otmar issing : the euro - a stable currency for europe speech by professor otmar issing, member of the executive board of the european central bank, at euromoney institutional investor plc, london, 21 february 2001. * * * introduction slightly more than two years ago the european central bank ( ecb ) assumed responsibility for the second largest economic area in the world after the united states. the euro is now the currency for 300 million people. the transfer of monetary policy competence from 11 national central banks, many of them characterised by a long history and impressive monetary policy results, was met with a great deal of scepticism. all the more so, because the asymmetry between a self - contained central bank and - in the meantime 12 - national governments brought with it an historically unique situation. the single monetary policy has not experienced any significant accident so far in its short life : the transition to the single currency has been quite smooth and the governing council of the ecb was successful in fulfilling its mandate, namely in maintaining price stability in the euro area over the medium term. clearly, we are not satisfied with hicp inflation above 2 %, as we have seen since the middle of last year. however, we have announced before we started to conduct our monetary policy that the ecb could not precisely control inflation in the short - term and would not try to as, for example, in the case of an oil price shock. but we have good reasons to expect that, if nothing comparable happens again, hicp inflation in the euro area will fall back to below 2 % in the course of this year. you may ask why i am so confident about this. there are three main reasons. first, the institutional set - up on which the ecb and the euro have been built is very sound. second, the governing council of the ecb managed to set up an efficient framework both as regards the monetary policy strategy as well as monetary policy instruments. finally, monetary policy in the last two years has rightly been perceived by most observers as having been appropriate to maintain price stability in the medium term. all this is reflected in a high degree of credibility of the ecb, as evidenced by low inflation expectations. the institutional design let me start with the institutional design. the treaty establishing the european community - which i will refer to as the " treaty " - and the mandate of the ecb provide a sound basis both for an effective monetary policy and for the establishment and development of

enhancing their competitiveness. let me elaborate on each role one by one. recent experiences have demonstrated to us just how volatile the financial environment could be – both in terms of risks to economic growth and the policy responses that follow. unfortunately, the journey ahead is paved with similar challenges, if not greater – financial stability risks and economic rebalance in china, the growing monetary policy divergence, the lower - for - longer interest rate policy and perhaps a more widespread use of unconventional measures by central banks of advanced economies. as a small open economy, we must therefore ensure that there is sufficient policy room to mitigate the potential adverse impacts or events that could unfold in the future. in this context, the monetary policy committee ’ s decision to maintain the policy interest rate should be viewed as a preference to preserve the limited policy space for rainy days ahead. the monetary policy committee expected headline inflation to return to the target band later this year, while core inflation has stayed positive at around 0. 8 % since the beginning of this year. however, in the event of abrupt or excessive movements of financial market variables or capital flows, the bank of thailand stands ready to utilize the necessary policy tools in order to support economic recovery and ensure the well functioning of the domestic financial markets. looking forward, amid the prolonged low rate environment both at home and abroad, we will continue to closely monitor the buildup of imbalances and underpricing of risks in the financial system, while preparing to take necessary actions in order to prevent them from becoming systemic risks. all in all, monetary policy in the periods ahead will continue to be a delicate balancing act between risks of inflation, growth and financial stability, and the monetary policy committee will make sure that its actions do not add vulnerability to the financial environment. regarding our financial sector development policy, the bank of thailand believes that efficient and inclusive financial and payment systems can help empower our growth engine. by efficiently allocating resources to match the diverse needs of different sectors in our economy, we should be able to release their untapped potential and therefore enhance thailand ’ s competitiveness. indeed, our three master plans – namely the financial sector master plan, the payment system roadmap and the capital account liberalization master plan – have been designed with such goals in mind. although each plan is different in their rationales and implementation, their intended outcomes can be summarized along three key dimensions – ( 1 ) to reduce cost of financial services for households and businesses ( 2 ) to deepen