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Mr. Paul R Masson

Abstract

Economic and monetary union in Europe (EMU) will produce profound changes in exchange and financial markets, and these are likely to affect in a fundamental way the activities of a broad range of market participants and private and official institutions. As part of an ongoing effort at the International Monetary Fund to understand the broader, systemic implications of EMU, a conference was held in Washington, D.C., on March 17–18, 1997, which brought together a distinguished group of several hundred academics, officials, and policymakers. The conference, cosponsored by the Fondation Camille Gutt and the International Monetary Fund, was on the subject of EMU and the international monetary system, and it generated many insights into the effects of the introduction of the euro.

Mr. Paul A. Volcker

Abstract

When the Managing Director called a few weeks ago to suggest that I might join you for dinner, I accepted much too easily. The simple fact is that, instead of speaking tonight, I should have been with you all day learning. The only claim I can make at this point is that I come with a fresh mind, unencumbered by absorbing the wisdom of the day. I will acknowledge, however, that I am encumbered by a few prejudices and preconceptions.

Mr. Alessandro Prati

Abstract

If the process of European monetary integration remains on schedule, January 1, 1999 will see the beginning of the union of currencies of economically and financially diverse European countries. Regardless of the precise number of countries that initially join, a European EMU of any size will pose challenges, opportunities, and risks for both private and official participants in European and international financial markets. Although the introduction of the euro is a significant step toward European financial integration, it is by itself only one step in a long process. Previous steps have included, in the area of monetary and exchange rate policy, the creation of the EMS with the ERM, and the Basle/Nyborg agreement; and in the area of financial integration, the adoption and ongoing implementation of the EU Second Banking, Capital Adequacy, Investment Services, and other financial directives.

Robert McCauley

Abstract

Many uncertainties as regards timing, scope, and other issues still surround the introduction of a single currency in Europe. Nevertheless, the event seems probable enough, imminent enough, and important enough to warrant some consideration of what the effects might be on the structure of European financial markets and the implications of such changes both within Europe and for the international financial system.

Daniel Cohen

Abstract

There is little doubt that the making of monetary integration in Europe will have major effects on the exchange markets. Quoting one European currency rather than six or twelve should matter. But how? In which direction should we expect the euro to go? The conventional wisdom is that the euro will be a “strong currency.” For one thing, it should mimic the deutsche mark, typically a strong currency in its own right; second, it should attract new portfolio investors, bidding up its demand and raising its price; and third, it might have to go through a period during which the new monetary authorities will have to demonstrate their willingness to be “tough,” hence appreciating the currency at least for a while.

Mr. Fabio Ghironi

Abstract

As the date approaches when a decision will have to be made on which European states will join the monetary union from the start, two separate camps are emerging in the countries that are likely candidates to be admitted to the currency union. On the one side lie the central bankers, the Bundesbank in particular, mainly concerned about the credibility and the reputation of the new ECB, and about the extent to which the countries that will adopt the euro will come close to forming an optimum currency area. On the other side lie industry and the trade unions, mainly worried about competitiveness, that is, about the effects that splitting Europe in two separate groups of countries, the “ins” and the “outs,” may have on relative prices inside the EU. The sophisticated argument is that the single market could not survive if exchange rate volatility between the ins and the outs were high. The unsophisticated argument is that both—industry and the unions—are frightened by the prospect of the outs using the exchange rate strategically.

Michel Camdessus

Abstract

I hope you have found your discussions at this conference interesting and thought-provoking. Certainly, we at the Fund value this exchange of views and the opportunity it provides to enrich our thinking about the external implications of Europe's forthcoming EMU.

J. J. Polak

Abstract

The start of EMU in Europe will have a profound effect on the functioning of the international monetary system in general and on the International Monetary Fund in particular. The currencies of a number of major and medium-sized countries will cease to exist and their functions will be taken over by a new, supranational money—the euro. At the same time, these countries will set collectively, rather than on a national basis, some of the most important policy variables of their economies. This paper analyzes the extent to which, in response to these changes in the system, the Fund will need to introduce new approaches and new procedures to ensure that it can continue to discharge effectively the tasks with which it is charged under its Articles of Agreement.

Niels Thygesen

Abstract

What will be the role of the IMF vis-à-vis the countries that join the third stage of EMU in 1999 or later? This is the important and challenging question that the organizers have put to Jacques Polak and me.

Xavier Larnaudie-Eiffel

Abstract

In a big project, one is usually not supposed to put the cart before the horse. Indeed, the member states, the EMI and the European Commission have been trying to follow this guideline in their ongoing preparations for the transition to EMU. But for once, and given the time constraints, I will put the cart first, if you don’t mind. If I would like you to come away with one impression of our day-to-day life in Brussels these days, it is the following: the transition to the euro will not begin with the countdown to January 1, 1999. It has been—and indeed still is—a long process. This transition requests care, transparency, and serious planning to give operators the necessary certainty.