jean - claude trichet : how can the european economy succeed in an increasingly globalised world? speech by mr jean - claude trichet, president of the european central bank, at a vip lunch on “ restructuring eu business in an increasingly globalized economy ” organised by the chamber of commerce and industry, amsterdam, 15 february 2007. * * * dear ladies and gentlemen, it is a pleasure for me to be here today and share with you some thoughts on how the european economy can succeed in an increasingly globalised world. this question is as old as globalisation itself and deeper thoughts on how economies can succeed in the presence of increased trade and integration date at least back to david ricardo ( 1772 - 1823 ). as you know, on the basis of a contract between england and portugal on trade in wine and cloth, he showed in a model containing just these two goods and the production factor labour, that trade can be beneficial for both countries even if one country has an absolute advantage in producing both goods, that is when it has a relatively lower labour input in producing both goods. although on first sight absolutely simple, paul krugman praised ricardo ’ s idea as ‘ ‘ [.. ] truly, madly, deeply difficult [.. ] but also utterly true, immensely sophisticated – and extremely relevant to the modern world ’ ’. 1 today, more than two centuries later, we still ask how countries should position themselves to gain from trade and integration, but the focus has become a global one, with goods and services, capital and information surrounding the world at a speed none of us would have imagined only a decade ago. for the euro area countries, the change in their economic environment has been particularly marked over the last decade : while being increasingly integrated into the global economy, they are part of the european union that witnessed a substantial enlargement in recent years. and they are closely integrated in emu, where now altogether 13 countries share the same currency. against this background, i would like to split this exposition into two major parts. first, i would like to review some stylised facts on the features of the euro area ’ s integration into the global economy and how this has changed over time. second, based on how the euro area has coped so far in its increasingly globalised environment, i would then like to draw your attention to structural reforms that i consider decisive for the euro area to remain competitive and to keep pace with its main competitors worldwide. developments in intra - european integration the

owing to the decline in prices of imported products and their substitutes. corporate service prices continue to decrease. as for the conditions surrounding price developments, the past yen depreciation is exerting upward pressure on prices. however, with the ongoing adjustments in economic activities, the balance between supply and demand in the domestic market is likely to exert downward pressure on prices. furthermore, in addition to the declining trend of machinery prices caused by technological innovations, the decreases in the prices of goods and services reflecting deregulation and the streamlining of distribution channels will continue to restrain price developments. overall, prices are expected to be weak for the time being. moreover, given the high degree of uncertainty regarding future economic developments, the possibility that weak demand will intensify downward pressure on prices warrants careful monitoring. this report is based on data and information available at the time of the bank of japan monetary policy meeting held on july 12 and 13, 2001. the bank ’ s view of recent economic and financial developments, determined by the policy board at the monetary policy meeting held on july 12 and 13 as the basis for monetary policy decisions. in the financial market, the overnight call rate is basically moving around zero percent under the guideline for money market operations to maintain the current - account balance at the bank of japan at around 5 trillion yen. interest rates on term instruments are basically level on the whole. the japan premium remains negligible. yields on long - term government bonds rose after moving at around 1. 15 - 1. 2 percent until the end of june and are recently moving around 1. 3 percent. the yield spreads between private bonds ( bank debentures and corporate bonds ) and government bonds are mostly unchanged or contracting somewhat. stock prices are declining due mainly to the decrease in u. s. stocks. in the foreign exchange market, the yen is depreciating against the u. s. dollar and is currently being traded in the range of 124 - 126 yen to the u. s. dollar. with regard to corporate finance, private banks continue to be more active in extending loans, mainly to blue - chip companies, while carefully evaluating the credit risks involved. however, there are some signs indicating that the lending attitude of financial institutions perceived by small firms is becoming slightly more cautious. meanwhile, the fund - raising conditions of firms in the markets for such instruments as corporate bonds and cp continue to improve owing to the decline in market interest rates and the more active stance of investors to take credit