guy quaden : prospects and challenges of the european economy speech by mr guy quaden, governor of the national bank of belgium, at the swiss chamber of commerce, brussels, 27 october 2004. * * * ladies and gentlemen, i thank you very much for your invitation to speak this evening on the topic : “ prospects and challenges of the european economy ”. the european economy is facing many challenges : consolidating the current recovery, redressing the public finances which have deteriorated in many countries, reducing unemployment which is still too high and preserving social cohesion, preparing for the ageing process and in particular its financial consequences, but i think one of them is now the most important : improving europe ’ s growth potential. its realisation is a prerequisite for meeting the other challenges mentioned. from the outset i want to make it absolutely clear that i am neither a eurosceptic nor a europessimist. so, i fully acknowledge and admire the resounding success european integration has achieved in two fields over the past few years. as a central banker i would of course first like to refer to the introduction of the euro which, as you all know, was brought about in two stages ( 1999 and 2002 ). it was a huge political, economic and technological challenge and it was an impressive achievement. the finalisation of european monetary integration had a profound effect on the deepening of the single market through the elimination of the exchange risk, the reduction in transaction costs and the increase in price transparency. this improvement of the single market will enhance the overall efficiency of the european economy and, other things being equal, also its growth performance. however, it is doubtful whether the population of our countries correctly perceived the latter advantage. indeed, the introduction of the euro unfortunately coincided with a severe slump in economic activity : while in 2000 real gdp growth in the euro area reached 3. 5 p. c. it declined the following years to reach a mere 0. 5 p. c. in 2003. earlier this year european integration achieved another major success. ten new member states joined the european union, which now makes european reunification almost complete. with its 25 member countries, the eu now has a population of 455 million people. with the participation of switzerland we would be still closer to half a billion people. but even without switzerland the eu as a whole has the third largest population in the world ( only after china and india ) making it larger than the us and japan combined. however, this historic

supervision, usually the supervision of credit institutions, while one or more separate agencies supervise the other financial intermediaries and the markets. i consider that what we might call the intermediate model resulting from the law of 2 august 2002 is a fairly good combination of these two main models, and it is fair to say that this belgian design could be a source of inspiration once it is considered necessary to set up prudential supervision arrangements at european level. in any case, the reform has attracted favourable comments both from the european central bank and from the international monetary fund. the new set - up is headed by the financial stability committee, which now combines the management boards of the bfc, the iso and the nbb, alongside the financial services authority supervisory board, which will combine the supervisory boards and council of regency of the various institutions. as regards the financial stability committee which is being installed today, in accordance with the intentions of the legislature i see it as : • the pilot for the collection and development of expertise relevant to the professions of both supervisor and central banker ; • a place for dialogue and consultation, certainly for providing warning of financial instability but also, if necessary, for managing such situations ; • a body in charge of organising certain synergies between the three institutions ( tomorrow it will be two : the bfic and the nbb ), in order to achieve economies of scale in their operation, all without affecting the specific responsibilities of each institution. to quote an expression used by my colleague at the european central bank, t. padoa - schioppa, macro - and micro - prudential supervision are nowadays two sides of the same coin : distinct but inseparable. the central bank, traditionally in charge of macro - financial stability, as well as being the bankers ’ bank, must not be cut off from information about the conduct of the few major players who dominate the financial scene and whose failure - should it occur - could have systemic consequences. similarly, the body or bodies in charge of micro - prudential supervision have the advantage of being able to suit their action to the relevant macro - economic context. the many shocks which the world financial markets have suffered in recent years are sufficient demonstration that financial stability cannot be regarded as an established fact. even though, very fortunately, no major problems have ensued for individual players or for the systems as a whole, these events have confirmed the need to reinforce the resources devoted to the preservation of financial stability at macro and micro level. in belgium,