jurgen stark : knowns and unknowns about the creation of economic wealth in the euro area speech by mr jurgen stark, member of the executive board of the european central bank, at the joint european central bank, bank of france and the conference board conference on “ the creation of economic and corporate wealth in a dynamic economy ”, frankfurt am main, 16 january 2008. * * * it is a pleasure for me to welcome you today. i would like to start by thanking you all for coming to frankfurt to participate in this conference. we are happy to have a good mix of people from academia, industry and european policy institutions in this room. i am sure that sharing your experiences and insights with each other will prove fruitful. understanding the sources of economic and corporate wealth in the euro area is challenging, and in my view there remain many unanswered questions. i am hopeful that you will shed some light on them. allow me to start by reviewing labour productivity developments in the euro area, and in doing so highlighting the knowns and the unknowns. in the sixteenth century the french mathematician viete, building on the arithmetical work done by others before, proposed the use of literal notation for knowns and unknowns, and subsequently introduced the language of formulas into mathematics. his initial proposal of using consonants for knowns and vowels for unknowns was subsequently modified by descartes to what is now common practice, namely the use of the final letters of the alphabet for unknowns ( x, y, z ) and the first letters for knowns ( a, b, c ). viete ’ s seminal, work on symbolic algebra contributed to improving the productivity of mathematicians by allowing them to write a mathematical statement in just a few lines rather than in several pages. in the same spirit, i will try to keep my introductory remarks short and thus contribute to the productivity of our meeting. but, rest assured, i will not go as far as to reduce my speech to a few lines of symbols. demographic developments and growth as the title of this conference indicates, the euro area finds itself in a very dynamic economic environment characterised by rapid technological developments and the progressive integration of regional economies, not simply through trade but also in increasingly modularised supply chains. in addition to these dynamic forces, and in contrast to other regional economies, the euro area is facing now, and even more so in the future, the prospect of an ageing population. in the euro area, a broad decreasing trend in the

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