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.
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