samchain/econo-pairs-v1 huggingface dataset:
Michael C Bonello: Interview with The Times (of Malta) Interview with Mr Michael C Bonello, Governor of the Central Bank of Malta, appearing in The Times, 10 May 2007. *  *  *  You have long argued for structural reforms and the same message emerges from your Statement in the Bank’s recently published Annual Report for 2006. With an election due in the coming year or so, is there any point in repeating your plea? The Central Bank of Malta has a statutory responsibility to advise the Government on economic and financial matters. In performing this advisory role the Bank cannot be conditioned by considerations of electoral expediency or feasibility. Central bankers must take a long-term view of the economy’s best interests; and it is clear that in the long run the remaining rigidities and inefficiencies which burden the Maltese economy are unsustainable. Although it is true that the economy has entered a recovery phase, it is also a fact that Malta has not benefited to the same extent as other countries at a similar level of development from the favourable global conditions of the past three years. This suggests that structural factors prevented the economy from responding effectively to the cyclical upswing. That partly explains why per capita GDP in Malta has fallen against the EU average, from 74 per cent in 2001 to 72 per cent last year. This relative decline cannot be corrected unless productivity growth accelerates.

Nonetheless, productivity – how much output an economy can produce using a given amount of input, such as output per hour worked – is a key determinant of the evolution of inflation, and it is one of the most important factors affecting the outlook for the UK economy and a therefore a key issue over the MPC’s policy 2  horizon. That is particularly true now. These are unusual times. If the MPC’s February forecast materialises, annual UK GDP growth will have been greater than 1% and less than 2% for five consecutive years from 2016 to 2020 (Slide 1). To put this in context, growth has been in this range in only six of the 50 years up to 2015, and three of these were since the financial crisis. Put another way, historically we have either been growing above 2%, or in or close to recession. We have little experience of this middle ground. Similarly, UK business investment has been unusually weak relative to past recoveries (Slide 2). Since 2008, business investment has been far below the recoveries the UK experienced after the 1979 and 1990 recessions. Around ten years after the global financial crisis, cumulative growth in business investment is still around 50 and 30 percentage points below where it was at the equivalent stage of the recoveries seen in the decades after the 1979 and 1990 recessions respectively.
2 / 10  BIS central bankers' speeches  If trade barriers were to be reintroduced within Europe, it is estimated that GDP would be about 8% lower in Germany and 7% lower in Italy. [8] The case for working together to enhance sovereignty also applies to the relationship between the EU and the rest of the world. Few European economies are sizeable enough to withstand spillovers from large economies or to leverage power in external trade negotiations. But cooperating at the EU level increases their potential to do so. The EU accounts for 16.5% of global economic output,[9] second only to China, which gives European countries a large domestic market to fall back on in the event of trade disruptions. EU trade makes up 15% of world trade,[10] compared with around 11% for the United States, providing the EU with significant weight in trade negotiations. And the euro is the world’s secondmost traded international currency, which helps insulate the euro area economy from exchange rate volatility. Indeed, around 50% of extra-euro area imports are now invoiced in euro,[11] which reduces the pass-through of exchange-rate volatility to import prices. That in turn allows monetary policy to focus more on euro area economic developments rather than having to react repeatedly to external shocks. [12] For all these reasons, being outside the EU might lead to more policy independence, but not necessarily to greater sovereignty. The same is true of the single currency.

There is only one answer: recovering the unity of vision and action that alone can hold together such different countries. This is not only a hope, but an aspiration based on political and economic advantage. But there are also internal challenges that have to be faced, which are no less important for the future of the European Union. We need to respond to the perception that it lacks equity, between countries and social classes. We need first to listen, and then to act and explain. So, unity and equity are needed, above all, as a guide for policymaking in Europe. I would like to recall in closing the words of Pope Emeritus Benedict XVI in a famous speech held 38 years ago: “To be sober and to do what is possible, and not to claim with a burning heart the impossible has always been difficult; the voice of reason is never as loud as an irrational cry… But the truth is that political morals consist precisely in resisting the seductions of magniloquent words… It is not moral the moralism of adventure… It is not the absence of all compromise, but the compromise itself that is the true moral of political activity”. [38]  Footnotes [1]Reflection paper by Monnet, J. (1965), Les Portes, Archives de la Fondation Jean Monnet pour  l’Europe, August. [2]European Commission (2018), “Public opinion in the European Union”, Standard  Eurobarometer 90 – Autumn 2018, Directorate-General for Communication, European Commission, Brussels.
One benefit is that, in limiting the overall take-up but not individual take-up, an aggregate cap should produce a more efficient allocation of usage among counterparties than would a system of individual caps. Further, an aggregate cap should better balance efficient control of money market rates under normal conditions with the risk of a destabilizing surge in use of the facility in times of stress. The reduced risk of a surge in use in a system with an aggregate cap comes from the fact that take-up across counterparties is not perfectly correlated. As a result, an aggregate cap that binds at some frequency can be set below the sum of individual caps that would bind for at least one of the counterparties at the same frequency. The aggregate cap also raises the individual bargaining power of counterparties relative to a system of lower individual caps, since in normal times counterparties can be relatively certain that larger bids at the ON RRP facility will be filled. However, the possibility that the aggregate cap could bind even in only limited circumstances may undermine this effect on bargaining power. The Federal Reserve has been closely analyzing the results of the ON RRP operations conducted under these new testing parameters in order to further its understanding of how an ON RRP facility should be structured during the normalization process. As many market participants anticipated the aggregate cap did bind on quarter end.

Naturally, we cannot anticipate the results of the forthcoming negotiations, but one principle of consistency must be observed: access to the single market must continue to be contingent on the strict observance of all of its rules. There can be no cherry picking or free-riding. And we must obviously maintain our common European trade policy if we wish to retain our clout in future trade negotiations at the global level. Third asset: our common social model in Europe. It is less widely discussed, but it is what fundamentally defines continental Europe, and it is what German and French society and public opinion share. Our social model combines a high level of public service, relatively low levels of inequality – much lower than in the United States – and a good intensity of social dialogue. And this has been achieved in a market economy. I would like to stress the extent to which this social market economy (Soziale Marktwirtschaft) is a response to the questions raised in the AngloSaxon world, rather than protectionism: Germany, like many other European countries, proves that economic success can go hand in hand with social welfare, and less inequality. We can be proud of these three assets that we have built together. But for the future, while some no longer seem to believe in the benefits of the European project, we can no longer afford to be complacent; we cannot simply rest on our laurels. II. In order to control our common destiny we need to build a better Europe.
This was thought to be possible if the aim was a more permanent reduction in unemployment and there was a willingness to accept higher inflation in return. But about ten years after the launch of the Phillips curve, Milton Friedman and Edmund Phelps, Nobel laureates in economics themselves, each lay the foundations for the so-called “expectations-augmented Phillips curve”. In brief, this implies that there is a short-term negative correlation between inflation and unemployment, but no long-term relationship. In other words, it is not possible to choose a certain combination of inflation and unemployment and then expect it to last. The reasoning behind this can be illustrated using Figure 2. 3 [16]  Inflation  Figure 2. The expectations-augmented Phillips curve Long run Phillips curve  D  B  E  C A  Unemployment  The short-term correlation basically depends on the fact that higher inflation is often unexpected inflation. An expansionary policy can lead to lower unemployment and higher inflation; we move from A to B. But gradually, agents in the economy realise that inflation has risen and demand higher wage increases as compensation. In other words, the higher inflation is incorporated in the expectations and becomes the norm, and the higher wage increases cause unemployment to rise. The short-term correlation shifts upwards and we move from B to C. We are then back to the same unemployment as when we started, but with higher inflation.

More generally, all over the world, the best private sector involvement is foreign direct investments, privatisation and going back as soon as possible to spontaneous market financing. FTD: Is the ECB sticking to the line that any solution for Greece that leads to a credit event, a selective default or a default must be avoided? Trichet: The Governing Council has not changed its position. Again we are in a domain where Governments are responsible. Our duty is to say clearly what we judge appropriate in order to avoid the risk of adverse developments in the euro area and in Europe. As you know there has been several times in the past when our advice was not followed, such as when we advised solemnly against watering down the letter and the spirit of the Stability and Growth  BIS central bankers’ speeches  1  Pact. If this advice had been followed, we may have avoided some of the problems we are facing today. FTD: How is the ECB helping to battle the crisis? Trichet: The most important thing for the Governing Council of the ECB is, for the future as it did in the past, to stick to its mandate and ensure price stability for the euro. The fact that the euro is a stable and credible currency is a prerequisite, a necessary condition for mastering this difficult situation. The ECB is an anchor of stability and confidence which is particularly fundamental at a time when everything else seems to be moving and shifting.
In other words, policymakers should act cautiously and, in the case of monetary policy, its medium-term orientation should be maintained. Let me conclude by saying that multilateral dialogue in open, rules -based multilateral fora should, in my view, be the way to approach the fascinating environment I have just described. Beyond economic costs, vulnerabilities, and policy trade-offs, the key loss resulting from a step-back from “globalisation” due to geopolitical considerations would be the mutual benefits that all societies currently draw from interconnections in all dimensions of life. We are bound together by non-divisible, common challenges, like climate change, and we have witnessed in recent decades the massive benefits and progress that global  24  Airaudo , F., Pappa, E., and Seo ane, H. (2022). “Greenflation: The co st of the green transition in small open eco nomies”. Mimeo . 25  Blo o m, N., Bo nd, S. and Reenen, J. van (2007) . “Uncertainty and Investment Dynamics”. The R eview of Economic Studies , Vo l. 74, Issue 2, pp. 391-415. 10  integration of goods, services and people has generated. The latter should not be given up, at least as an aspiration. 11

Painful fines and enforcement actions have led to intense scrutiny of internal conduct. Over 330 firms have signed the UK Women in Finance Charter, committing themselves to supporting the progression of women into senior roles, setting and publishing progress against gender diversity targets, linking senior executive pay to those targets, and appointing a named senior executive to be accountable for gender diversity. 17 And the FX Global Code that I mentioned earlier has introduced clearly defined standards demonstrating which behaviours are no longer acceptable, rebuilding trust in the market and removing obstacles to open, non-biased recruitment. These higher ethical standards will make the sector more accessible and inclusive, improving the number of opportunities, but also strengthening the appeal of working in the FX market. 15  https://www.oliverwyman.com/our-expertise/insights/2016/jun/women-in-financial-services-2016.html From 2014 report by CitiFX, available at: https://www.ecb.europa.eu/paym/groups/pdf/fxcg/2301/Retail_FX.pdf?8b9766f1bbf56797757c4c2cb391f305 17 https://www.gov.uk/government/publications/women-in-finance-charter 16  8  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  8  Culture change takes time and sustained commitment from leaders. But these initiatives, coupled with the profound technological and economic changes that I have been discussing, will leave the FX market of 5-10 years’ time in a very different place to where it was in the pre-crisis era. There has never been a better time to get involved. What is the Bank of England doing? Just as diversity is essential to the continued success of the FX market, it is also fundamental to the delivery of the Bank’s public mission: promoting the good of the people of the United Kingdom by maintaining monetary and financial stability.
Reflecting the Federal Reserve’s historical interest in the mitigation of settlement risk, and in anticipation of the emergence of real time retail payments in the United States, we are currently exploring an expansion in operating hours of the National Settlement Service to support the final and irrevocable settlement of interbank positions in central bank money. We are pursuing this interest in three phases. In 2015, we expanded the NSS operating window modestly, opening an hour earlier at 7:30am and closing a half hour later at 5:30p.m. Subsequently, we announced our readiness to open NSS as early as 9:00 p.m. on the prior calendar date, consistent with the operating window of the Fedwire Funds Service, if requested. Finally, we are currently evaluating prospects for weekend settlement hours, perhaps encompassing a 24x7 operating window for NSS, for which we are validating demand prior to finalizing our direction. It is critical to consider these matters in advance of the advent of real time retail payments to anticipate the needs of customers and to respond to the interests of policy makers. The Federal Reserve’s Strategies for Improving the Payment System also aspire to achieve greater end-to-end efficiency in cross-border payments, an historical pain point for end users. In support of this interest, and following an exhaustive season of consultation with industry leaders, we are currently in the midst of a multi-year effort to adopt the ISO 20022 payment message formats for the Fedwire Funds Service.

And we want to do this in a way that is meaningful for the economy. That is why it is not a quantitative increase in liquidity (quantitative easing or QE), but is targeted and aimed at facilitating the flow of credit. In a way, I would describe it as a qualitative increase rather than as a quantitative one. However, we should not get into a debate over terminology. At the ECB, we do not believe in magic words, QE or otherwise. What we want to do is to devise a monetary policy that is effective in the current economic situation and that fits Europe’s economic framework. Thus, inevitably, the ECB’s monetary expansion is unlike that conducted in the United States or the United Kingdom. We are at a different juncture and our economy is structured differently. In fact, we cannot draw too many lessons from what other central banks have done, because our situation is so different. Q: Has an actual target been set for the expansion of the ECB’s balance sheet? A: No, we have not set a particular target, because we will do whatever is useful to facilitate the flow of credit to the economy. We have announced a programme to purchase assetbacked securities and covered bonds. Depending on its impact on growth and inflation, this programme can be expanded. The Governing Council will monitor developments, discuss them, and take decisions as appropriate. Q: You have been accused by some of instigating a bubble, particularly of public debt.
Moreover, unless the economic outlook goes from bad to considerably worse, the Fund will record a substantial excess return in the years ahead. The Ministry of Finance has set risk limits for Norges Bank’s management of the Fund. This limit is defined using a statistical concept – expected tracking error (relative volatility) – which puts a ceiling on how far the Fund’s actual investment portfolio can deviate from the benchmark portfolio. Expected tracking error must not exceed 1.5 percentage points or 150 basis points. This limit entails an expectation that the gap between the return on the fund and the benchmark portfolio will be less than 1.5 percentage points in two out of every three years. At the beginning of 2008, the Fund’s expected tracking error was 43 basis points, which is slightly higher than the historical average for the fund. Expected tracking error then increased gradually through 2008. Towards the end of the year, observations were at the highest levels in the history of the fund. At the end of October 2008, expected tracking error exceeded the limit set by the Ministry of Finance. This relative increase in market risk occurred at a time of wide daily market fluctuations. It was not the result of new active risk positions. Although new investments were of course suspended, there were no fire sales either under the prevailing conditions. Market risk has subsequently decreased considerably. In conclusion: The fund is a long-term savings plan and capable of riding out large swings in the markets.

There will be a waiver of three months’ guarantee fee for loans with tenor of one to three years and a waiver of six months’ guarantee fee for loans with tenor of more than three years. Lastly, let me thank once again the senior representatives of the 21 banks for participating in today’s Signing Ceremony. We stand ready to work with the banking industry to jointly promote this project which is so meaningful for the SMEs and the local economy. Thank you! BIS Review 170/2010  1
4  BIS central bankers’ speeches  Last year, I noted that I had had a similar conversation almost ten years ago with a nearly identical audience – in which I raised the question of whether the industry was going to finally tackle this issue and get it right. I find myself here again this year wondering the same thing. But, rather than just raising the question, I thought I’d offer a couple of areas where we – collectively – could be thinking about how to “get it right.” First, I do think this is an area that got short shrift during and following the crisis. Much of management’s attention was directed at the issues of the day, and decisions on where to invest resources were directed at the most pressing – and most obvious – areas. Thus, I think we are where we are: an area of compliance that didn’t get sufficient attention, didn’t keep up with evolving standards and now we find ourselves in a race to get it right. So, increased attention and investment is obviously needed. Many firms continue to make the mistake of treating AML compliance as a static exercise, while AML standards and best practices continue to evolve. Two critical areas where this mistake appears to keep being made are failures to update customer due diligence and transaction monitoring programs as the firms’ business model changes. Second, this is an area where the fragmentation in supervision is quite apparent.

We also need to make supervisory colleges more effective, including: •  Constructing the colleges with the appropriate members reflecting the key jurisdictions based on the scale or criticality of activities;  •  Ensuring robust dialogue between supervisors and firms in college settings;  •  Providing direct and candid feedback to firms and supervisors following from the interactions; and  •  Agreeing on key messages to firms or areas of supervisory focus to ensure consistency across home and host supervisors. I don’t mean to suggest that coordination isn’t underway already – because there is – but there are many reasons to be hopeful that even more progress will be made in the near-term. •  There are efforts such as those of the Financial Stability Board (FSB) and the Senior Supervisors Group (SSG) to promote enhanced information sharing and collaboration among supervisors. •  I’m particularly excited about the recent opening of the BIS’s Data Hub – a move designed to provide a more efficient and practical mechanism for supervisors – and eventually central banks and other relevant bodies – to share information on global banks’ activities and exposures. 3. AML/BSA compliance  A third area I wanted to touch on is one that I raised last year – AML/BSA compliance.