Comments on the Keynote Speeches

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Comments on the Keynote Speeches

• Tanaka Soko, Chuo University
• 14th OCU International Symposium
• Osaka, 27 October 2006

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The Euro has become established.

• ECB proved to be able to ensure price stability
  in the Euroland
• Euro Anchor for accession countries in East
  Europe
• Euro Introduction as the Target for CEECs
  (Slovenia 13th members from 01.01.07)
• Euro Catalyst for financial integration

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Problem of the Euro (1) No Optimal Interest Rate
or Divergence 1

• Real interest rate low in inflationary countries
  like Spain, Portugal or Italy, but high in
  stability-oriented countries like Germany
• Divergence 1 inflationary countries become
  further inflationary and high growth, but stable
  countries further stable low growth (a kind of
  vicious circle)

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Monetary Policy of ECB too tight or too loose?

• Minimum bid rate (MBR) in main refinancing
  operation 2 during June 2003 to December 2005
• It should have been 1.5 or 1 for stagnating
  Germany to recover its potential growth rate as
  soon as possible. too tight
• It must have been too loose for bubbling
  countries like Spain. too loose

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Too loose- neglecting reference value M3
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Problem of the Euro (2)Divergence 2

• Stable countries more competitive vis-à-vis
  inflationary countries. Germany has been getting
  more and more competitive.
• Germanys exports increase dramatically inside
  Euroland and to the world market.
• Italys exports stagnate and its trade balance
  worsens.
• Should Italy get out of the Euroland? Or
• The Lira-isation of the Euro

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Stability Growth Pact

• Germany, France and Italy etc. breached 3 upper
  limit.
• How do the keynote speakers evaluate the
  breaching of the Pact?
• Germany VAT rate 16 to 19 on 01.01.2007

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Advantages of the Euro

• No forex volatility advantageous for small
  countries
• Small countries excluding Portugal have shown
  good performance in budget balance etc.
• Big countries breached the Stability and Growth
  Pact. Why?

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Structural Reform Panacea?

• Euro Currency of Reason. Participating countries
  need EMU mentality.
• Italians Strikes, Inflation, Low Productivity
  Growth Reasonless Behavior No EMU-mentality
  What kind of structural reform for Italians now?
• Germans EMU mentality or habits?

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Future of the Euro

• CEECs will participate in the Euro problems.
• High growth rates and Inflation of young CEE
  Developing Countries Dangerous after they enter
  the Euro?
• Fifth Condition Economic Development level

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International Role of the Euro (1)

• As Invoicing/Settlement Currency or Trade
  Vehicle/ Forex Vehicle European International
  Currency
• Prospect to compete against the US Dollar will be
  slight.
• Most Important Object of the Euro Stabilization
  of Europe OK.

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Figure 3-1
Turnover of spot market inter-dealer
transactions global market()(2004)
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Figure 3-2
Turnover of spot market inter-dealer
transactions global market()(1998)
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Table 4
Currency distribution of forex market turnover
(Percentage shares of average daily turnover
in April)
Note 1. EMS totalD-Mark the other EMS
currencies ECU. 2. The percentage of All
currencies becomes 200.0, because, for example,
direct USD/euro volume is counted twice, once in
USD volume and once in euro volume. SourceBIS
(2002), p.9 BIS (2005), p.9.
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Figure 4
Euro and the dollar in spot inter-dealer
transactions Daily averages in April 2004
()
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International Role of the Euro (2)

• As International Asset Currency the Share of the
  Euro has been rising.
• 1/3 of the Russian Foreign Reserves is
  denominated in Euro.
• Coming big Depreciation of the US Dollar Euro
  may show its implication of Birth.

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