nout wellink : on the euro and exports, speculation and global trade speech by dr nout wellink, president of the netherlands bank and president of the bank for international settlements, on the occasion of a luncheon conference of the limburgse werkgevers vereniging, herten - roermond, 26 january 2005. * * * i shall speak to you about the euro and the consequences of its rising rate for the exports sector. but i shall also dwell on the global causes as well as the macro - economic effects of the strong euro. consequences of a rising euro rate for businesses exchange rate movements may have considerable impacts, in particular at the level of industrial operations. while perhaps it was not the low dollar rate that finished fokker, adverse exchange rates did play a role in that company ’ s fate. this stiff westerly wind rose just when fokker was most in need of the right updraught. and, if you will allow me to use an example from your region, oce – which over the course of time has proved a rich source of supervisory board members for dnb – realises much of its turnover in us dollar. in addition, many of its competitors are based in the united states or in countries whose currencies are pegged to the dollar. small wonder that they keep a sharp eye on the exchange rate of the euro. on the one hand, exporters are recording declining sales and are compelled to settle for lower profit margins as a result of the high euro rate, whereas, on the other, citizens and businesses are benefiting from cheaper products from abroad. a case in point is the moderating effect of the rising euro rate on the increasing oil price. since early 2003, the dollar price for a barrel of crude oil has gone up by 48 %, while expressed in euro the price increase amounts to 21 %. also some of the activities of financial institutions profit from exchange rate fluctuations. an increase in the number of businesses hedging against – or speculating for – exchange rate fluctuations leads to higher commission income from currency translations and future contracts. the euro exchange rate not only influences the proceeds from business activities, like imports and exports. exchange rate movements also work through to the value of assets and liabilities expressed in foreign currencies. the 20 % fall of the dollar rate in 2003 translated into a eur 4 billion loss for dutch businesses, approximately 1 % of dutch national output. the net wealth effects of exchange

realise a substantial rise in productivity. if markets function properly, the chance of that increase materialising will be greater. let us hope that the implementation of the kok committee proposals for structural reforms within the scope of the lisbon agenda will get off the ground. conclusion considering all this, how are we to look upon exchange rate fluctuations? what it amounts to in simple terms is that highly integrated economies forming, so to speak, one economic block, benefit from fixed exchange rates. economies that differ widely from each other and do not interact much, profit from mutually flexible exchange rates. admittedly, exchange rates sometimes tend to move too uncontrollably, creating a breeding ground for speculation. but if exchange rate changes arise from structural factors, we should welcome them. it is satisfying that these days there are fewer complaints about the euro exchange rate than before. at the macro level, this is appropriate. rather than with the rock - bottom level seen several years ago, the current level of the euro / dollar rate should be compared with the average level over a prolonged period. to assess our competitive position, it would therefore be better to take the exchange rates with all trading partners into account and correct them for mutual inflation differences. this so - termed real effective exchange rate of our currency is now 8 % above the average for the period 1980 - 2000. moreover, there is little reason to complain about the euro exchange rate as its consequences are not that overwhelming. to the extent that the netherlands is a small, open economy, the vast majority of its trade is confined to countries that also calculate in euro. on a corporate level, some operations are obviously sensitive to the exchange rate. they must adopt strategies that anticipate the adverse effects of exchange rate fluctuations. this is just what they are doing. the german car manufacturers bmw and mercedes are cases in point. and judging by the parking area outside this building, they are successful enterprises. the fact that both costs and revenues would be expressed in dollar played a weighty role in their decision to set up production facilities in the us. with this move, both companies have covered themselves against exchange rate fluctuations in a natural manner. another much - used way to do so is by means of financial instruments. i suggest that we send the euro rate as scapegoat for wrong economic moves into the desert, just as happens in the jewish tradition at the time of the day of atonement.