samchain/econo-pairs-v1 huggingface dataset:
Jean-Claude Trichet: Structural reforms in Europe Speech by Mr Jean-Claude Trichet, President of the European Central Bank, at the OECD Forum, Paris, 22 May 2006. *  *  *  It’s a pleasure for me to be here at the OECD Forum to share with you my views on structural reforms in Europe. I am particularly honoured to take part in this Forum given the leading role played by the OECD in shaping global discussions on economic, financial and, especially, structural issues, which are the topic of my intervention today. I wish also to pay my tribute to the outgoing Secretary General Donald Johnston for his outstanding leadership and, if he permits me to say that, for his deep friendship. Let me also welcome the new Secretary General Angel Gurria for whom I have esteem and confidence since 25 years! Economic performance of the euro area I would like first to start with a brief assessment of the euro area’s economic performance by recalling a few facts. Over the last years the euro area witnessed a slight improvement in the utilisation of labour, which increased on average by 0.2% per year between 2000 and 2004. 1 This mainly reflects the rise in the euro area employment rate from 61.5% in 2000 to 63.6% in 2005 2 which corresponds to the creation of more than 11 millions new jobs over the same period and to a decline in the aggregate unemployment rate from 10.5% to 8.6%.

It is thus due to the instruments available on the market that the largest part of our foreign currency investments is in euros (55%) and in US dollars (25%). The remainder of our investments is composed of yen (10%), Canadian dollars (4%), pounds sterling (3%) and other currencies (3%). Finally, taking a general and somewhat longer-term view, the following point should be noted. The SNB’s currency reserves are made up of foreign currency investments and gold. In a risk-averse environment, losses tend to occur on foreign currency investments and profits on gold, while in a risk-friendly environment the opposite is true. Consequently, diversification of a portfolio to include gold and foreign currency helps to stabilise earnings over an entire risk cycle. BIS central bankers’ speeches  3
Hence, the second major challenge for banks is to put in place a good data base and systems to identify, measure and manage all banking risks to optimize their use of capital and price their products according to risks. In addition, when taking into account the risk associated with business cycle, banks must be prepared to beef up financial strength during favorable economic conditions so that they could weather vulnerability during the downturns. These are daunting tasks and again require the full attention and commitment of the Board. Banking is all about customer relation; this is particularly true for personal banking segment. The needs for financial institutions to properly take care of customer complaints are occasionally highlighted by a few high profile cases in the media. This type of issue will gain more importance, given the growing retail banking sector. To remain competitive and maintain customers’ trust, banks must be fair and transparent about their provision of financial services, a challenge which is very much in line with the Basel II’s Pillar 3. Ladies and Gentlemen, I have not forgotten the capital market, another integral part of the financial market, which makes it vibrant and offers diversification in terms of channels of financial intermediation. Deeper and broader capital market can avert or at the very least lessen the liquidity crunch effect on corporations in the event of a banking crisis. Efforts, therefore, have been made to develop the capital market to curtail dependence on the banking sector.

With regard to the euro area as a whole, optimism among households and companies has been somewhat subdued in recent months, probably as a result of the crisis in Greece. However, the most recent survey in July indicates that optimism among companies is rising again, which may be due to the third loan programme for Greece appearing to be within reach. GDP growth in the euro area in the second quarter, compared with the same quarter last year, was 1.2 per cent according to our forecast. US developments still looking good We see continued signs of good economic growth in the United States. GDP rose by just over two per cent in the second quarter, compared with the same quarter last year, see Figure 7, entirely in line with our forecast. Household consumption remains strong. Exports also rose significantly in the second quarter despite the dollar appreciating for a period of time. The housing market is continuing to recover and this creates an increasing number of jobs. Unemployment fell to its lowest level since 2008. The US Federal Reserve signalled at the end of July that it still has plans to raise its policy rate this year. The labour market is expected to be able to develop better than was previously believed an only a “few” further improvements are needed before monetary policy may need to be tightened. However, although most signs are pointing in the right direction in the US economy, the recent statistics on wage developments have been at relatively low rates of increase.
Global growth is being driven by rapidly growing emerging economies. In the euro area, activity has slowed in several of the largest economies, and there are prospects that the downturn may persist for somewhat longer than previously envisaged. Unemployment is high and rising in a number of countries. In Spain and Greece, unemployment now exceeds 25 percent, and among young people, more than half are jobless. The economic situation is better in the US, but growth is moderate. Oil prices have fallen somewhat in the course of spring, but are still at a high level. With key rates close to zero, several central banks have adopted unconventional measures to stimulate growth and support inflation. Measures that change the composition and size of a central bank’s balance sheet differ from the usual monetary policy operations in that instruments other than the key rate are deployed to influence market rates and economic activity. The ECB and the central banks in the US, the UK and Japan have implemented such balance sheet policies to directly influence long-term interest rates and thus funding costs for enterprises and households. The Japanese central bank also introduced new measures this spring. The central bank will double the monetary base by the end of 2014, mainly by buying more Japanese government bonds, in order to boost inflation, reduce real interest rates and promote economic growth. The improvement in global financial markets reflected the measures implemented by the ECB through 2012.

The first criterion states that the interest rate should be set with a view to stabilising inflation at target or bringing it back to target after a deviation has occurred. The specific time horizon for stabilising inflation at target will depend on the disturbances to which the economy is exposed and their duration. The second criterion states that the interest rate path should provide a reasonable balance between the path for inflation and the path for overall capacity utilisation in the economy, i.e. that the inflation targeting regime is flexible. Flexible inflation targeting builds a bridge between the long-term objective of monetary policy, which is to provide an anchor for expectations of low and stable inflation, and the objective of stability in the economy. The third criterion states that monetary policy should be robust and should seek to mitigate the risk of a build-up of financial imbalances. The criterion is an expression of the lack of a complete understanding of how the economy functions or the shocks to which the economy may be exposed. The consideration of robustness can therefore be interpreted as a form of insurance against adverse outcomes. Norges Bank does not have independent objectives for asset price inflation or debt growth. However, by mitigating the risk of financial imbalances, we may also achieve more stable developments in inflation, output and employment over time. In the case of conflicting objectives, the choice of interest rate path will involve a trade-off between different considerations.
These initiatives discuss the burning statistical issues confronting the central banking community and the issues discussed reflect contemporary concerns of central bankers themselves. More details on IFC and its activities can be found on the BIS website. The theme of MyStats 2012, “Enhancing National Statistics to Meet Public and Private Sectors Needs during a Period of Transformation”. This theme is most appropriate given that Malaysia is embarking on an economic transformation programme (ETP) to achieve a high income high value-added economy. BIS central bankers’ speeches  1  The transformation process would demand richer, more reliable and timely data to assess the progress of various change program being taken and ensure initiatives implemented are effective in achieving the transformation agenda. This is critical given the transformation is taking place amidst a more challenging global economic environment. Downside risks to global growth are now more elevated, with heightened uncertainties surrounding the European sovereign debt crisis and fiscal issues in the US that would have impact on global growth prospects. In this environment, it is of utmost importance that relevant and credible statistics are available to policymakers and analysts on a timely basis, to allow for an accurate and comprehensive diagnosis of the economy, so that appropriate and pre-emptive policy actions can be taken. To my mind, there are three perennial issues facing statisticians and authorities; the extent of data coverage, granularity and timeliness.

The data gaps would complicate the assessment on key issues such as the sustainability of household indebtedness, whether we are creating the right type of jobs or whether our policies are providing long term or temporary employment. Second, there are significant gaps in terms of balance sheet data, especially for households and corporates. This deficiency in data complicates detection of vulnerabilities, build up of risks and propagation of shocks from one sector to another. I hope the discussion today would provide insights into dealing with some of these issues I earlier mentioned. At this conference, we will have the opportunity to examine areas which we can improve so that our statistics are credible, relevant and timely, would facilitate informed policy formulation and decision making by the authorities, and enable informed decision makings by economic agents such as investors, financial institutions and the general public at large. In the first three sessions today, our distinguished speakers and discussants will share insights and experiences in many areas; the adoption of statistical best practices in data management, ways to promote data sharing and communication of statistics, identification of statistical gaps and limitations faced by analysts or authorities in the usage of data. The session would also explore and provide possible resolution to challenges confronted by compilers and users of statistics.
The far-reaching and rapid expansion of central banks’ powers, coupled with a consistent failure to achieve inflation targets due to persistently low inflation, has exposed central banks to growing criticism from many quarters in recent years. Central banks are increasingly entering the political arena and making decisions that have large distributional effects. Their critics say they are deciding on matters that should be left to democratically elected representatives. Some have even questioned central bank independence itself, the pillar of central banking over the last few decades. There are two types of concerns about central bank independence. The first is that central banks have gained too much independence, something that is at best irrelevant but at worst damaging to the economy. The fact that central banks are struggling to raise inflation demonstrates that they are unable to fulfil their mandate, so it would clearly be better to subordinate them to the 3/7  BIS central bankers' speeches  government, even to the extent of financing its budget. Central banks have been criticised for failing to predict the sustained post-GFC weakness of the economy and for being incompetent. Other brickbats relate to financial stability, an objective that is much more blurred and difficult to grasp than price stability. If, for example, a central bank were to succumb to the temptation to impose too stringent requirements on the financial sector, it would at the same time put excessive demands on society as a whole, without sufficient accountability to the government.

I repeat from the previous forum that it is necessary for you to consider the macroeconomic consequences of your behaviour at an industrial or institutional level, since they are important factors which ensure the long-term stability of your institutions and the system in general. The difference between large and small-size banks, when public confidence in the system in general is in question, is relative. Each bank has its role and share in the system and the difference between the concept “a small bank” or “a large bank” in the context of systemic risks, is ever-increasingly reducing. In addition, the U.S. financial crisis was caused by the imprudence of financial institutions to assess the stability of private debt and accurately weigh the effect of macroeconomic developments on the U.S. household budget. Its consequences remind us of the expression “there's no such thing as a free lunch”. With regard to the issues explored in the forum held in April, I would like to bring to your attention two other issues that I believe remain indisputable priorities for our work in the future. As promised in the first forum, the Law “On repurchase agreements” has become effective upon its entry into force on August 19th 2008. Although this project was pre-announced by the Bank of Albania, according to the information made available by the operational staff of the central bank and the respective commercial banks, we notice that the entry into force of this law has found you unprepared.
By contrast, there was a population of 133 deposit-takers – the so-called “section 123” companies – that were identified as such by the Board of Trade, a body that did not possess the requisite powers of supervision over the 16  institutions concerned . A gap therefore emerged in the regulatory perimeter with significantly limited oversight. The consequences for the Bank were profound. 12  Ibid, p.777 Ibid, p.760 14 Gardener, Edward (ed). UK Banking Supervision: Evolution, Practice and Issues, London, Allen & Unwin, 1986, p.87 15 Ibid, p.100 16 Ibid, p.102 13  6  All speeches are available online at www.bankofengland.co.uk/speeches  6  The total lent during the Lifeboat operation exceeded £ at the peak – equivalent to just over £ in 17  today’s money – and there was “a growing realisation that the Bank of England supervisory system was 18  not rigorous enough for the more demanding era heralded by the events of the early 1970s” . Indeed, Gardener notes, presumably in relation to the secondary or “fringe” banks, that “there are other cases where, in dealing with a few of our newer charges, there must remain a question whether gentlemanly discussion 19  and exhortation to observe prudent practices will on their own always produce the desired result” . Moreover, the crisis, at least in part, encouraged the European Economic Community (EEC) to introduce a requirement that deposit-taking institutions ought to be licensed.

The IFSB will also have a prominent role in facilitating the streamlining of the standards covering the cross-border supervision issues including the home-host supervisor issue. Since its establishment just over a year ago, the IFSB has attracted a wide participation. To-date, there are 13 full members, 3 associate members and 20 observers in the IFSB. This encouraging development demonstrates the keen interest towards the orderly and sound development of Islamic banking and finance. The wider participation which also includes several international and regional multi-lateral agencies will facilitate the consultation process and the adoption of these standards. Another important role to be played by IFSB is in the harmonization of the different Shariah interpretations towards a more universally accepted practice. These positive developments are expected to bring about a more robust regulatory and supervisory framework for the Islamic financial institutions to promote financial stability in the system. Second, existence of strong corporate governance It is also recognised that good corporate governance reinforces sound regulation and supervision. It contributes towards maintaining market confidence, and strengthening transparency and accountability. Its emphasis is to be value-oriented and promote fairness and justice with respect to all stakeholders of the banking institution. For corporate governance to work, good corporate practices need to be instilled and embedded in all aspects of the operations and at all levels within the organisation. Indeed, Islam strongly advocates all forms of positive governance. These values and ethical conduct have already been in built and are inherent in the community.
Households and businesses didn’t have a great deal of choice and opportunity when it came to finance. But look at what’s happened in the past ten years. As banks have been made safer and mechanisms put in place to deal with them if they fail, the too-big-to-fail public subsidy for banks has fallen by 90%.17 It’s therefore no accident that our banking system is now more diverse. In the past year, for example, banks other than the big six have accounted for more than half of new lending to households and all of the net lending by banks to UK businesses. And it’s no accident that our financial system is more diverse. On net, all of the growth of credit to businesses since the crisis has been centred in non-bank forms of debt finance. The lesson: reforms that promote stability can unlock opportunity for the system to serve the economy by levelling the financial playing field. That lesson applies now to our work on climate risks. Our primary aim is to ensure the system is resilient. But by forcing the system to measure, disclose and confront future risks, we could unlock the opportunity for finance to help the economy in its transition to carbon neutrality. See speech by Mark Carney (April 2017): ‘What a Difference a Decade Makes‘.

For the international community, these policies provide a clear signal on the country's seriousness about 2050, despite contributing only 0.7% of global GHG emissions. Along the transition journey, there are risks to manage, and opportunities to be seized. Technology is key. So is finance. Your actions and responses are critical. The partnership between you and your clients is critical. Your clients would need the "How" in terms of new forms of financial instruments – transition finance, adaptation finance and blended finance to name a few. For the SMEs, this goes beyond financing. For instance, they need the "How" in terms of where and how to begin greening their operations, tools to help them understand, measure and track their own emissions profiles. I am delighted and encouraged to see the Malaysian ecosystem and accompanying tools continue to mature. The progress thus far is commendable. But, we must not forget the long road ahead and work still to be done to achieve 2050 in an orderly and just manner. The Bank's experience in engaging with multiple stakeholders offers some insights as to the additional elements needed to further propel our transition. Allow me to share these insights to CAP off our discourse today – that is C for Communication, A for Alignment, and P for Proactivity. 1/2  BIS - Central bankers' speeches  Communication. The economy's transition doesn't just happen in high powered boardrooms and government offices. It happens in the everyday decisions made by households and small business owners.
This has raised expectations on monetary policy to do something to stabilise the economy and the financial markets. And indeed, central banks across the world have introduced unconventional measures, in order to fulfil their mandates even under these unusual circumstances. Some of these measures have come in for criticism, because they encroach on the territory of fiscal policy. Thus, there is currently tension between monetary and fiscal policy in a number of countries. How does this tension come about? Which factors might exacerbate or mitigate it? And what is the current situation in Switzerland? To address these questions, I will first review the goals and the division of responsibilities in these two areas of economic policy. In a second step, using the recent crisis as an example, I will highlight the importance of rules and a culture of stability for an economic policy that is both sustainable and tension-free. I will finish by describing the current situation in Switzerland. Fiscal and monetary policy goals and complementarity Must there necessarily be tension between monetary and fiscal policy? This might be true if these two areas of economic policy were pursuing conflicting goals. However, if we look at the objectives of monetary and fiscal policy, we can see that they are very similar (cf. chart 1). Today, in most advanced economies, monetary policy is conducted by independent central banks, with the primary objective being to ensure price stability while taking due account of economic developments.

If fiscal policy is no longer able to act, there is a danger that politicians, economic agents and the public will expect monetary policy to come up with a solution for every problem. In Switzerland, where good rules and a strong culture of stability exist, there is currently no tension. But even if our country is in a relatively good position, this is no reason to rest upon our laurels. Stability-oriented fiscal and monetary policies must be constantly maintained, to ensure that they are sufficiently robust when the next challenge presents itself. One of the greatest challenges for fiscal policy is demographic changes, which will place a heavy burden on public finances in the future. Calculations show clearly that, if policy is not changed, age-related costs will rise sharply. It will not be possible to solve these problems using only fiscal rules such as the debt brake. Profound structural reforms to social security arrangements are needed. Central banks, too, face major challenges. In the last few years, central banks across the world have broken new ground. They have cut interest rates practically to zero, supplied the financial system with generous amounts of liquidity and introduced unconventional monetary policy measures. These measures carry a number of risks, of which inflation is the most frequently cited. Allow me to conclude my presentation with a few words on that subject. 16  Cf. Jordan (2012b). BIS central bankers’ speeches  7  There is no sign of inflation for the short or medium term.