andreas dombret : designing a stable monetary union – progress and open issues speech by dr andreas dombret, member of the executive board of the deutsche bundesbank, at the brookings institution, washington dc, 8 october. * 1. * * introduction ladies and gentlemen thank you for having me here today. it is a privilege to speak at an institution as distinguished as brookings. for almost a century now, this institute has provided essential analytical input for the work of policymakers around the world. naturally, this includes central banks such as the bundesbank. and it is at the bundesbank that my speech begins. allow me to bring up my very first week in office – a week i still remember vividly. naturally, it was a decisive week for me, but even more important, it was a decisive week for the euro area. my first day of work was on 3 may 2010. on the day before, on 2 may 2010, the eu finance ministers had agreed to support stumbling greece with a €110 billion rescue package. one week later, on 10 may 2010, the ecb decided to buy government bonds in order to stabilise the financial markets – a decision which the bundesbank has criticised. looking back, no one can deny that this first week of may 2010 was a turbulent one. to many, it even counts as the “ official ” start of the euro crisis. to me, it was a time when two things became obvious. first, many observers from outside europe – notably from the us – underestimated the political will in europe to hold the euro area together. second, many observers from inside europe – including myself – overestimated the stability of the euro area ’ s institutional framework. what is the logical conclusion of these two insights? the conclusion is that we have to take advantage of the apparent political will in order to improve the euro area ’ s institutional framework. but how? in my view, the overarching theme in this regard is integration. to be sure, europe ’ s political landscape now features a number of parties that are riding a wave of euro - scepticism and anti - european rhetoric. this is a disturbing development. nevertheless, political leaders and the majority of people throughout europe are still very much convinced of the idea of a unified europe. and from an economic point of view, deeper integration could help to strengthen the framework of the european monetary union. let us take a look at three areas where

the european union at their summit in lisbon, where they set the new strategic objective of making the union the most competitive and dynamic knowledge - based economic area in the world. admittedly, general declarations of intent alone have never made anyone more competitive. in a comparative study, the oecd comes to the conclusion that the share of knowledge - based industries in germany is similar to that in the united states at over 50 %. germany ’ s highest growth in investment is in software. and, for creating a knowledge - based economy, it is undoubtedly a significant factor that the labour force in germany is generally highly qualified. that makes it easier to adopt new technologies. iv that takes me on to the question of whether the opportunities on offer are also actually being used. i do indeed have the impression that the necessary restructuring of the european economy is under way. the changes are perhaps most clearly visible in the financial markets, where europe is currently being confronted with a massive surge of initial public offerings on the stock market. more than 200 new innovative enterprises are now listed on the neuer markt and investment in venture capital in germany rose by dm 5 billion in 1999. a lot is happening at the moment on the mergers and acquisitions front. the process of concentration is going beyond national frontiers and traditional market segments, and is helping to open up the global market. operational efficiency is being enhanced. costs are falling. and resources can be saved at the macroeconomic level as well. since the mid - 1990s, when german industry ran into competitive difficulties due to the exchange rate, internal reforms have been taking place in german enterprises - in some cases, accompanied by a considerable number of redundancies. i firmly believe that german industry is now highly productive and competitive. what is sometimes also underestimated abroad is the extent of reforms in the public sector, for example, in germany. certainly, there is still a lot that can be done in that area. but what is occasionally overlooked is that large - scale privatisations of telecommunications, postal services, the electricity industry and the railways have taken place or are planned, and that industry is using the opportunities which this presents. v things are also moving in the field of fiscal policy - including in germany. the deficit ratio has been falling since 1997 - not least owing to the convergence criteria stipulated by the maastricht treaty. even though the public finance situation is less than ideal when measured against the objectives of the stability and growth pact, notable progress has still