Thursday, August 18, 2011
PJF - Mr Duisenberg & European integration
Mr Duisenberg comments on the past and future of European integration: a central banker’s perspective
The 1999 Per Jacobsson Lecture by Mr Willem F Duisenberg, President of the European Central Bank, held in Washington DC on 26 September 1999
"...Let me first deal briefly with the history of European integration. This process has been strongly driven by political motives. The main underlying aim was to avoid a recurrence in the future of the wars which devastated 20th century Europe. To that end, central Europe’s largest country, Germany, should be firmly embedded in a European structure. As Thomas Mann has aptly put it: “a European Germany, rather than a German Europe”. Without a common European framework, tensions could arise again between Germany and other countries, France in particular. European integration should serve the objective of creating a peaceful, stable and prosperous Europe. The unification of Germany almost a decade ago, and the removal of the iron curtain have placed Germany even further, as it were, in the heart of Europe. These fundamental changes make clear that the motives for European integration are no less valid today than 50 years ago...."
"...The main vehicle for European integration has been economic integration, via the coal and steel industry, from establishing a customs union, the European Monetary System, to the Single Market programme and the introduction of the euro. “Trade, do not fight” or perhaps better “Trade and you will not fight” was the basic philosophy. Given this background, it is striking that economists all too often assess the costs and benefits of European integration in purely economic terms and in a rather static context. This is clearly too narrow an approach..."
"...European integration is a task of great magnitude, and will remain so in the next century..."
"...The role of central bankers
The most important task and challenge for the Eurosystem is to build up a track record of actual price stability in the euro area. Action speaks louder than words. Showing in practice that we are capable of providing stable prices is what really counts. We have to ensure that European citizens are confident that the euro is a currency, which can sustain its value over time, and that the ECB is an institution which they can trust. The ECB should be perceived as an institution that says what it does and does what it says...."
"...The Eurosystem will have to explain time and again what monetary policy can and cannot do. Our mandate of maintaining price stability in the euro area in the medium term has to be emphasised continuously. Our medium-term orientation should be underlined. It is not in the power of a central bank to deliver price stability on a short-term basis. We cannot and should not respond to every twist and turn in economic data. The Eurosystem’s stance is not an “activist” one...."
"...The euro is not and cannot be a cure for all European problems. The introduction of the euro will not in itself solve the unemployment problem. Monetary policy is neither the cause nor the solution of the unemployment problem. Structural reforms are needed to attack it. Fortunately, this insight is gaining broader support. The challenge now is to translate it into sustained action. Carrying out structural reforms is politically difficult, since they may be painful in the short term and only bear fruit over a longer time scale. However, it is encouraging to note that those countries which have implemented structural reforms have indeed been more effective in coping with the unemployment problem...."
"...The role for Europe, the ECB and the Eurosystem in the world economy
The euro is the currency of an economic area with a population of nearly 300 million people and one-sixth of the world’s gross domestic product. Both numbers will increase as new countries enter Monetary Union. After the US dollar, but ahead of the Japanese yen, the euro is the second most widely used currency on a world-wide scale. Given these facts, it is stating the obvious to say that the euro and the Eurosystem are bound to play an important role in the world economy. With regard to the international role of the euro, the Eurosystem has adopted a neutral stance. We shall neither hinder nor actively promote this role, but leave its development to market forces. To put it another way, there is and shall be no policy of challenging the position of the dollar, nor that of any other currency. Of course, to the extent that the Eurosystem is successful in maintaining price stability it will almost at the same time automatically foster the euro’s international role. The euro already has an important international role. This role is likely to grow over time. The pace of this process cannot be precisely predicted. If history is any guide, it may well be a rather gradual process, although I would not rule out that this time it may well evolve faster than history would suggest..."