Otmar Issing: Globalisation, EMU and the euro Speech by Mr Otmar Issing, Member of the Executive Board of the European Central Bank, at the 34th Economic Conference 2006 on “Globalization: Opportunities and Challenges for the World, Europe and Austria”, Vienna, 22 May 2006. References to the speech can be found on the website of the European Central Bank. *  *  *  Introduction Let me first extend a warm thank to the Oesterreichische Nationalbank (OeNB) for inviting me here today to share a few thoughts on globalisation and the role played by the euro and the European and Economic Monetary Union (EMU). In the last decades, Austria hosted a number of distinguished economists, such as Carl Menger, Friedrich von Wieser, Ludwig von Mises, Joseph Schumpeter, Friedrich von Hayek, who shaped the economic thought worldwide. In the context of this conference, it is useful to mention the “creative destruction” term, coined by Joseph Schumpeter in 1942 at Harvard after his migration to the United States. Schumpeter argued that the process of industrial mutation, which is intrinsic to capitalism, “revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.” 1 No doubt globalisation has a big “destruction” potential. To benefit from the global changes, countries need to be flexible and quick enough at adopting and spreading new technologies, risking in moving into new areas with big market opportunities in the future, which then translates in new jobs and higher economic growth.

Home bias in the debt instrument market euro area countries (annual data) among euro area countries (annual data)  Sources: IMF, Thomson Financial DataStream, Sources: BIS, IMF, ECB calculations. ECB calculations. Note: The home bias of the euro area is computed Note: The home bias of the euro area is computed excluding intra-euro area asset trade allocation. excluding intra-euro area asset trade allocation. Indeed, a simple inspection of the data reveals that European countries increased their holdings of euro area international assets (as a share of their total international portfolio) between 1997 and 2003 (see Charts 5-6). 10 Over this period, the share of intra-euro area allocation increased markedly by 10 percentage points for equity portfolios and by almost 25 percentage points for fixed income portfolios. 10  12 EMU countries consists of the 12 euro area countries. “Other EU countries” refers to Denmark, Sweden and the United Kingdom. “Non-EU developed countries” comprises ten other developed countries: Australia, Bermuda, Canada, Iceland, Israel, Japan, New Zealand, Norway, Singapore and the US. “Emerging markets” is formed by 7 countries: four Asian emerging markets (Indonesia, Korea, Malaysia and Thailand) and three Latin American emerging markets (Argentina, Chile and Venezuela). BIS Review 43/2006  5  Moreover, global financial integration was accompanied by a large shift in holdings towards the euro area countries, thereby favouring international risk-sharing vis-à-vis the euro area, particularly with regard to other European countries and, to a lower extent, with respect to emerging markets in equity portfolios (see Charts 5 and 6).