The 1999 Lecture:
The Past and Future of European Integration: A Central
Banker's Perspective
Dr. Willem F. Duisenberg
President of the European Central Bank
September 26, 1999 in Washington D.C.
1. Introduction
I feel honoured to have been invited to give this year's prestigious Per Jacobsson lecture
before such a distinguished audience. The euro was launched successfully almost nine months
ago. This was a historic moment, with 11 countries voluntarily relinquishing sovereignty over
monetary policy. Technically the changeover proceeded remarkably smoothly. Former national
money markets were rapidly integrated, in no small measure due to the smooth functioning of
TARGET, the new European payment system which, generally speaking, worked well from the
outset. The euro is traded on all international financial markets. Moreover, the euro has been
introduced in a climate of prevailing price stability in the euro area. This is the result of a process
of convergence in which there has been a general decrease in European inflation rates over recent
years, from--in the case of some countries--significantly higher levels in previous years.
The introduction of the euro is neither an isolated nor a purely economic event. It is another,
yet very important, step in the process of European integration. The process began more than half
a century ago. The creation of the euro is not the end of that process either. Today, I should like
to briefly look back, but mainly look ahead. My perspective is that of a central banker. The nature
of this perspective will become clear in the course of my lecture.
Dealing with European integration and with the new European single currency is particularly
appropriate in the context of this lecture series. Per Jacobsson has spent his professional career
pursuing sound money. This is the very same challenge that faces us: making the euro a sound--that is to say stable--currency.
2. The history of European integration
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.
Nonetheless, the economics of European integration are important. The political objectives
can only be met if economic integration is successful and placed on a sound economic footing.
This is also where the role of the central banker comes in. He or she should not and does not
decide on the steps to be taken in the integration process. That is in the realm of politics and is
also market-driven. The central banker advises and points out the conditions which have to be met
for certain steps to be taken safely. The reverse is also true: the central banker and central banks
are for their part influenced by the integration process, and the greater the level of integration in
the monetary field, the greater the impact upon them. The central bank and the central banker are
operating in an environment, which is affected by the ongoing integration process. This has to be
taken into account. Moreover, the question arises as to whether a single monetary policy
ultimately calls for further integration in other areas.
In retrospect, it can be concluded that, thus far, the European integration process has, on
balance, been successful. In our part of Europe we have experienced peace since the process was
initiated and we have seen a continuous growth in earnings and wealth. The further process of
gradual integration has now culminated in the emergence of a single currency.
There is no room, however, for complacency. Looking back, let me also draw some more
specific conclusions:
- The integration process has been marked by ups and downs, often in step
with the course of the business cycle or in connection with major shocks, such as German
unification. The road has been long and winding, sometimes bumpy.
- Long ago European integration reached the point of no return. There is no alternative but
to continue down the path of integration. Economic integration has generated its own dynamics.
It is no longer completely dependent on political initiatives to propel it forward.
- Overall, however, the political component of the European integration process is still
essential and should not be forgotten.
- Politicians should clarify the objectives of the European integration process, explaining
them to European citizens and pointing out the steps envisaged in the years ahead. The role of
central bankers is to be critical, yet at the same time constructive. They should indicate the
economic consequences and the risks of certain steps, stipulating under which conditions certain
steps can safely be taken. It is better to take a step later, but successfully, than to take it
prematurely and then fail and fall back further. Such a role will not always make the central
banker popular. He or she will often be perceived as stepping firmly on the brakes. Nonetheless, I
am convinced that it is the best service he or she can provide in furthering the progress of the
integration process. It may sound paradoxical, but by continuously emphasising the importance of
fulfilling the convergence criteria, central bankers have contributed to making possible the
introduction of the euro. It has perhaps already been forgotten by some, but this event was not
considered very likely by many observers, even close to the date on which it actually
happened.
European integration is an ongoing process. It will continue. What does the future hold in
store? Let me now turn to this issue.
3. The future of European integration
3.1 Introduction
European integration is a task of great magnitude, and will remain so in the next century. It
offers many opportunities. It faces many challenges. I would classify these challenges in three
categories and look at them from the perspective of the central banker:
- How to make the euro and Economic and Monetary Union (EMU) a
success;
- How to cope with the accession of new countries to the EU and the euro area;
- How to develop the role of Europe, the European Central Bank (ECB) and the
Eurosystem (i.e. the ECB and the eleven national central banks of the EU-Member States which
have adopted the euro) in the world.
I shall now discuss these challenges in turn.
3.2 How to make the euro and EMU a success
In the first category, I would make a distinction between what central bankers can do or what
is within their control, or what they can influence on the one hand, and what the outside world
should do or is likely to do with an impact on the central bank world, on the other.
3.2.1 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 ECB and the Eurosystem should develop into truly European institutions. They should
always take their decisions and conduct their analyses from a euro area-wide perspective.
Although some good progress has been made in this regard, there is still room for further
improvement. Additional efforts will also be required in finalising the process of setting up and
consolidating the ECB and the Eurosystem. For instance, the ECB began life with a staff of
around 400 persons, which in the meantime has grown to more than 700. It is likely to grow
further in the years ahead, but it has to be recognised that there are limits to the pace at which the
organisation can be expanded. It is fair to say that at the moment the ECB is capable of fulfilling
its tasks, but that the pressure of work in many areas is still simply too high. As will become clear
later in this lecture, some new tasks will have to be taken up in the years ahead, while others need
to be enhanced. While expanding, it has to be ensured that the ECB remains an efficient
organisation. What is more, the role of the ECB, as the central bank representing the second
largest economic area of the world with a population of 300 million people, has to be shaped and
elaborated further. Setting up the ECB is a fascinating process. It is like the European integration
process itself, but on a micro scale and under very great pressure of time. In some respects, the
process of establishing and consolidating the ECB and the Eurosystem could serve as an example
for the European integration process in a wider sense.
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 more successful we are at maintaining price stability, the more important it may become
to communicate the benefits of price stability. The memories of periods of high inflation with its
damaging consequences may fade. It cannot be taken for granted that the reason for the
independence of the ECB is widely known. Having such knowledge widely distributed is crucial
for the maintenance of price stability in the longer term. No central bank, however independent on
paper, can maintain price stability in the longer term in practice if not supported in the execution
of its mandate and in its independence by a large part of the population. This is certainly the case
for a new and young central bank which has the task of conducting monetary policy for an area
consisting of eleven different countries, with populations from different cultural, economic and
historical backgrounds.
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.
I shall continue to focus on the unemployment problem. Unemployment is a waste of
resources, leaves human potential unused, is a source of frustration and ultimately undermines the
stability of our societies. In a narrower vein, the existence of a high level of unemployment may
also hamper the conduct of monetary policy. It can all too easily lead to calls for an expansionary
monetary policy as a solution to a problem which monetary policy cannot solve. The central bank
could become the scapegoat for failure to take action in areas where action on the part of others is
what is in fact required. Making markets more adaptable is also necessary for making EMU work.
Only flexible markets will be able to cope with the asymmetric shocks which can sometimes affect
any monetary union. The policies needed to make EMU work are, at the same time, essential to
reducing unemployment. A single currency does not call for uniform wage developments or
uniform economic or social policies in general. On the contrary--where national or regional
economic developments are different, this should be reflected in different policy responses and
wage developments. Moreover, different reactions to similar problems make it possible to learn
from each other.
The existence of a single currency and 11 fiscal authorities is a unique phenomenon. This can
only work if the Member States strictly apply the Stability and Growth Pact, which calls for the
reduction of government deficits to close to balance or to create a surplus in the medium term. In
this way, room is created for letting the automatic stabilisers work in response to both asymmetric
and symmetric shocks. Such a fiscal policy is required not only for EMU. It has its own merits.
The ageing of the population calls for such a policy line independently of EMU. The need for
fiscal consolidation is not just the result of creating the euro, but would be a key element in any
sound fiscal policy in the euro area. It remains to be seen whether the Stability and Growth Pact
goes far enough in compensating for the absence of one fiscal authority in the European Union.
We should be ready to learn from experience and adapt our institutional framework if and when
the need arises. This applies, of course, in a more general sense. EMU has been well prepared, but
actually playing the game is always different from preparing the game plan, important as this may
be. A good game plan is necessary, but not sufficient to win the game. While it is as yet unknown
whether the Stability and Growth Pact will be the last word on fiscal policies in the euro area, it is
certain that a failure to adhere strictly to the Pact would be a recipe for all manner of
problems.
The Eurosystem has adopted a monetary policy strategy which is tailored to the unique
conditions of introducing a new currency. Our two-pillar strategy, with its emphasis on monetary
developments and a broadly based outlook for price stability, takes into account that economic
behaviour may change as a result of the introduction of the euro itself. In other words, it takes
into account that the start of EMU constitutes a structural break. This already indicates that after
some time our experience with conducting monetary policy within this framework will have to be
carefully evaluated. Over time our strategy may evolve, perhaps in the direction of greater
emphasis on one of the pillars. However, this has to be a cautious process, since one of the main
functions of a monetary policy strategy is to provide a tool for clearly communicating monetary
policy preparation and decisions. Thus, you cannot change your monetary policy strategy as you
would change suits. Continuity must be a feature of any monetary policy strategy.
Although the primary task of the ECB and the Eurosystem is to conduct monetary policy,
there are also other tasks. It is only natural that up to now we have very much focused on our
primary task, and there is thus ample scope for further reflection upon and implementation of
these other tasks. In this context I am referring to the task and role of the ECB in maintaining
financial stability. All modern central banks are active in this area. They are involved in legislative
processes relating to the financial sector and play a role in designing the market structure, in
surveying the financial markets and in monitoring key players in the financial sector. The ECB is
already involved in the first two areas. It has an advisory role in respect of legislation concerning
the financial sector. With regard to the market structure, an active role is being played in the
context of payment and securities settlement systems. The other two roles could be developed
further in the years to come.
The European financial markets, especially those for longer-term instruments, are not yet fully
integrated. There is not, as yet, a completely single market for financial services. Pan-European
banks are not yet a dominant feature of the European financial landscape. However, the situation
is clearly dynamic. The introduction of the euro did not trigger this process, but is certainly giving
it a boost. Mergers and restructuring are taking place, albeit on an as yet predominantly national
level. However, this may, and probably will, change. The European Commission is taking many
initiatives to further enhance the single market for financial services. These initiatives are highly
welcome. Financial sector issues will tend, more and more, to become European issues. It is hard
to predict the pace of this process, but its direction is clear. This conclusion underlines the
importance of the ECB's further strengthening its ability to deal with matters relating to financial
stability. Banking supervision is a national responsibility, although intensive international
co-operation does exist, inter alia--though not exclusively--at a European level. Given the current
European financial landscape, the decentralised structure of banking supervision in Europe can be
defended. However, in the years to come the question of whether the adequacy of this framework
is undermined by developments in the financial sector will have to be closely monitored and
analysed. It is reassuring that the Treaty on European Union contains a provision which enables
the Council of Ministers to further enhance the role of the ECB in the field of banking
supervision.
In the relatively near future the introduction of the euro banknotes and coins will be on the
agenda. This is another important step in the process of introducing the euro, albeit not so much
for economic reasons. The decisive step was of course taken this year through the irrevocable
fixing of exchange rates, but it is the step to be taken in early 2002 which will make the euro
visible and the significance thereof should not be underestimated. The introduction of the
banknotes and coins will offer a further opportunity for informing European citizens about the
euro and EMU in general.
Open communication with many parties--from the economics professor to the members of
the European Parliament and ordinary European citizens--is high on the agenda of the ECB and
the Eurosystem. Our wish is to be open, transparent and, as far as possible, predictable. This is
basically the case for three reasons. First, a central bank which is understood will be more
effective. Second, in a democratic society the other side of the coin of central bank independence
is that the central bank should be accountable for its actions in fulfilling its mandate. Third, a clear
framework for external communication will structure and discipline internal debates. Our aim is to
be predictable but let me make one thing quite clear: ultimately, it is achieving our objective of
price stability which is of overriding importance. In other words--although we will try to avoid
such a situation--we shall not refrain from surprising the markets by taking an unexpected
measure if we firmly believe that this is necessary. It has to be kept in mind that monetary policy is
different from mechanics: it always involves judgement. If that were not the case, a good personal
computer would be a better central banker than an ordinary human being.
An important starting-point for our communication policy is that the Governing Council of
the ECB is a collegiate body where decisions are taken from a euro area-wide perspective. What
we wish to communicate are the decisions of that body, not those of individuals. This does not
rule out also presenting the arguments for and against a certain decision. That is what we do in
substance. Every month the Vice-President and I hold a press conference immediately after the
meeting of the Governing Council. In an introductory statement I explain our decisions and on
what basis we have taken them. This is followed by a question and answer session with a large
number of journalists. Both the introductory statement and the questions and answers are
published on our Web site, almost without delay. I believe this arrangement is both a unique and--from our perspective--demanding one. In addition, we publish a Monthly Bulletin in all 11 official
languages of the European Union. We publish an Annual Report and there are many speeches,
interviews and publications. At quarterly intervals I appear at a hearing before the European
Parliament. Nobody should doubt our intention to be open and transparent. Unfortunately, the
debate on this issue has often focused on our practice of not publishing the minutes of Governing
Council meetings. In substance my introductory statements are not so different from what other
central banks would call minutes. And they are published immediately. As to the substance of
what we publish, two issues remain. First, we do not reveal voting records for several reasons. As
I said, the Governing Council is a collegiate body. What is relevant are the final decisions of that
body and the underlying arguments, not the individual positions. Publishing individual positions
can easily distract from what is really important. What is of paramount importance in the
European context is that members of the Governing Council do not represent a particular country
or their national central bank and that decisions should always be based on euro area-wide
considerations. This is a new principle and everything should be done to ensure that it is adhered
to. Publishing voting records could easily lead to placing monetary policy debates in a national
context and even to putting pressure on individual Council members.
The second issue is that, for the time being, we do not publish our economic forecasts,
including our inflation forecast. Again we have several reasons for not yet doing so. It is crucial
that our monetary policy strategy be well understood. Publishing inflation forecasts could easily
be interpreted as the ECB following a strategy of direct inflation targeting. This is not the case.
Inflation forecasts have no exclusive role in our monetary policy discussions and decisions. They
are among many other indicators which we analyse in the context of the second pillar of our
strategy. Publishing inflation forecasts could make them become self-fulfilling prophecies. This
may hamper monetary policy where forecast inflation is incompatible with maintaining price
stability. Finally, due to the structural break which the introduction of the euro constitutes, some
time will be required to obtain estimates which are sufficiently reliable for publication. At the same
time, I would acknowledge that, if presented clearly within the context of our strategy, forecasts
may also enhance our transparency. Thus we should indeed consider publishing forecasts at some
point in the future.
In our external communications we aim to speak with one voice. The collegiate character of
the Governing Council underpins this principle and facilitates the process of ensuring that
monetary policy decisions are transparent. This is not always easy and here we are clearly in a
learning phase. This is the case on a more general level too. Communication is more an art than a
science. We will certainly try to learn from experience. Verbal discipline and transparency are not
contradictions: they should be two sides of the same coin. We aim to be predictable. This will be
easier if we can predict how the media will interpret and publish our communications. This is not
yet always the case.
Communication should not be a one-way street. The ECB must also take note of and be
sensitive to its environment in order to be effective in its own policies. Let me therefore now turn
to the issue of our wider environment.
3.2.2 The environment
Monetary policy cannot be conducted in isolation. The ECB cannot operate on an island. It
needs a strong European foundation. This is an issue which touches upon much more than just the
framework for monetary policy or even for EMU. In the longer term having a single currency
means that ultimately we are sitting in the same boat. It is inevitable that sometimes the single
monetary policy will not be perfectly tailored to a certain region or even to a certain country. This
is the case in all monetary unions. Optimal currency areas do exist in textbooks, but not in
practice. Thus, for a monetary union to be viable, the absence of perfectly tailored policies will
have to be accepted. This may sometimes require a feeling of belonging together--social cohesion
if you like. I believe this may be even more fundamental than the discussion on the establishment
of political union, which is often a poorly defined concept. Increasing political integration and
creating or changing joint political institutions may help to foster social cohesion but, like the
ECB, these institutions cannot operate in a vacuum. They also require a certain amount of social
cohesion. Moving solely on the political front may not be enough and it may not be the first or
even most important thing to be accomplished.
Fostering this process of enhancing social cohesion is not a simple task. It is not something
which can or should be imposed from above, but it can, to a certain extent, be guided. It is a
process which must be both evolutionary and spontaneous. Its pace cannot be forced. This would
be counterproductive. In the end it is a matter of clarifying and further developing elements of a
common European culture. This implies articulating and emphasising the many things which
Europeans already have in common, but also building up more common experiences. Such
experiences can serve to cement intra-European relations. Having a single currency will
automatically contribute to this process, not only because of the common banknotes and coins,
but also because it will mean dealing with identical issues in all European countries. There are
many other areas in addition to politics and economics where this can be done, such as the
sciences, the arts, the press, television and so on. We should try to develop debate on European
issues at a European level. I attach great importance to explaining our monetary policies at the
hearings in the European Parliament. Monetary policy is conducted from a European perspective
and should therefore primarily be explained at a European level. More attention should be paid to
European issues. The objectives of European integration should be explained more often and
more clearly.
The fear that Europe is something abstract, remote and threatening to local culture should be
taken seriously. However, I do not believe that there necessarily has to be a contradiction between
preserving local culture and at the same time further developing a common European culture. On
the contrary, they can complement and enrich one another. It is necessary and inevitable that an
increasing number of issues be decided at a European level. Quite apart from issues relating to the
euro, other issues such as those relating to the environment, crime, defence and migration can no
longer be considered to be purely national issues. In deciding on what should and should not be
discussed on a European level, the principle of subsidiarity should continue to play a guiding role.
What can be decided at a lower level should be decided at a lower level.
I do not close my eyes to the existence of substantial obstacles to further integration in this
broad sense. Perhaps the fact that the European Union has 11 official languages is the most
important one. In a sense it also poses a dilemma in our communications policy. On the one hand,
it is very important to reach all European citizens in their own language; on the other, should we
not encourage a situation in which as many Europeans as possible also speak one common
language? Could our education systems not make this happen? This cannot, of course, be
accomplished overnight, but should we not at least try to make the issue less sensitive than it still
is?
History is in some respects another barrier. There is no alternative but to recognise this and
work to overcome it. I believe this lies at the heart of the European integration process. European
integration has been, is and will continue to be, a step-by-step process. It will certainly suffer
setbacks at times, but on balance it is contributing to peace, stability and prosperity.
What often strikes me is the negative, gloomy attitude of many Europeans towards European
integration. This project deserves a different attitude. We should see Europe as an opportunity, a
positive challenge, rather than as a threat or a cost. European integration is a unique and
fascinating process and I wish that this were more strongly reflected in the attitude of many
towards it. We also need the energy which is born of such an attitude to deal with the challenge
posed by the accession of new countries to the European Union and the euro area. Let me now
turn to that issue and deal with it from the perspective of the ECB.
3.3 Coping with the accession of new countries to the EU and the euro
area
Four countries of the European Union have not yet adopted the euro. They may well join in
the medium term. A greater challenge is the potential accession of still more countries to the
European Union and ultimately the euro area. Negotiations are currently being conducted with six
countries. Negotiations with another six candidates may start soon. The so-called Copenhagen
criteria must be fulfilled for EU membership. They read as follows:
- stability of institutions guaranteeing democracy, the rule of law, human rights and respect
for and protection of minorities (political criteria);
- the existence of a functioning market economy as well as the capacity to cope with
competitive pressure and market forces within the European Union (economic criteria); and
- the ability to take on the obligations of membership including adherence to the aims of
political, economic and monetary union (acquis communautaire criteria).
Accession is a political decision, but it is clear that the entry of new members into the EU will
have consequences for the ECB and the Eurosystem. The three steps of accession to the EU,
becoming a member of the exchange rate system ERM II and adopting the euro should be seen as
a continuum. This autumn, EMU issues will be on the agenda for negotiations. It is only natural
that the Eurosystem will become more involved in this process in the future both in its advisory
role and because of the implications for its own tasks and objectives. The Eurosystem should be
involved in the accession process and in other forms of co-operation with the applicant countries
on all issues falling within its exclusive or shared areas of competence: monetary policy, exchange
rate policy, payment systems, financial stability and the impact of enlargement on the Eurosystem
itself. Currently we are in the process of defining our position. Let me briefly outline some
preliminary observations.
The Eurosystem needs to have an open and positive attitude towards the prospect of the
accession of new EU Member States, as well as their subsequent participation in ERM II and
adoption of the euro. The Eurosystem should be prepared to advise these countries in pursuing
appropriate structural reforms and stability-oriented policies in line with accession and
convergence criteria. The Eurosystem should stand ready to provide technical assistance to
accession countries. The accession process implies a significant body of preparatory work on the
part of the central banks of the applicant countries. This work may be facilitated by external
technical assistance.
Equal treatment should be a key feature of the accession process. Objective and uniform
criteria should apply both to accession, and to participation in ERM II and adoption of the euro.
These criteria, related to each step of the process, should be implemented in a strict and effective
manner, in order to provide the countries concerned with the external constraints necessary to
bring their economies in line with the respective standards and the final goal of EMU, while also
avoiding any discrimination.
Against the background of different starting-points and degrees of economic transition, and
the difficulty of ascertaining the lead time for further headway towards real and nominal
convergence, a plurality of approaches should be feasible without compromising equality of
treatment. This may apply, in particular, to the timing of EU accession, ERM II membership,
monetary policies (including exchange rate strategies) before EU accession and the development
of sound financial market infrastructures.
In accordance with the Treaty establishing the European Community, the Eurosystem will
always focus on the maintenance of price stability in the euro area. Hence, our involvement in the
accession process, including technical assistance, and any arrangement or other forms of
co-operation with accession countries must be without prejudice to the Eurosystem's
independence and its primary objective. The process for ultimately adopting the euro is clearly
stipulated in the Treaty. The convergence criteria play an important role in this respect.
Institutional adjustments of the Eurosystem required by enlargement should preserve the
efficient functioning of the Eurosystem and its ability to maintain price stability in an enlarged
euro area. In the case of previous enlargements, the entry of new Member States often brought
about so-called "arithmetical adjustments" to the composition of the EU institutions,
which entered into force with the ratification of the Accession Agreements. However, an
enlargement by as many as 12 new countries may require more substantial adjustments. This is
one of the reasons why a new Intergovernmental Conference will be convened on
enlargement-related issues by the end of this year. In this regard, as provided for in the Treaty on
European Union, the Eurosystem would stand ready to take part in any initiative taken by the
competent EU institutions on issues falling within its competence. Such institutional adjustments
should be without prejudice to the fundamental features of the Statute of the ESCB, namely the
Eurosystem's mandate and its independence.
Let me now turn to the role of Europe, the ECB and the Eurosystem in the world
economy.
3.4 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.
The monetary policy strategy of the Eurosystem clearly rules out any implicit or explicit
targets or target zones against third currencies, such as the US dollar and the Japanese yen,
without the consent of the Eurosystem itself. The pursuit of an exchange rate target could easily
compromise the achievement of price stability and thereby also have a negative impact on real
economic developments. The fact that we do not have an exchange rate target does not imply that
we are indifferent to exchange rate developments or that we will neglect them. On the contrary,
the effective exchange rate of the euro is monitored as a potentially important indicator for
monetary policy.
The ECB and the Eurosystem stand ready to contribute to the international exchange of
information and views on economic policy issues. In fact we already play our role in many
international fora and meetings, such as the G 7, the G 10, the OECD, the BIS and the IMF. The
ECB has obtained observer status at the IMF and is to become a shareholder of the BIS. The best
contribution the Eurosystem can make to international stability is to maintain price stability in the
euro area. Attempts at international policy co-ordination beyond the scope that I have just
indicated could easily become counterproductive, compromising both the Eurosystem's mandate
and international financial stability itself. The Eurosystem's role on the international scene will
tend to expand and develop over time, in step with its growing experience and the gradual
evolution of the ECB's organisation. In the context of international co-operation, the Eurosystem
and the ECB will also play an increasing role in providing technical assistance in their fields of
competence.
Since the number of parties in the international arena should fall as a result of the
establishment of EMU and the Eurosystem, co-operation at an international level should
potentially become easier than in the past. However, arriving at this situation may take some time.
From a more general point of view, Europe should aim at becoming a stronger partner in
international co-operation and, as far as possible, at speaking with one voice. Such an ideal cannot
be realised overnight, but every effort possible should be made to move in this direction.
A stronger, more integrated and coherent Europe is in the interests of the world at large. To
be able to play this role on the international scene, Europe should keep an eye on the rest of the
world and, in spite of the many challenges it will face internally in the years and even decades
ahead, should avoid adopting an exclusively introspective stance.
I come to a conclusion.
4. Conclusion
I have discussed three areas in which Europe will have to be active in the immediate and
longer-term future. They concern the euro area, the wider Europe and Europe in the world. Each
of these areas already offers enough challenges in itself. The fact that progress has to be made in
all three areas simultaneously makes Europe's agenda for the next century even more
exciting.
Europe has the potential to meet these challenges, if it is clear about its objectives and, as in
the past, is flexible in its way to achieving of them. If Europe is successful, the lives of its citizens
will be improved, and it will be a stable and stabilising factor in the world. Success will not come
automatically. It will require substantial efforts and the will of many persons and institutions in
many areas. However, these efforts, if successful, will be amply rewarded.
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