samchain/econo-pairs-v1 huggingface dataset:
Süreyya Serdengeçti: The Turkish economy and the European Union Remarks by Mr Süreyya Serdengeçti, Governor of the Central Bank of Turkey, at the London School of Economics, London, 27 October 2005. *  *  *  Distinguished Academicians, Guests, It is a great pleasure for me to be here with you today at London School of Economics (LSE), and to have an opportunity to give this lecture on such a delicate subject, that is the Turkish economy in the context of the European Union (EU). I would also like to express my heartfelt thanks for the establishment of the Chair in Contemporary Turkish Studies that, I believe, will play an important role in the relations between Turkey and the EU. I want to begin my speech by first giving you a simple description of Turkey on its way towards the EU membership. I will be referring to the words of Sir Winston Churchill. On November 10, 1942, after the victory at El Alamein that changed the course of the Second World War, he said, "This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning ". Personally, I think this is exactly how we should see the Turkish membership in the EU as of October 3rd; it is simply the end of a long beginning. Three important points now: the first one is about the fact that in Turkey, the EU accession has always been a long-term goal.

It can also be said that Turkey is the only country in the region with the necessary institutional structure and capacity for integrating the region to the world economy through business association networks and partnerships.6 In addition to this, in terms of the EU’s long-term energy policy including petrol, natural gas and water sources, the increasing importance of the Middle East and Caspian Region has made Turkey a bridge to the energy sources in the region. With this strategic location, it is in the geo-strategic interest of the EU to have Turkey as a member with regard to the foreign and security policies dimensions. And, I believe that the Turkish accession will be a strategic opportunity for Europe. Distinguished guests, Despite the improvements in the Turkish economy, it is obvious that at the present stage Turkey has lower income per capita compared to the new members and acceding countries. However, we know that income per capita of the new members and acceding countries when they started negotiations was similar to that of Turkey. Actually, decomposing the equation of income per capita, we see that it is a product of productivity, employment rate, inverse of the dependency ratio7 and participation rate.8 In other words, increase in income per capita can be accelerated by productivity growth, increase in employment and labour participation rate and decelerated by increase in the dependency ratio. I will  6  Sak, G. (2005). "EU-Turkey Relations: Time for Contemplation? Time for Reality Check?” Berlin.
The SGX has direct and frontline regulatory responsibilities of the securities and futures markets, and over the broker-dealers who trade on the exchange. This MAS-SGX regulatory relationship applies to all the major areas of regulation: a. Regulation of capital raising  •  SGX defines and enforces the rules that apply to companies that seek to raise capital on the exchange through primary or secondary issues. •  MAS' approval must be sought for any changes to SGX's listing rules. Under the proposed SFA, the SGX will have to notify the MAS of any rule changes 21 days before its announcement. MAS will be able to approve, alter or stop any rule change during that 21-day period. b. Continuous listing and disclosure requirements  •  SGX enforces the continuous listing requirements on companies, to see to it that listed companies maintain timely and adequate disclosure of material information. SGX has the power to suspend and even de-list a counter if a company fails to meet the standards set out in the listing rules. BIS Review 14/2001  3  •  Continuous disclosure by listed companies will also become a statutory obligation under the proposed SFA. This means that non-disclosure or late disclosure of material information will be a breach of the law, not just a breach of SGX's listing requirements, and carry either civil or criminal penalty. c.  Market surveillance  •  SGX carries out market surveillance to detect unusual trading activities that could reflect attempts to manipulate the market.

That decision was shaped by the inappropriateness of leaving the listing authority with the LSE when other competing exchanges are emerging in the UK. We believe that the current arrangements for the regulation and supervision of the securities markets between the MAS and SGX, with an enhanced oversight responsibility for the MAS and  4  BIS Review 14/2001  powers to pursue civil prosecution, will prove robust. But we will continually review the arrangement, keep in touch with international practices, and re-calibrate the roles of MAS and SGX where necessary to ensure effective oversight of the local markets. I would now like to touch on two features of the regulatory arrangement that we have recently reviewed. The first concerns the approval of substantial shareholdings in the SGX; the second, proposed changes in the prospectus registration regime. Approval of substantial shareholdings in the SGX The Exchanges (Demutualisation and Merger) Act requires anyone who wishes to acquire 5% or more of SGX to seek prior approval from MAS. This provision recognises the unique and important role of SGX in providing the infrastructure and marketplace for the trading, clearing and settlement of securities and derivatives in Singapore. Strategic investors As announced previously, MAS will allow suitable strategic investors who can promote SGX's growth and development to acquire substantial stakes of 5% or more in SGX.
In contrast to the typical IMF program, governments were permitted to use a  BIS Review 69/2007  3  portion of the IMF-supplied resources to take some pressure off the exchange rate, as foreign investors sought to reduce their exposures to the crisis countries in the initial stages of the crises. But the provision of large external financial resources was not, by itself, sufficient to achieve stability. The critical feature of every program was a set of policy measures designed to address the causes of the crisis, to stabilize confidence and to put in place conditions for recovery. In some cases, the initial policy response looked tentative or inadequate. In others, the reform program did not appear to have broad support within the government. Broader political uncertainty associated with a pending election or change in leadership also undermined confidence in the commitment to a credible recovery plan. Where confidence in the recovery plan was weak, the financial resources had little impact on market sentiment and confidence faltered. Even though the resources looked large relative to past financial interventions, they were easily overwhelmed when markets were unimpressed by the policy response. Ernesto Zedillo explained the policy challenge exceptionally well when he wrote that since markets tend to overreact at the onset of crisis, so policy needs to overreact too. A classic problem in financial crises is to distinguish between problems of illiquidity and insolvency. This diagnosis is critical to the design of an effective response, but it is very hard to do.

Inequality has increased within many countries and economic integration is blamed, although research shows that technological change plays a significantly bigger role. At least in part, the case of financial integration is different. Finance is an integral part of economic progress, and there are significant benefits from global financial integration. But more is not always better when it comes to finance, as we learned the hard way during the latest financial crisis. Furthermore, large and volatile capital flows can undermine the financial stability of countries. It is not clear who the winners are in that case nor what the compensation mechanism would be. Spillover effects from monetary policy of global rate setting countries to small, open and financially integrated economies (SOFIEs) increase as global financial integration intensifies. In particular, if the global rate setter experiences an economic slack at a time when a SOFIE is booming, the SOFIE might find it difficult to pursue warranted macroeconomic policies without risks to financial stability and/or significant detrimental effects on export sectors. This could be the case if there are perceived limitations to the use of fiscal policy; for instance, if there is already a sizable headline surplus. In this situation, macroprudential and even capital flow management measures could help. In Iceland’s case and some others, this raises the issue of compatibility with existing international and regional treaty obligations regarding free movement of capital. The jury is still out on these issues.
At that time, Middle East tensions had not induced further Western military intervention and the oil price had been relatively stable, falling to around the $ mark. One could argue that central banks – and other authorities – had validated expectations. During this period from the Autumn of 2012 to the Spring of 2013, financial markets were relatively calm but periods of “risk on” were lasting for longer and leading to greater risk taking. Equities and other risky asset prices generally rose. Interest rates were low and stable at the short end and increasingly depressed at longer maturities as the FOMC maintained its asset purchase programme. The hunt for yield intensified, especially down the credit spectrum, with some investors being driven by return targets, mandates and benchmarks rather than a true reflection of risk-adjusted returns. The volatility of market prices also became compressed during this period (Chart 1). BIS central bankers’ speeches  1  Chart 1 Implied volatility from various asset markets 27 Feb 2009  Standard deviations from mean since 2006 USDGBP  01 May 2013 16 Jul 2013  3 2 1  Japan long rates Japan short rates  JPYUSD USDEUR  0 -1 -2  US long rates  FTSE 100  US short rates  S&P 500  UK long rates  Nikkei 225 UK short rates  Chart 2 shows a “heat map” constructed by colleagues in the Bank’s Financial Stability Directorate, showing how market functioning has changed over time based on issuance levels and spreads.

Many of these instruments, such as providing liquidity, are inherent or traditional while others, such as regulating and watching over payment systems, have developed in recent decades. The experience of the last few years has suggested a need to review or update the available instruments and to generate the operational conditions in which they can be used without delay when needed. During this latest crisis, for example, many central banks were not operationally prepared to receive collateral that was not in habitual use. It has also been suggested that there is a need to incorporate new instruments, principally with a macroprudential approach. However, in the case of some of these instruments – specifically, the use of regulation for countercyclical purposes – evidence is scarce and debate as yet inconclusive. However, beyond the contribution that a central bank can make, financial stability requires a comprehensive framework of financial institutions, policies and practices. The solidity of this framework and its consistency are crucial. Regulation and supervision, whether or not in the hands of the central bank, are critical, but so too are monetary and fiscal policy. The recent sovereign debt crisis in Europe, for example, has demonstrated the importance of fiscal conditions for financial stability. Market discipline and institutions’ management, although discredited by the crisis, are factors that can, with an appropriate regulatory framework and incentives, contribute to stability. The efficiency of regulation and supervision should, in the end, be reflected in good behavior by institutions and the proper functioning of markets.
This is in line with the credit growth rates observed in some euro area members since the mid-1990s. Some recent empirical literature has indicated that the probability of bank failures and banking crises increases with credit booms. Banks may become less cautious in granting loans during the boom, due to the prevailing optimism and good performance at the macroeconomic level. And even if the optimism is justified by the fundamentals, it may go a bit too far, leading to an eventual build-up of financial imbalances. Their subsequent bursting could hit the real economy to such an extent that it would have repercussions for the financial system. Here I come back to the issue of euro adoption, which may be a very relevant factor in this debate for several reasons. First, by providing easier access to external financing for banks, adoption of the euro may amplify a credit boom. Second, it may be associated with a wave of optimism about the future economic prospects of the acceding countries, given the positive net benefits expected from euro area entry. Third, euro adoption requires nominal convergence, including a reduction in nominal interest rates to the euro area level. This may support a credit expansion to some economic sectors. Finally, in a currency union a national credit boom cannot be addressed by monetary policy actions. To take the current euro area members as an example, the ratios of private credit to GDP a decade ago in Ireland, Portugal and Spain ranged between 45 and 75 percent.

At present, this ratio exceeds 100 percent in all these three cases. The trend has been also growing fast in Greece, albeit from a lower base. In Portugal, for instance, domestic banks took the opportunity to issue eurodenominated bonds in euro area markets to increase rapidly the volume of domestic loans both to the corporate sector and to households. Capital inflows through banks financed a mounting current account deficit. It also fuelled fast growth of domestic demand and GDP in 1998-2000. This experience could in principle be viewed as a manifestation of the expected potential benefits of monetary integration. In fact, it has been argued that euro area membership has enabled the participating countries to overcome the famous Feldstein-Horioka puzzle, i.e. the traditional strong link between domestic savings and investment. In other words, the current account constraint may become non-binding after euro adoption, which should lead to a more efficient allocation of capital in the long run. However, it might be also questioned whether such a fast credit expansion will lead to a build-up of vulnerabilities in the balance sheets of financial institutions, firms or households. In the case of Portugal, for example, the debt burden of the household sector has exceeded 100 percent of yearly disposable income, even though a decade ago this ratio was comparable to the current situation of some acceding countries. As a result, one can think of adverse scenarios in which the repayment capacities of the banks’ clients would deteriorate substantially, with adverse consequences for financial stability.
Fixed, or managed, exchange rate regimes may help to limit the real economic costs of “excessive” volatility that reflects short-lived shifts in market sentiment, but if they impede desirable adjustments of real exchange rates, they contribute to unsustainable patterns of spending. There are other reasons why emerging economies, in particular, have managed their exchange rates. Perhaps the most important is that pushing down on the exchange rate is a means to pursue a strategy of export-led growth. Another motive, important in the wake of the Asian financial crisis, was to build up large precautionary balances of foreign exchange reserves as a way of insuring against sudden reversals in capital flows, especially of shortterm bank lending, that proved so damaging in the 1990s. 2  BIS central bankers’ speeches  Such policies distorted saving and exchange rates, and created large capital flows unrelated to the distribution of profitable real investment opportunities. Given imperfections in financial markets in both borrowing and lending countries, such capital flows can lead to a degree of fragility, such that, when adjustment comes, there is a high probability that it will be abrupt. For example, the distortion from a “too important to fail” implicit subsidy to the funding costs of banks in the industrialised world led to excessive leverage in these countries. Creditors were prepared to lend at lower rates and on a greater scale than they would have without the implicit subsidy. In other countries, financial repression artificially raised saving rates by making borrowing too costly.

In this field, I believe that an important step forward is represented by the recent MoU on financial stability arrangement signed by the EU central banks, supervisors and ministries of finance in June 2008. Finally, referring more to the supervisory domain but still linked to the central bank interest, the turmoil has evidenced the need for strengthening the macro-prudential dimension of regulation and supervision. This means the regulatory and supervisory requirements should be able to ensure adequate capital and liquidity buffers throughout the economic cycle. In this regard, the actual impact of the new capital adequacy regime under of Basel II will have to be monitored very closely. BIS Review 106/2008  1
I will return to the monetary policy implications of this growth outlook in a while. The missing instrument problem But before doing so, I want to report on the progress that has been made in strengthening the macroeconomic policy framework in the UK in response to some of the fault lines exposed by the financial crisis. Much analysis and soul searching has been conducted in the aftermath of the crisis, and the lessons and implications for different aspects of economic, financial and other areas of public policy are wide ranging. In terms of the lessons to be learnt for monetary policy, many commentators and policymakers – myself included – told a variant of what could be termed the missing instrument problem. 3 This analysis argues that the case for an inflation targeting framework remains sound: the focus on a clear numerical target for monetary policy has served our  3  4  Dale (2009). BIS Review 161/2010  economy well, and low and stable inflation remains a cornerstone of our long-term prosperity. However, it acknowledges that control of short-term interest rates – the main tool of monetary policy – is a relatively blunt instrument best deployed maintaining a broad balance between nominal demand and supply. In particular, movements in short-term interest rates are not well suited to managing risks from credit cycles and other imbalances within the financial sector.

Perhaps more tellingly, the increased competitiveness of our goods exports has succeeded in arresting the persistent decline in our share of world export markets seen over the past 15 years or so. In contrast, exports of services – at least as measured – have fallen. These declines are concentrated in exports of financial and business services, areas in which the UK has particular expertise. It would not be surprising in the current environment if this weakness partly reflects reduced global demand for these types of services. If that is the case, our prospects for net trade will depend in part on the extent to which demand for financial and business services revives as the recovery in world demand continues and the functioning of the financial system gradually returns to normal. Where does all this leave us? Judging the net impact of these opposing forces on the growth outlook is very difficult. The pattern of growth from quarter to quarter is quite likely to be choppy. But smoothing through this, my central view is that over the next few years the economy is likely to grow at rates around or a little above its historical average, supported by monetary policy and the lower level of sterling. This is similar to the outlook in the November Inflation Report. But to repeat the point I made earlier: the depth of the recession means that output and employment are likely to remain below what would feel like normal levels for many companies and families for some considerable time.
In theory, Pillar 2 requires banks to have a formal process for allocating internal capital against the wide range of risks that are not explicitly part of Pillar 1. This formal process is sometimes referred to as the Capital Allocation Assessment Process or "CAAP". However, it has to be acknowledged that very few banks currently have such a process in place, and only the largest and most sophisticated institutions have been able to devote the resources necessary to building these types of formal capital allocation systems. Consequently, as a regulator, we do not plan to require all banks to develop internal capital allocation models, at least initially. The need for such models must be commensurate with each institution's scale and sophistication. In place of requiring all AIs to develop these models, the HKMA has developed its own internal Supervisory Review Process, or "SRP". As you may know, the HKMA has for a long time set capital ratios on a bank-by-bank basis. This has been with the aim of trying to ensure that the capital ratio reflects the risk profile of an individual AI, taking into account the full range of risks to which it is potentially exposed. We intend to use the SRP to bring greater rigour into the process of setting AI-specific minimum capital ratios. In effect, the SRP is our own credit scoring system. It takes a large number of variables, each carefully chosen to reflect a different aspect of risk, and combines them to produce a single overall "score" for each AI.

But it brings very material benefits through increased competition as a result of greater transparency of prices and lower transactions costs, through broader and more liquid financial markets, and through the associated improvement in economic resource allocation. And there is no doubt that intra-European exchange rate certainty in particular will enhance the benefits to be derived from the European single market. Whether or not it is essential, therefore, most people would, I think, agree that, other things equal, the nominal exchange rate certainty that comes with the move to the single European currency is very desirable in this context. What then are the economic arguments against it? Essentially they can be summarised as the risk that the single monetary policy - the single, one-size-fits-all, short-term BIS Review 88/1998  -2-  interest rate within the euro area, which is a necessary corollary of the single currency - will not in the event prove to be appropriate to the domestic needs of each of the euro-member countries. There is no doubt that such risk exists. It may result from cyclical divergence within the euro area, with some participating countries needing to stimulate domestic demand while others are already operating close to capacity. It may arise from differences in fiscal positions even though these are to be constrained through the Stability and Growth Pact. Or it may result from economic shocks of some sort that have a bigger impact on some countries than on others.