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Europe’s Monetary Union in practice
José Manuel González-Páramo
Member of the Executive Board and Governing Council of the European Central
Bank
14th Osaka City University (OCU) International Academic Symposium
Osaka, 27 October 2006
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Introduction
• “EMU will contribute to the creation of a large zone of monetary stability in Europe. The euro, in particular, will be a strong and stable currency that will foster further economic and financial integration among member countries” (Duisenberg, 1997)
• Has EMU fulfilled these expectations?
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Assessing price stability. Establishing credibility. The ECB’s approach
• Full independence
• Specific quantitative definition
• Medium-term horizon
• Two pillars: economic and monetary analyses
• Communication: - Publication of monetary policy strategy- Press conference- Monthly Bulletin
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Assessing price stability. Inflation expectationsInflation expectations(annual percentages)
Sources: Eurostat, Consensus Economics and ECB.
1.0
1.5
2.0
2.5
3.0
1999 2000 2001 2002 2003 2004 2005 2006
1.0
1.5
2.0
2.5
3.0
ten-year break-even inflation rate (monthly average)
upper bound of definition of price stability (below 2%)
inflation expectations 5 to 10 years ahead (Consensus Economics Forecasts)
HICP inflation expectations (SPF) for the five-year period ahead
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Assessing financial integration: Its benefits
• Enhances the smooth and effective transmission of monetary policy
• Contributes to safeguarding financial stability
• Contributes to smooth operation of payment systems
• Fosters financial development
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Assessing financial integration. The role of the Eurosystem
• Enhance knowledge and raise awareness
– Regular publication of quantitative indicators of financial integration in the euro area
• Act as a catalyst for private sector activities
– STEP initiative, SEPA, European Master Agreement for financial transactions
• Provide central banking services
– TARGET, Single list of collateral, CCBM
• Give advice on the legislative and regulatory framework
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Conclusions
• Has EMU been effective in promoting economic stability?
– Yes, the response has allowed the anchoring of inflation expectations and a high degree of predictability
– But other economic policies are needed: sound public finances and structural reforms
• Has EMU been effective in fostering financial integration?
– Yes, money market is a good example
– But financial integration is still lagging behind in some areas (retail, clearing and settlement infrastructure…)
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