lorenzo bini smaghi : the reform of the international monetary system speech by mr lorenzo bini smaghi, member of the executive board of the european central bank, at the conference in memory of tommaso padoa - schioppa, rome, 16 december 2011. * 1. * * introduction it is a great pleasure to attend this conference today in honour and memory of tommaso padoa - schioppa and to be a member of the panel discussing the reform of the international monetary system. that was a field tommaso bore responsibility for at the ecb and which i inherited from him. i would like to focus my remarks on his main critique – which he shared with robert triffin – that the international monetary system remains incapable of imposing an acceptable macroeconomic discipline on the world economy. i also wish to examine the reservations he expressed about international policy cooperation being enough to ensure stability. i would like to organise my remarks as follows. first, i would like to explore the theoretical underpinnings of international policy collaboration, and explain why in practice it seems to fall short of what is needed in today ’ s global world and why countries remain trapped in shortterm policy - making. i will then review some proposals made by tommaso to correct today ’ s international monetary system, including the provision of an anchor and an exchange rate mechanism, and consider the consequences of maintaining the status quo. in conclusion, i will argue that it is better to prevent volatility than to cure it. the deployment of ever larger official resources to cope with potential crises cannot be the solution – neither conceptually nor practically. the policy implications are that there are three key areas where preventive action could and should be taken, and which require structural change by major economies : first, financial developments in emerging market economies ( emes ) ; second, further financial and economic integration in europe ; and third, reforms to ensure that financial markets serve the real economy and support stability. 2. analysis let me start with the global financial crisis. there is a broad consensus on some of the main factors underlying the global financial crisis – such as the growing and persistent current account imbalances, inadequacies in financial regulation and supervision, the systemic risk caused by excessive leverage combined with risky financial products, and so on. as tommaso argued, there is also some lack of recognition of the fundamental flaws in the present monetary arrangements, or rather non - arrangements. being a policy

the governments to take steps before we do what we have to do as a central bank. that would be an easy way ; it is not my idea of the ethics of responsibility for those who bear public responsibilities, and this is not in accordance with the text of the european treaties, which require us to fulfil our mission whatever may happen. the eurosceptic parties are gaining strength at each election and it shows that people are fed up with current policies, which are reflected in social decline. isn ’ t there a risk that the states are politically paralysed? that they are fed up is no surprise! one cannot blame the people for that ; it ’ s a moral and democratic question. it ’ s up to the european authorities and the governments to show that they can create growth and push down unemployment – something they haven ’ t managed to do convincingly since the crisis started. now the risk is that this fed - up sentiment creates a spiral of defiance : if there are no convincing results, people ’ s confidence in european institutions and in the community construction is undermined. there is no solution without europe : one cannot sustainably boost french growth if there ’ s no strengthening of german and italian growth. in some area it ’ s even necessary to have “ more ” europe. but to achieve this, it ’ s necessary to restore people ’ s confidence in europe and to do that growth is needed. hence the symbolic importance of the juncker plan, which shows the determination of the governments to create growth. if syriza wins the election in greece on 25 january, will there be a risk that greece leaves the euro as some in germany seem to be thinking? it ’ s not a question of greece exiting the euro. what ’ s at stake in the election lies elsewhere : it ’ s the composition of the mix of reforms which will allow this country to come out of the crisis once and for all, and to reintegrate the european economies ’ concert. depending on the result [ of the election ], the reform strategy in greece will be different, that ’ s normal. that ’ s democracy, and it ’ s up to the greeks to decide. greece has fully benefited from european solidarity : whatever the election result may be a discussion is needed between this country and europe to know how these reforms will fit into the european framework and how they will put greece on a path of sustainable growth which will permit the country to repay its debt to europe one day. bis central bankers ’