jurgen stark : contribution to the session on “ implications for the conduct of monetary policy ” speech by mr jurgen stark, member of the executive board of the european central bank, at the international symposium on “ globalisation, inflation and monetary policy ”, organised by the bank of france, paris, 7 march 2008. * * * john taylor has discussed a number of challenges to monetary policy - making in an era of globalisation. in my remarks, i will focus on the implications of globalisation specifically for monetary policy - making in the euro area. 1 globalisation may change the environment for monetary policy - making we all agree that globalisation offers great opportunities. it increases the scope for efficiency gains through specialisation since it allows economies to make better use of their comparative advantage in international production. this reduces production costs and expands the production frontier, generating gains which are passed on to consumers through lower prices for many goods. globalisation thus fosters economic prosperity and raises living standards. at the same time, the gains from globalisation may not be distributed evenly, as globalisation can affect differently the returns to different factors of production. 2 to monetary policy - makers, globalisation is important mainly for two reasons : • first, the process of globalisation itself can occasionally lead to economic disruptions, especially if markets lack transparency. increasingly - globalised and internationally - integrated financial markets, for example, if not sufficiently transparent, can at times be conducive to excessive risk - taking and contagion effects – a theme that rings particularly true in light of the current financial turmoil. • second, and more importantly, increasing global integration induces structural changes in goods markets and financial markets alike. as a result, foreign shocks may have a greater impact on domestic inflation, and the transmission of other impulses to the euro area economy can change. this also applies to the impact of monetary policy on inflation. let me briefly elaborate on how structural changes, which are driven by globalisation, can affect the process of inflation. • there is good reason, for instance, to believe that globalisation increases competitive pressures, both worldwide and in domestic markets. an increase in competition may – relative to previous periods – put downward pressure on wages and prices and thus contain inflation for a period of time. 3 a structural intensification for stylised facts about trade globalisation and its likely effects on euro area inflation, see also the ecb monthly bulletin article entitled “ globalisation, trade and the euro area macroecono

of the world. with respect to central counterparties, i would like to mention four major developments : a ) consolidation of central counterparties since the start of emu, the number of central counterparties for financial instruments has fallen from 14 to 7 in the euro area. this process of consolidation may have a positive impact on financial stability as larger central counterparties may find it easier to diversify risks. it may also have a positive impact on the efficiency of post - trading arrangements due to network effects and issues related to interoperability. however, the failure of large central counterparties could have an even more disastrous impact on financial markets. moreover, consolidation may eventually lead to a reduction in competitive pressures with a negative impact on efficiency. the eurosystem has formulated this position in a policy statement on consolidation in central counterparty clearing, which was published as early as september 2001. as stated in the policy statement, the ecb supports any form of market - led integration or consolidation process that fulfils the ecb ’ s requirements in terms of financial stability, open access, price transparency and efficiency. b ) expansion of activities of central counterparties while in the past, most european central counterparties only cleared derivatives, many of them also now clear securities transactions. the effects of such an expanssion have been differently assessed by different speakers at this conference. on the one hand, john jackson and mark manning found that central counterparties that diversify their activities across imperfectly correlated assets may often be able to better manage their risks than single - product clearers. at the same time, securities market participants benefit as their exposure to counterparty credit risk is reduced. this trend towards multiproduct central counterparties could therefore be beneficial from a financial stability perspective. on the other hand, diana chan mentioned in the first panel yesterday, that central counterparts that diversify their activities across imperfectly correlated assets and reduce the collateral requirements for their participants by offsetting margins related to these different activities could. significantly underestimate risk exposure and collateralisation requirements, thereby create additional and unknown risks. these developments need therefore to be carefully observed by market participants and relevant authorities. c ) creation and dismantling of vertical “ silos ” in europe, vertical silos encompassing trading, clearing and settlement infrastructures have been created, while other silos have been dismantled. the discussion on which structure is preferable is ongoing, and the answer may be different for different markets. while silos may help infrastructure providers to reduce