christian noyer : the euro, a stabilising factor at home and abroad speech by mr christian noyer, governor of the bank of france, at “ paris europlace " a financial meeting in hong kong, 21 march 2005. * * * introduction • the legal basis for the single monetary policy is the treaty on the european community, whose article 105 states that “ the primary objective of the european system of central banks shall be to maintain price stability ”. • price stability, combined with the convergence of euro area economies, is the key issue enabling the euro to become a stable international currency. • thanks to a strong macroeconomic framework and to the convergence of euro area economies, the introduction of the euro has limited the risks of disequilibrium inside the euro area ( part 1 ). furthermore, the international role of the euro as a vector of stability has increased ( part 2 ). part 1 : the euro has been a key factor for maintaining stability inside the euro area the efficient macroeconomic framework of the euro area ( a ) has made the economies of the euro area more homogeneous and reduced the risks of macroeconomic disequilibrium ( b ). as a result, the euro area is characterized by strong economic fundamentals ( c ). a the macroeconomic framework of the euro area is an efficient framework • for the past six years, the eurosystem has been responsible for defining and implementing the single monetary policy. the primary objective of the eurosystem is to maintain price stability, which has been defined as a year - on - year increase in the harmonised index of consumer prices ( hicp ) for the euro area of below 2 % in the medium - term. in may 2003, the ecb governing council confirmed this definition and specified that, in the pursuit of price stability, it will aim to maintain inflation rates close to, but below, 2 % over the medium - term. the monetary policy conducted by the eurosystem has led to a low level of inflation, which averaged 2 % between 1999 and 2004, and to very favorable financing conditions as both short - term and long - term interest rates have reached very low levels. • moreover, in principle, fiscal policies cannot undermine the objective of price stability as the treaty prohibits monetary financing and as member states are committed to implementing the stability and growth pact. however, the lack of fiscal discipline in some euro area countries and the recent debate at the eu level have illustrated the fact that it is still necessary

market transparency experience shows that uncertainty and incomplete information are determining factors in mimetic behaviour. these shortfalls in market transparency make mimetic behaviour seem rational to agents, who prefer to follow bigger participants, who are thought to be better informed, rather than develop their own analysis. strengthening transparency therefore continues to be a priority. one of the objectives of transparency is to enable better differentiation of borrower creditworthiness. a key feature of mimetic behaviour is that all borrowers are " tarred with the same brush ". so when one emerging economy encounters difficulties, all neighbouring countries, or countries that share common characteristics, are treated in the same way – regardless of their actual economic and financial situation. the same applies to businesses operating in the same economic sector. transparency has substantially increased since the asian crisis, thanks to a solid global consensus. let us continue and reinforce these efforts. take into account the medium and long - term perspective of some market participants some investors, such as pension funds and insurance companies, have to invest funds in order to enable their customers to build up wealth over the medium and long term, notably in preparation for retirement. consequently, these types of investors are supposed to behave differently from traders and short - term investors, who are working on a very different time horizon. but at times it seems that they are all pushed to behave in much the same way, on the basis of a very short - term horizon. to preserve, and even restore, their specific investment approach, these investors might be more shielded from excessive short - term pressures. this objective raises considerable difficulties, because it touches on the way in which the performances of medium and long - term funds ( including pension funds ) and life insurance companies are assessed. in other words, this objective concerns the accounting standards and practices they use. it implies that some rules and standards would be adapted to the medium and long - term horizon used by these entities. i have no answer at this stage. i am only asking the question. diversify the risk management tools of financial institutions as i mentioned earlier, even the best techniques can have adverse effects when used by too many participants. to some degree, this is perhaps what has happened to value - at - risk based techniques, which have been massively adopted by the financial industry. because they use more or less similar parameters and suffer from the same weaknesses – for example, they took inadequate account of market liquidity at the time of the 1998 crisis –, such tools tend to give con