ernst welteke : cross effects between monetary policy and financial markets lecture by mr ernst welteke, president of the deutsche bundesbank, held at the belgian financial forum in brussels, 14 june 2001. * * * ladies and gentleman, it is a pleasure for me to speak today on “ cross effects between monetary policy and financial markets ” to such a distinguished audience here at the belgian financial forum in brussels. the heading looks like an obvious choice for a central banker. the issue of cross effects is of ongoing interest for policymakers and market participants alike. the introduction of the single currency and concomitant changes in integrating european financial markets have brought these cross effects even more into the spotlight. not least, the bis has – in its latest annual report – devoted considerable space to these issues. furthermore, – i trust you will grant me the quote – “ irrational exuberance ” in major stock markets has reinvigorated the debate about financial market prices and their appropriate role in monetary policy. i the european central bank ( ecb ) has been given a clear mandate to keep inflation in check. in choosing the monetary policy framework for the euro area, the governing council has kept this concept to the fore. open market operations and the standing facilities play a prominent role. thus, in terms of monetary policy in the euro area, the european central bank makes ready use of financial markets to get its policy across into the real economy – just as any other modern central bank does. monetary transmission is a complicated and permanently changing process. it is not yet fully understood and is therefore always a field of fruitful research. conceptually, the transmission process can be broken down into two stages. changes in official interest rates first affect financial markets. those markets react fast. in the next stage, a policy move makes itself felt in the broader economy, thereby exerting the desired influence on consumer prices. that is by no means a straightforward process. and it takes time. these time lags explain why the eurosystem adopts a medium - term perspective when shaping monetary policy. those parts of the european financial markets that are crucial for the transmission of the eurosystem ’ s monetary policy are already integrated to our satisfaction. the wholesale market for interbank liquidity in the euro area is now a single european money market. any change in official interest rates first affects the money market. then rates along the entire yield curve adapt. in addition, equities are repriced after a policy move

jurgen stark : reflections on the maastricht process from one of the architects dinner - debate by dr jurgen stark, vice president of the deutsche bundesbank, at droege & comp. ltd., london, 3 june 2003. * * * the creation of economic and monetary union and the introduction of the euro meant that we in continental europe have achieved the highest degree of monetary policy integration. for the inhabitants of a country which was not one of the founding states of the european economic community and which has a great historical past of its own, this process, this political “ euro project ”, may perhaps be difficult to appreciate. however, emu is only the latest development in european monetary and exchange rate cooperation, which, in turn, is part of a much broader process initiated in europe 50 years ago. the euro cannot be fully understood unless there is an appreciation of this process. only with this in mind can we begin to grasp how countries with different languages and traditions, which have enjoyed amicable relations during various periods in history but which have also fought against each other in many cruel wars, could eventually take the momentous decision to entrust monetary policy to a supranational decision - making body : the governing council of the eurosystem. it is no exaggeration to state that with the creation of the single market and its completion marked by the introduction of the euro banknotes and coins in 2002, we have launched the most comprehensive and challenging economic reform project in the history of continental europe. this has been a particularly clear demonstration of european policymakers ’ ability to take decisive action. in less than a decade emu has evolved from a remote and unlikely possibility to reality. apart from all the difficulties and challenges we are facing at present with weak growth, high unemployment and increasing budget deficits no one outside continental europe should underestimate the magnitude of what has been achieved in monetary union to date. the europe of today should not be confused with europe 10 or 15 years ago. we have liberalized and deregulated markets. however, more needs to be done. the convergence process which permitted the creation of emu has brought about fundamental changes which are irreversible. admittedly, economic performance in continental europe is weak at present. however, the european economy is more resilient to economic shocks than ever before. the process of european integration has decreased the likelihood of asymmetrical shocks. in particular, unwarranted monetary and exchange rate