lorenzo bini smaghi : emu @ 10 – the first ten years of economic and monetary union and future challenges introductory comments by mr lorenzo bini smaghi, member of the executive board of the european central bank, at a public hearing on emu @ 10 : the first ten years of economic and monetary union and future challenges, brussels, 24 june 2008. * * * madam chair, dear members of the econ committee, it is a pleasure to be here today and to share with you my assessment of the challenges facing economic and monetary union in the years to come. 1 in order to do that, i believe that there are a series of clarifications to be made, starting with an assessment of the past ten years. in any balance sheet there are assets and liabilities. the last ten years are full of assets, in many respects. one is the euro, and the creation of an area of monetary stability. very few believed ten years ago that this could be achieved. i would like to quote alan greenspan, who in his recent book stated “ we have in front of us a historically unique institution, an independent central bank with the exclusive mandate to maintain price stability in an economic area producing over a quarter of the world gdp. it ’ s an extraordinary result. i can ’ t stop my admiration for what my european colleagues have been able to achieve ”. 2 let ’ s consider the negatives. what are the liabilities of the last ten years? some will claim that growth has been unsatisfactory over the past ten years. but is this really true? looking at the euro area as a whole, growth on average has been the same as in the decade preceding the euro. there have been no recessions, while there was one in each decade before. cyclical variability has been reduced. budget deficits have been substantially lower. employment growth has been much faster in the last ten years and unemployment has reached a 25 - year low. overall, in terms of economic activity, the last decade might not have been particularly brilliant, at least in the eyes of some, but it has been at least as good as the previous one. incidentally, this is not the case for the us, which saw weaker economic growth overall in the last decade compared with the previous 10 years, and even a recession. some will claim that growth has been geographically patchy, with certain countries performing better than others. indeed, eight out of the first 12 euro

policy can take care of exchange rate as long as there is no conflict with inflation. and, we have no target level for the thai baht in mind. foreign exchange market is intervened when there is too much volatility in the market. the objective is to smooth the country ’ s adjustment during the transitional period. looking forward, the baht movement would depend largely on external developments which i have already discussed. moreover, there are also internal drivers : large surplus in current and capital accounts. the thai stock market remains one of the most popular destinations in emerging markets for foreign investors, given its relatively low p / e ratio. during the first 7 months of this year, foreign investors became net buy about 4 billion us dollar. such inflows together with foreign direct investments have also added pressure on the currency. ladies and gentlemen, i would like to turn to the third and final part of my talk today, which is thailand ’ s approach in coping with the risks and challenges posed by globalization. indeed, the challenges of globalization are constantly changing. to meet these challenges from without, it is critical that the thai economy build strength from within : by continuously improving the flexibility and efficiency of its firms, the resiliency of its households, and the competitiveness of its business environment. but beyond getting the fundamentals right and strengthening them, the thai economy needs a strategic policy package that builds a system that allows for constant self - correction – one that also let the economy regain its strength quickly after a severe negative shock. that system should be underpinned by a strong link to the world economy, which will encourage innovation and efficiency. specifically, i should underscore that this approach requires policy markers to focus on achieving three key objectives, namely managing volatilities especially those emanating from volatile global capital movements ; building resiliency in both real and financial sectors ; and fostering long - term productivity improvement. looking ahead, the pressing and practical challenges we face in the near term are three - fold and indeed they are also inter - related. they are “ hot money ” inflows and large inflows in general, pressure for rapid domestic currency appreciation, and finally, the potential loss of monetary autonomy in the sense of independent interest rate policy. being part of the fast growing asia, thailand and its neighbors have become attractive destinations for international investors – although the more powerful underlying reason may ironically be a medium - term flight from us dollar assets since 2002. with large capital inflow