klaus liebscher : the european integration : policies towards stability, growth and employment speech by dr klaus liebscher, governor of the austrian national bank, to the bertelsmann foundation, european forum alpbach, institute for public affairs, and the bruno kreisky forum for international dialogue, baden, 29 june 2001. * * * ladies and gentlemen, it is a great pleasure for me being with you this evening and let me first congratulate the organisers of this conference for having chosen a combination of two very important issues for discussion on european integration – labour markets and enlargement. i am pleased to share some thoughts with you from the view of monetary policy. the two elements of your conference title touch upon both the deepening and the widening of european integration. i may recall that, in the wake of the fall of the berlin wall, those two dimensions were often discussed as alternative strategies. however, today it seems clear to almost everybody that european integration has to proceed in both directions. the deepening of european institutions and the widening of europe's geographical extension are not mutually exclusive but rather dependent on each other. progress in one area does certainly give momentum to the other. the most important step in the deepening process of european integration – at least to my mind – has been the creation of economic and monetary union ( emu ). from a governor of one of the euro area central banks this statement will certainly not come as a surprise to you. although there was some scepticism or even criticism in the run - up to emu, not only european officials but also many observers outside the area have since confirmed that the transition to emu was taken successfully – including those observers who were originally very sceptical about the ambitious aims lined out in the maastricht treaty. and indeed, the list of preconditions for monetary union met in recent years is impressive. let me single out just a few of those points, without attempting to gloss over the challenges that lie ahead : · first and foremost, while inflation has come down to historically low levels we cannot be satisfied with the current inflation performance. at this point it has to be stressed that price stability was not only a precondition of monetary union but – even more importantly – is the prime objective of the independent eurosystem. thus, the european central bank will ensure that medium - term inflation is in line with price stability. we are confident that such a conduct of monetary policy will

cutting, wage moderation ; long run : reforms to strengthen productivity growth. but every imbalance has two sides : surplus countries ( germany, netherlands, austria ) should strengthen domestic demand ( 2 ways ) : structural reforms to enhance investment ( ecb / bundesbank view ) ; income and tax policy to strengthen consumption ( ft view ) ; bis central bankers ’ speeches – otherwise, deflationary drag – could not be compensated by loosening monetary policy ( pushing on a rope ). crisis lesson : structural reforms go beyond proper functioning of markets. eliminate conditions that favor bubbles : imbalances, inequality and overindebtedness ; reflected in the new eu 2020 strategy : smart, sustainable and inclusive growth ; economic governance reform in the eu to address high degree of economic inter - dependence while preserving national responsibilities. van rompuy task force – 5 proposals ( accepted by european council ) : 1. 2. greater fiscal discipline : reinforce compliance of eu ’ s fiscal rules in euro area countries ; preemptive part of stability and growth pact ; focus on debt sustainability. broadening economic surveillance : new mechanism for macroeconomic surveillance ( annual assessment ) ; alert on risks of macroeconomic imbalances and vulnerabilities ; excessive imbalance procedure with sanctions ( including excessive surpluses? ) ; indicators to be specified. 3. deeper and broader coordination : european semester 4. robust framework for crisis management : 5. european stability mechanism ( esm ) to succeed rescue umbrella from 2013 on. part of a credible crisis resolution framework ; details in discussion by european council. stronger national institutions : new public institutions to provide independent analysis, assessments and forecasts on domestic fiscal policy matters. d. monetary policy : – internal and external stability : – price stability = primary objective ; = ( necessary but insufficient ) condition for stable exchange rate and balanced current account. inflation vs. deflation deflation no immediate concern in the euro area ; hicp in january 2011 : 2. 3 % ( energy, food and taxes ) ; hicp in february 2011 ( flash ) : 2. 4 % eurosystem forecast ( march ) for 2011 : between 2. 0 % and 2. 6 % ; bis central bankers ’ speeches – inflation expectations firmly anchored : below, but close to 2 % over the medium term ; risk : commodity prices ( wheat, oil, etc. ) ; but expansive monetary policy not inflationary – can easily be reversed! crisis lesson : monetary policy ’ s role ( jackson hole consensus ) : preserving