christian noyer : does europe face the prospect of a lost decade? speech by mr christian noyer, governor of the bank of france and chairman of the board of directors of the bank for international settlements, at the international economic forum of the americas, conference of montreal, montreal, 9 june 2014. * * * it is always a privilege to speak alongside larry. but it is also a challenge. i will make the most of it by referring often to salient remarks made by larry in recent months. i will address three questions : is the euro crisis over? does europe face the prospect of a lost decade? what short - term policy challenges are we facing today? i / – is the euro crisis over? less than two years ago, the euro area was fighting for its existence. euro pessimists were questioning its ability to survive. not anymore. analysts may be questioning europe ’ s ability to grow. but the challenges that we are facing are different. they are macroeconomic, not existential or systemic. thanks, mainly, to the eurosystem ’ s actions, financial conditions are normalising. spreads in peripheral countries have been dramatically reduced. soon, budgets will be reasonably balanced and there will be no more fiscal drag on the economy. households and corporates have strong balance sheets. recent forecasts put german growth at more than 2 %, italy in positive territory, and the outlook for france has improved markedly. growth of business activity in the euro area in april was the highest in the past three years. but the crisis has left an important legacy : • money and financial markets remain excessively segmented. the monetary transmission mechanism is severely impaired and credit conditions are still very different across countries and sectors. • deleveraging in the banking sector still acts as an impediment to recovery and growth. bank credit remains flat in the euro area as a whole, and smes ’ financing is a major concern, especially in stressed countries, where the percentage of financially constrained but viable borrowers is estimated at 25 % vs 1 % in “ core ” countries. we are very aware that balance sheet repair is a prerequisite for credit to resume and for monetary policy to be efficient. so, we are addressing the problem as a priority. 1. we are building a safer and more robust system of financial intermediation. a major step has been the creation of a banking union that, as you all know, will delink bank and sovereign risks and ensure a harmonised

will be withdrawn after a peaceful settlement of the geopolitical situation. in addition to this public – or geopolitical – fragmentation, there is a risk of “ private ” fragmentation through the disorderly development of crypto - assets, among which the somewhat misnamed “ stablecoins ”. as demonstrated by the turmoil on financial markets in recent weeks, they are possibly very unstable. we have long stressed the risks of such speculative investments. but it ’ s not enough : this must be taken as a powerful wake - up - call for a global regulation, which is urgently needed. mica on the european side paves the right way. crypto assets could disrupt the international financial system if they are not regulated, overseen and interoperable in a consistent and appropriate manner across jurisdictions. this is why i have spoken of the danger of fragmentation in payments akin to the middle age, with so - called “ cryptocurrencies ” having limited constituencies and acceptance. 3. but do we agree about the solutions? in principle yes : in order to avoid repeating past mistakes, we would need a collective momentum towards a stable and market oriented multipolar international financial system. a more multipolar ifs would help deal with the modern version of the triffin dilemma : the supply of usd global safe assets is limited by the fiscal capacity of the us, while demand for them is bound to page 4 sur 7 increase. it could also offer more monetary policy independence to emerging markets, by reducing the influence of us financial and real cycles spillovers. that said, the political conditions for such a major shift are not very favourable, to say the least : imagining the us, china and other major emerging economies converging today on a new ifs, while they didn ’ t for decades, could appear as utopian. let me be more positive : we need to keep this concept of a more balanced multipolar system on the horizon, at least as a “ creative frontier ”. and we europeans need to be active and committed on what depends on us. to move towards a more resilient global system, the euro should play a more important international role. it is a currency in a jurisdiction with solid democratic and stable institutions, including independent central banks and the rule of law. the euro is relying now on a more than 20 - year old solid track record of stability : it is backed by a soft power based on the respect of international rules, multilateralism and openness.