the development of area-wide securities trading, settlement and

custody systems. This will reduce transaction costs and improve efficiency

for the cross-border transfer of securities through repurchase operations.

Looking ahead, other developments in the money markets are expected in the

coming months. There are aims to establish new area-wide standards for the

repo markets, with a view to overcoming the separation between different

models in the national markets. These new standards could obviously co-exist

with other standards and broader conventions for international transactions.

In fact, over the last few months the European Central Bank (ECB) has been

examining whether this co-existence could affect the integration of money

markets. We have come to the conclusion that, in particular owing to the

efforts of the sponsors of the different standards, this should not be

considered a threat.

Finally, it should also be noted that national and international central

securities depositories are currently developing links with one another,

which will enable participants in one country to make direct use of

securities deposited in other countries. Twenty-six of these links

(concerning mainly Belgium, Germany, France, Luxembourg, the Netherlands,

Austria and Finland) may be used by the Eurosystem.

3. Bond markets

I should now like to turn to bond markets and first to comment on the

position of euro area bond markets in the global market. Some data sources on

international securities issuance available so far show a pattern of

increased reliance on euro-denominated bonds at the beginning of 1999, in

particular as opposed to US dollar-denominated bonds. While it remains

difficult to draw firm conclusions on the determinants of bond denomination

choices without considering information on the nature of bond holdings and

trading patterns, recent bond issuance volumes indicate that the euro has the

potential to become an important currency for international bond issuance.

The importance of the euro area bond market is also apparent in measures of

secondary market activity, i.e. turnover or trading volumes. In particular,

trading volumes on exchange-traded bond futures are indicative of the overall

degree of market activity. Volumes traded in euro-denominated bond futures

were low shortly before the changeover to the euro, when the bond markets in

the euro area were exceptionally quiet. Since then, volumes have increased

markedly and they currently stand at consistently high levels, which

indicates a continuously high degree of turnover in euro-denominated bond

markets in general.

Turning to the internal structure of the bond markets of the euro area, I

should like to make an initial observation related to the recent marked

increase in euro-denominated corporate bond issuance, which was accompanied

by an increase in the average size of issues. This tendency is likely to

continue in the future, in particular to the extent that bonds may be used by

firms to finance increasing mergers and acquisitions activity in the euro

area. The underlying reasons for increased bond issuance by euro area firms

are clear, both on the supply and on the demand side. On the supply side,

large firms with good credit ratings will find opportunities in the increased

depth and liquidity of the euro area bond market. On the demand side, the

respect by governments of the parameters of the Stability and Growth Pact

over the medium term should leave more room for the private sector to issue

debt securities. In addition, the euro area must be in a position to save in

order to be able to take care of its future pension payments, and a part of

these savings is likely to be invested in corporate debt securities. An

increase in global demand for euro-denominated debt securities is also

expected as the euro becomes a major reserve currency. Moreover, the demand

for higher risk euro-denominated debt securities is likely to increase,

particularly as the current low level of sovereign yields increases

incentives to search for higher yields.

With regard to the government bond markets, an issue of importance for the

euro area that I should like to stress is the fact that governments now find

themselves in a rather new position as issuers. This reflects a number of

developments, two of which I should particularly like to mention. First, the

major public issuers have attempted to position themselves as providers of

benchmarks for euro-denominated bond markets. Second, certain issues of

government bonds have effectively gained larger portions of secondary

markets, in particular in relation to developments that have occurred on bond

futures markets.

Market participants have responded to these developments in the bond markets

with a range of concurring or competing initiatives and alliances. In the

derivatives industry, market participants have established new alliances. On

the trading side, electronic cross-border platforms for bonds have been

created or are in the process of being developed. On the clearing side,

integrated platforms for different markets have been launched or are being

finalised, while, finally, on the securities settlement side, initiatives

have also been launched. It is important to note that while some of these

developments are internal to the euro area, others aim at creating links with

financial markets outside the euro area. One may reasonably expect that all

of these new circuits, as well as others, may in the future be enlarged to

encompass a growing number of market participants.

4. Equity markets

Turning to equity markets, structural developments of most interest relate to

the infrastructure of stock exchanges on the one hand and equity derivative

exchanges on the other. First, within the euro area, equity investment and

trading activities appear to be less and less influenced by country-specific

factors and increasingly subject to area-wide considerations. Consistent with

this development, area-wide equity indices have been developing. Market

participants are showing considerable interest in these area-wide indices, in

particular as they are also now adopting investment positions on area-wide

industrial sectors, using the sub-indices made available for that purpose. An

indication of the degree of interest raised by area-wide indices is the

relatively fierce competition for benchmark status that has developed between

the various proponents of area-wide indices.

Second, market developments in relation to stock index futures and options

will reflect the rise of area-wide indices. This may in turn lead to either

consolidation or product specialisation of equity derivative exchanges. For

my part, I consider the development of fair competition between exchanges to

be a positive factor in terms of the improvement of the range of products and

services available to the financial industry.

Third, in the equity market the euro has also provided a powerful incentive

for the creation of new - and possibly competing - alliances among exchanges.

Before the launch of the single currency, circuits had been created for the

launch of integrated "new markets" within and beyond the euro area,

encompassing the shares of small and medium-sized companies with a high

potential for growth. The development in the integration of exchanges has

also continued more recently, and, as you know, it has not been limited to

the euro area.

5. Banking

In the field of banking, the securitisation trend appears to demand strategic

and organisational adjustment on the part of banks. The relative importance

of the more traditional types of banking activity can be seen to be

decreasing, even though it should be mentioned that traditional banking

activities have nonetheless continued to grow at a rate exceeding that of

growth of nominal GDP. In the euro area, growth in recent years has been much

more rapid in assets under the management of mutual funds and other

institutional investors than in the assets of banks. This reflects a tendency

towards decreasing the relative weight of bank deposits compared with

securities in financial wealth.

The euro area banking industry has reacted to this development already by

diversifying into the asset management area. Banking groups have been able to

"internalise" a significant part of the securitisation tendency as they

control a large majority of the mutual funds. As a result of the

securitisation trend, there has been an increase in the share of security

holdings among bank assets, and an increase in the share of capital gains -

although those are quite cyclically sensitive - as well as in fee income

stemming from asset management services. Meanwhile, the relative importance

of interest income has declined correspondingly. At the bank level, dividend

income from equity participations has generally become much more important,

indicating an increase in the importance of the profit generated by non-bank

subsidiaries.

Beside the establishment of non-bank subsidiaries, there have been other

strategic and organisational changes that have resulted in banks

strengthening their securities-related activities. In particular, significant

motives behind the recent merger trend seem to include the desire to increase

bank size and hence to be able to operate efficiently in wholesale securities

markets as well as to be able to cater for the needs of large international

corporations for investment banking services.

The trend towards securitisation can be regarded as one of the reasons for

the structural changes in the banking system that appears to have accelerated

recently. There have naturally also been other reasons why banks have sought

to merge, predominantly the need to cut capacity and to reduce costs. These

cost-driven mergers have taken place primarily among smaller banks.

6. Conclusion

In my remarks today, I have referred to a number of changes and market

initiatives in the euro area financial landscape. These developments point to

the increasing importance of the fixed income and equity markets that many

expected in Stage Three of Economic and Monetary Union (EMU), providing new

opportunities for borrowers and investors and causing pressure to adjust for

financial institutions. In this respect, I should like to mention the

importance of removing the remaining regulatory barriers to the further

development of the securities markets. To this end, the European Commission

has recently published an Action Plan of regulatory changes to improve the

single market for financial services that would certainly - when implemented

- boost the integration and market-driven development of the European

securities markets.

Finally, I should like to conclude with some remarks about the role of the

Eurosystem (the term that we use to mean the ECB and the 11 national central

banks of the Member States participating in Stage Three of EMU) in the

developments in the financial sector in Europe. First of all, the Eurosystem

contributes to developments in the financial sector by providing it with a

stable and credible monetary policy. With a strong and credible commitment to

its primary objective, price stability, the Eurosystem has created a

situation in which the financial sector can concentrate on those issues that

are of the greatest relevance to its activities.

The Eurosystem does not play a direct role in structural developments in the

financial sector. With its single monetary policy framework and TARGET in

particular, the Eurosystem has created an infrastructure that has proved to

be useful for the establishment of an integrated money market in the euro

area.

In addition, the Eurosystem carefully monitors structural developments in the

financial sector to the extent that they might have an impact on the conduct

of monetary policy. To make a final point, in observing developments in the

financial sector, the Eurosystem constantly takes account of the fact that

one of its tasks, laid down in the Treaty establishing the European

Community, is to "contribute to the smooth conduct of policies pursued by the

competent authorities relating to (.) the stability of the financial system"

[(Article 105 (5))]. Analysis of the common developments in the European

financial system represents such a contribution.

***

Economic and Monetary Union in Europe - the challenges ahead

Speech by Professor Dr. L.H. Hoogduin,

on behalf of Dr. Willem F. Duisenberg,

President of the European Central Bank,

at the symposium sponsored by the Federal Reserve Bank of Kansas

City

on "New challenges for monetary policy"

on 27 August 1999 in Jackson Hole, Wyoming

From the European perspective, the title of this year's Jackson Hole

symposium - "new challenges for monetary policy" - is particularly

appropriate. Economic and Monetary Union (EMU) in Europe is a unique project

and its consummation with the introduction of the single monetary policy on 1

January 1999 took place less than eight months ago. Today, given the time

available, I will not endeavour to review all the challenges which are raised

by EMU comprehensively. I shall have to be selective, largely focusing on the

primary objective of the Eurosystem, which is to maintain price stability in

the euro area. In this context, let me briefly explain our terminology, which

may perhaps not be known to everybody as yet. The "Eurosystem" is the name we

gave to the European Central Bank (ECB) and the currently eleven national

central banks of those countries which have introduced the euro. The "euro

area" comprises these eleven countries.

I should like to start with some observations on the objective and

limitations of monetary policy in the euro area. Owing to the successful

process of disinflation and convergence within Europe over the past decade,

the launch of the euro last January took place in an environment of price

stability that few observers would have predicted only a few years ago.

Consumers and firms are already reaping the benefits of this environment. The

relative price signals on which the efficiency of the market mechanism relies

are not obscured by volatility in the general level of prices. By avoiding

the costs and distortions inflation would impose on the economy, price

stability is contributing to the growth and employment potential of the euro

area.

This contribution is substantial. Unfortunately, it is all too easily taken

for granted. Memories of the still recent past relating to the consequences

of high and unstable inflation tend to fade rapidly. We are sometimes already

hearing the argument that, given that price stability has been achieved,

monetary policy should now be re-oriented away from its primary objective of

price stability towards other goals. One of the challenges facing the

Eurosystem is to maintain the support of the broad public constituency

necessary to resist these calls, which - as I hardly need to point out to

such a distinguished audience of central bankers and monetary economists -

are misguided and ultimately counter-productive. However, it can be said that

the situation is the same as that in the world of sports; winning a

championship and reaching the top is difficult, but staying there is even

harder.

The institutional framework for European monetary policy, as created by the

Maastricht Treaty (i.e. the Treaty on European Union, which has become part

of the Treaty establishing the European Community, or the EC Treaty, in

short) is well suited to meeting this challenge. Most importantly, the single

monetary policy has been clearly assigned the primary objective of

maintaining price stability in the euro area. To facilitate the achievement

of this goal, the ECB and the national central banks have been accorded a

high degree of institutional independence so as to protect monetary policy

decisions from undue external interference.

The Treaty imposes several duties and tasks on the ECB. However, there is no

doubt that the objective of price stability is over-riding. For example, the

Treaty stipulates - if I may quote - that the Eurosystem "without prejudice

to the objective of price stability, . shall support the general economic

policies in the Community, with a view to contributing to the achievement of

the objectives of the Community", which include "sustainable and non-

inflationary growth" and "a high level of employment".

Given the clear priority attached to the primary objective of price

stability, how does the ECB address these other Treaty obligations? Let me

make three points in this regard.

First, among economists and central bankers, there is overwhelming agreement

that there is no long-run trade-off between real activity and inflation.

Attempting to use monetary policy to raise real economic activity above its

sustainable level will, in the end, simply lead to ever higher inflation, but

not to faster economic growth. I am convinced that the best contribution

monetary policy can make to sustainable growth and employment in the euro

area is to maintain price stability in a credible and lasting manner,

allowing the considerable benefits of price stability to be reaped over the

medium term. This is the economic rationale underlying the EC Treaty and the

Eurosystem's monetary policy strategy.

Second, it is generally acknowledged that monetary policy does affect real

activity in the short run. Although the focus must always be on price

stability, in many cases the policy action required to maintain price

stability will also help sustain short-run economic and employment prospects.

The reduction of the Eurosystem's main refinancing rate on 8 April was a case

in point. Following the Asian and Russian financial crises last year, global

demand weakened. Weaker external demand led to a shift in the balance of

risks to price stability in the euro area towards the downside, as demand

pressures abated. As monetary indicators did not signal inflationary risks at

that time, the Governing Council of the ECB concluded that a cut of 50 basis

points in the main refinancing rate best served the maintenance of price

stability. This lower level of interest rates may also be supportive of real

activity and employment in the short-run. Our eyes must always be firmly

focused on the goal, on our goal, to maintain price stability in the medium

term. Our monetary policy does not explicitly aim at influencing the business

cycle. However, as said in many cases, the necessary monetary policy measures

to achieve our goal also tend, almost automatically, to work in the right

direction from a cyclical point of view.

This leads me to my third point. In situations where monetary policy might

face a short-term trade-off between adverse developments in real activity and

deviations from price stability, the over-riding priority accorded to

countering the latter must be made absolutely clear. Any ambiguity on this

point will simply endanger the credibility, and therefore the effectiveness,

of the monetary policy response. This does not mean that the policy action

must be draconian. The medium-term orientation of the Eurosystem's monetary

policy strategy permits a gradualist and measured response to previously

unforeseen threats to price stability, should this be regarded as

appropriate, depending on the nature of the threat. Such gradualism may help

to avoid the introduction of unnecessary uncertainty into the real economy.

Recognition and an understanding of these three central points are essential

for the implementation of a successful monetary policy. Communicating both

the objective and the limitations of monetary policy to the public is a vital

issue to which I will return later in my remarks. But it would be remiss at

this point if I did not address what is surely the greatest economic

challenge facing the euro area at present, namely the unacceptably high level

of unemployment. There is a broad consensus that unemployment in the euro

area is overwhelmingly structural in nature. Monetary policy cannot solve

this problem. National governments bear the main responsibility for

structural economic reforms. In particular, further reforms of the tax and

welfare systems are required in many EU countries in order to increase the

incentives to create new jobs and to accept them. Wage moderation can also

have a significant beneficial impact. Monetary policy makes its best

supportive contribution by providing the environment of price stability in

which structural reforms can work most effectively.

It should be recognised that the implementation of EMU has made it even more

urgent to improve the flexibility of labour and goods markets. In this

context, it would very likely be the wrong answer if governments were to try

to create a "social union", harmonising social security systems and standards

at a very high level. The ECB will continue to cajole governments into

implementing necessary and long overdue reforms, but the final hard decisions

- and I acknowledge that they are hard decisions, since the considerable

benefits of structural reform often only become apparent with time - lie with

the national authorities. In those countries where appropriate structural

reforms have been implemented and wage growth has been moderate, unemployment

is either low by euro area standards or is falling more rapidly. These

experiences offer important lessons for other countries in the euro area.

Fortunately, a broader awareness of the necessity of structural reforms

recently seems to be emerging in Europe. Of course, ultimately only sustained

action will count. The cyclical recovery that is underway is no substitute

for such action.

Thus far, I have largely discussed the goal of the single monetary policy.

How is this goal to be achieved? At the heart of the answer to this question

is the Eurosystem's monetary policy strategy. The strategy has two closely

related aspects. First, the strategy must structure the monetary policy-

making process in such a way that the Governing Council of the ECB is

presented with the information and analysis required to take appropriate

monetary policy decisions. Second, the strategy must ensure that policy

decisions, including the economic rationale on which they are based, can be

presented in a clear and coherent way to the public. The communication policy

as part of the strategy obviously has to be consistent with the structure of

the internal decision-making process.

In designing the Eurosystem's strategy, the Governing Council of the ECB

recognised the new circumstances faced by monetary policy in the euro area.

Where there were previously eleven open, generally small economies, there is

now one large, relatively closed single currency area. The challenges implied

by this transformation in the landscape of monetary policy are profound.

Relatively little is known as yet about the transmission mechanism of

monetary policy in the euro area after the transition to Monetary Union. One

important challenge for the Eurosystem is to obtain a better knowledge of the

structure and functioning of the euro area economy and the transmission

mechanism of monetary policy within it, so that policy actions can be

implemented accordingly. Together with experts in the national central banks,

the ECB has embarked on an intensive programme of analysis and research into

these issues.

One obvious problem related to the fact that the euro area did not exist as a

single currency area in the past regards the availability of statistical

data. Compared with national central banks, we do not have the same amount of

long historical time series of monetary and economic indicators, based on

harmonised statistical concepts, at our disposal. However, we have already

developed quite reliable estimates for a number of these historical series,

and the quality and availability of current statistics on the euro area has

increased significantly over the last few quarters, for example in the areas

of money and banking and balance of payments statistics, but also across a

wide range of economic statistics. This process of improving the quality and

the availability of statistical data covering the euro area will continue.

It would have clearly been unwise for the ECB to develop a strategy which

relies mechanically on the signals offered by a single indicator or forecast

in order to take monetary policy decisions. Indeed, such a simplistic

approach to monetary policy-making is unwise in all circumstances. Our

knowledge of the structure of the euro area economy and the indicator

properties of specific variables - although improving rapidly - is simply too

limited.

The primary objective of monetary policy has been quantified with the

publication of a definition of price stability, against which the Eurosystem

can be held accountable. This definition illustrates our aversion to both

inflation and deflation, since it defines price stability as annual increases

of below 2% in the Harmonised Index of Consumer Prices (HICP) for the euro

area. To maintain price stability according to this definition, monetary

developments are closely monitored against a quantitative reference value for

the broad benchmark aggregate, M3. In parallel, a broadly based assessment of

the outlook for price developments in the euro area is undertaken. This

assessment encompasses a wide range of indicator variables, including

inflation projections produced both inside and outside the Eurosystem. Using

all this information, the Governing Council comes to a decision on the level

of short-term interest rates that best serves the maintenance of price

stability over the medium term.

On the basis of this strategy, I am confident that the Governing Council has

taken - and will continue to take - appropriate monetary policy decisions.

The effectiveness of these policy decisions will depend, in large part, on

the credibility of the single monetary policy. Transparent and accountable

policy-making can help to build up a reputation and, hence credibility.

Transparency and accountability, in turn, rely on clear and effective

communications between the Eurosystem and the public.

In this regard, the Eurosystem faces an especially formidable task. As

mentioned earlier, the euro area currently consists of eleven different

sovereign nations, each with its own distinct monetary history and heritage.

With each policy announcement or Monthly Bulletin, the Eurosystem must thus

communicate with the public of eleven different countries and must speak in

all eleven different official languages of the European Union. Such a

situation is unprecedented. This diversity of language, history and culture

across the euro area raises further challenges for the ECB.

Over the years, each national central bank had developed its own strategy

and, linked to this, its own "monetary policy language" for communicating

with the public in the nation it served. This language reflected the unique

circumstances of the country in question. The process by which the public

learnt this monetary language from the statements and behaviour of the

national central bank was largely subconscious. Over time, the strategies and

the related language and conventions of monetary policy came to be so well

understood as to be almost second nature. In these circumstances, private

economic behaviour was shaped by the monetary policy environment.

Many of us have experienced the problem of trying to learn a second language

in adult life. This rarely comes as easily as learning your native tongue as

a child. It is certainly not a subconscious process, but rather one that

requires effort and perseverance. It is often difficult to overcome the

habits and conventions of one's first language, which are inevitably somewhat

at odds with those of a foreign tongue. Of course, it is easier to learn a

language that shares common roots with one's own. Nevertheless, to obtain any

degree of fluency, there is no alternative to long hours practising

pronunciation, studying grammar and learning vocabulary. Even then, the

idioms and slang of the new language are sometimes hard to follow. There are

no easy short cuts.

With the adoption of the euro last January, the public, financial markets and

policy-makers in the euro area have all had to get used to a new monetary

policy environment and have, thus, had to learn a new "monetary policy

language". The Eurosystem's monetary policy strategy has been designed, in

part, to make this learning process as straightforward as possible.

Continuity with the successful strategies of the national central banks prior

to Monetary Union was one of the guiding principles governing the selection

of the monetary policy strategy. Nevertheless, given the changed environment

for monetary policy, a new strategy with a new vocabulary had to be

developed, reflecting the unique and novel circumstances facing the

Eurosystem.

Some commentators have suggested that the Eurosystem simply adopt the

strategy used by another central bank or by a national central bank in the

past. Tellingly, such observers often suggest the strategy they know best:

Americans suggest using the Federal Reserve as a model; Britons, the Bank of

England; Germans, the Bundesbank. However, the Eurosystem cannot simply adopt

a strategy designed by another central bank for a different currency area

under different economic circumstances. A strategy that might have been

suitable in one situation may be quite inappropriate for the unique and novel

circumstances facing the Eurosystem, given the very different economic

structure and environment confronting it.

A key feature of the ECB's communication policy is the monthly press

conference given by the ECB's Vice-President and myself, usually immediately

following the first Governing Council meeting of each month. During these

press conferences, I make an introductory statement summarising the Council's

discussions and conclusions before answering questions from journalists. As

the statement is agreed, in substance, with all the Council members

beforehand it is similar to what others call minutes. The press conference

provides prompt information in an even-handed way, and it offers the

opportunity for immediate two-way communication. As far as I am aware, no

other central bank communicates with the public in such a prompt manner

immediately after its monetary policy meetings.

These press conferences are a tangible expression of the Eurosystem's

commitment to be open, transparent and accountable in its conduct of monetary

policy. In my view, our commitment to openness should not be in doubt.

However, ensuring that this openness translates into effective communications

continues to be a challenge. Journalists, financial markets and the public

are still learning the new strategy and language of monetary policy in the

euro area.

By its nature, the challenge of improving communications between the

Eurosystem and the public is two-sided. On the one hand, the ECB must use a

clear and transparent language consistent with the strategy it has adopted.

It must help the public understand the changes of emphasis and communication

necessitated by the new monetary policy environment in Europe. We have made

important progress in this regard over the last eight months, but I

acknowledge that we still have some way to go. The ECB must do its utmost to

be understood by its counterparts in the media that act as important

intermediaries to the public at large. By learning from one another, we can

improve the transparency, democratic accountability and effectiveness of the

single monetary policy.

Before concluding, I should like to add a brief comment on the likely future

enlargement of the European Union (EU) and, prospectively, the euro area.

Currently, the EU negotiates the accession of six countries to the EU. Once

the accession of new Member States is decided, these countries have to fulfil

the so-called convergence criteria, if they want to join the euro area. The

euro area can finally only be enlarged if the European Council, following an

assessment by the ECB and the European Commission, decides that further

Member States of the EU are ready to adopt the single currency. New countries

joining the euro area will be a challenge for us. For example, we will have

to integrate the respective economy fully in our area-wide analysis of

monetary, financial and other economic developments in the euro area.

Enlargement is a challenge we clearly welcome. I have no doubts that we can

master it, not least as the EC Treaty outlines a clear and transparent

procedure for countries wishing to join the euro area. In simple terms, this

can be viewed as involving three phases. First, a candidate country must join

the European Union, for which certain requirements must be met. Second, the

candidate is expected to join the new exchange rate mechanism, ERM II. Third,

as mentioned earlier, the country must fulfil the convergence criteria. In

addition to fiscal discipline and inflation control, these criteria include a

relatively low level of long-term interest rates and stable exchange rates.

Let me conclude. Monetary policy cannot solve all of the economic challenges

facing the euro area, in particular those concerning the urgent need to

reduce the high level of structural unemployment. National governments are

responsible for carrying out the required structural reforms. The Eurosystem

makes its best contribution to area-wide growth and employment prospects by

credibly focusing on the maintenance of price stability in the euro area.

I am confident that the monetary policy strategy adopted by the Governing

Council of the ECB last October has been successful - and the monetary policy

decisions that have been based on it over the last eight months - serve the

fulfilment of this objective. Nevertheless, we will not become complacent; on

the contrary, we will have to continue to invest substantially in analysing

the structure of the euro area economy, and in understanding the monetary

policy transmission mechanism and the information content of the various

monetary and economic indicators.

Monetary policy is most effective when it is credible. Transparent and

accountable policy-making can help to build up a reputation and credibility.

Effective direct communications with the public, including the financial

markets, other policy makers and the media requires that we speak with one

voice in an even-handed way with our diverse counterparties and audience.

Successfully refining our area-wide communications, aimed at making our

strategy, and the monetary policy based on it, transparent so that it can be

well understood by the large and varied population we serve, is one of the

challenges faced by the Eurosystem and, by implication, one of our

priorities.

***

EMU AND BANKING SUPERVISION

Lecture by Tommaso Padoa-Schioppa

Member of the Executive Board of the European Central Bank

at the London School of Economics, Financial Markets Group

on 24 February 1999

TABLE OF CONTENTS

I. Introduction

II. Institutional framework

III. Industry scenario

IV. Current supervision

V. Crisis management

VI. Conclusion

Tables

I. INTRODUCTION

1. I am speaking here, at the London School of Economics, only a few weeks

after one of the most remarkable events in the history of monetary systems:

the establishment of a single currency and a single central banking

competence for a group of countries which retain their sovereignty in many of

the key fields where the State exerts its power. To mint or print the

currency, to manage it and to provide the ultimate foundation of the public's

confidence in it has been, from the earliest times, a key prerogative of the

sovereign. "Sovereign" is indeed the name that was given in the past to one

currency. And a British Prime Minister not so long ago explained her

opposition to the idea of the single currency with the desire to preserve the

image of the Queen on the banknotes.

2. For centuries money has had two anchors: a commodity, usually gold; and

the sovereign, i.e. the political power. Less than 30 years after the last

bond to gold was severed (August 1971), the second anchor has also now been

abandoned. Although I personally think that political union in Europe is

desirable, I am aware that the present situation, in which the area of the

single currency is not a politically united one, is likely to persist for a

number of years. This means that we have given rise to an entirely new type

of monetary order. For the people, the success of this move will ultimately

depend on the ability of governments and political forces to build a

political union. For the central banker and for the users of the new

currency, the success will be measured by the quality of the currency itself,

and such quality will be measured in the first place in terms of price

stability. This is not only a requirement explicitly set by the Treaty of

Maastricht, it is also, in the opinion of most, the "new anchor" that purely

fiduciary currencies need after the gold anchor is abandoned.

3. My remarks, however, will focus on another, less fundamental but still

important novelty of the monetary constitution that has just come into

existence. It is the novelty of the abandonment of the coincidence between

the area of jurisdiction of monetary policy and the area of jurisdiction of

banking supervision. The former embraces the 11 countries that have adopted

the euro, while the latter remains national. Just as we have no precedent of

any comparable size of money disconnected from states, we have no precedent

for a lack of coincidence between the two public functions of managing the

currency and controlling the banks.

In the run-up to the euro this feature of the system was explored, and some

expressed doubts about its effectiveness. I will tonight examine the problems

of banking supervision in the euro area. The plan of my remarks is the

following. I will first review the existing institutional framework for the

prudential control of banks in EMU. I will then examine the likely scenario

for the European banking industry in the coming years. Against this

institutional and industry background, I shall then discuss the functioning

of, and the challenges for, banking supervision and central banking in the

euro area, both in normal circumstances and when a crisis occurs.

II. INSTITUTIONAL FRAMEWORK

4. The origin and developments of modern central banks are closely linked to

key changes undergone by monetary systems over the past two centuries. Such

changes could, very sketchily, be summarised as follows. First, paper

currency established itself as a more convenient means of payment than

commodity currencies. Second, commercial bank money (bank deposits) spread as

a convenient substitute for banknotes and coins. Third, the quantity of money

Страницы: 1, 2, 3, 4, 5, 6, 7, 8