Transcript Folie 1 - University of Warwick

The Eurosystem –
Challenges and Perspectives
Warwick Economic Summit
University of Warwick
14 February 2009
Ewald Nowotny
Governor of the Oesterreichische Nationalbank (Austrian central bank)
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GDP Forecasts for the Euro Area, the U.K., the U.S.A. and Japan
(annual changes in %)
2.0
1.7
1.2
1.0
0.9
0.7
0.4
0.2
0.0
2009
2009
2010
2008
2009
2010
2008
2008
2008
2010
2009
-0.1
2010
-0.2
-1.0
-1.6
-2.0
-1.9
-2.4
-3.0
-2.8
-4.0
Euro area
U.K.
U.S.A.
Japan
Source: European Commission.
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Forecasts of Inflation for the Euro Area, the U.K., the U.S.A. and Japan
(annual changes in %)
4.0
3.4
3.3
3.4
3.0
2.0
1.8
1.1
1.0
1.0
0.7
0.6
0.4
0.1
0.0
2008
2009
2010
2008
2009
2009
2010
2008
2009
2010
2010
2008
-0.5
-1.0
-1.4
-2.0
Euro area
U.K.
U.S.A.
Japan
Source: European Commission.
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Forecasts for EU and Euro Area Countries
GDP
(annual change in %)
Government Deficit
(in % of GDP)
Unemployment rate
(in %)
2009
2010
2009
2010
2009
2010
Euro area
EU 27
-1.9
-1.8
0.4
0.5
-4.0
-4.4
-4.4
-4.8
9.3
8.7
10.2
9.5
AT
DE
IE
LV
PL
SK
UK
-1.2
-2.3
-5.0
-6.9
2.0
2.7
-2.8
0.6
0.7
0.0
-2.4
2.4
3.1
0.2
-3.0
-2.9
-11.0
-6.3
-3.6
-2.8
-8.8
-3.6
-4.2
-13.0
-7.4
-3.5
-3.6
-9.6
5.1
7.7
9.7
10.4
8.4
10.6
8.2
6.1
8.1
10.7
11.4
9.6
10.5
8.1
Source: Interim Forecast of the European Commission, January 2009
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Challenges for Monetary Policy I
-
In contrast to the last few years:
No trade-off between short-run developments in inflation and
output.
-
In the current crisis, inflation and output are behaving like after a
demand shock. Both are dropping significantly.
-
Thus, the policy response is straightforward: decrease policy
rates.
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Central Policy Rates
in %
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Jul-07
Sep-07
Nov-07
Euro area
Jan-08
Mar-08
U.S.A.
May-08
Jul-08
Japan
Sep-08
Nov-08
Jan-09
U.K.
Source: Thomson Financial.
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Challenges for Monetary Policy II
Policy interest rates have decreased worldwide. However…
-
slow effect on the real economy
-
the pass-through to bank lending rates might
be hampered because of the financial crisis
-
a too-swift decrease of policy rates might signal panic
-
what happens when the zero lower bound is reached
-
difficulties in the implementation of monetary policy…
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Challenges for Monetary Policy Implementation
Persisting tensions in global money
markets…
- Counterparty risks
- Liquidity risks
… led to
- volatile overnight rates
- high term interest rate spreads
- declining volumes, signs of rationing
Stress on Interbank Markets: Unsecured
vs. Secured T hree-Month Rates
in basis points
last value: 09/02/2009
400
350
300
250
200
150
100
50
Money markets crucial for the
- implementation of monetary policy
- derivative markets, interest rates for
households and firms
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-8-
0
12/06
06/07
USD
12/07
EUR
06/08
12/08
GBP
Source: Thomson Financial.
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ECB Liquidity Management: Stability within the Turmoil
Key challenge: Distribution of liquidity in the system when interbank
lending is impaired
Pre-crisis ECB framework:
- Large group of banks admitted to regular tender operations and
standing facilities
- Broad range of collateral
- Weekly and three-month open market operations
 No need for special facilities.
 Alleviate strains in term funding markets by increasing term funding.
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After the Collapse of Lehman Brothers
Unprecedented level of stress in financial and in particular interbank
markets.
Flexible reaction
- Full allotment in tender operations
- Wider range of eligible collateral
- Temporarily significant involvement in intermediation
Alleviate stress in global markets
- Stepped-up cooperation between central banks
- Unlimited access to US dollars for euro area banks
Overall: Operational framework has passed the test well, has provided a
maximum of continuity
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51 years after the signature of the Treaty of Rome, the euro remains one
of the most tangible signs of Europe’s determination to forge a
common future and work together to secure peace and prosperity for
our continent.
José Manuel Barroso – June 2008
Moreover, the crisis shows that
there is more to the euro than its role as a means of transaction…
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The Euro Has Indeed Become a Global Player
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The Benefits of the Euro in the Financial Crisis
The euro protects Europe
 EMU shows that in turbulent financial waters, it is better to be on a large, solid
and steady ship rather than on a small vessel.
 Businesses were sheltered from exchange rate volatility. No competitive
devaluations.
With the single currency, Europe has been able to act swiftly, decisively
and coherently
 Would it have been possible to protect separate currencies from
the fallout without the euro?
European authorities, parliaments, and central banks reacted
immediately
Europe has shown that it is capable of taking decisions
 The crisis has improved popularity of the EU. People are more convinced of
the achievements and institutions of EU and EMU.
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Future Challenges for EMU and the Euro
In the short run
 Maintain price stability
 Return to the path of growth and stability in Europe, stimulate employment and
create jobs
 Overcome the financial crisis – maintain financial stability
 Redesign regulatory and institutional frameworks
In the medium to long run
 Cope with globalisation
 EU: implement the Stability and Growth Pact firmly and credibly, render
economies more productive, innovative, avoid competitive divergences,
stimulate scientific and technological progress
 Address ageing population
 Handle euro area enlargement optimally – increase from 11 members in 1999
to 16 members in 2009
 Strengthen the euro area’s international role and the euro’s image
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