Japanese
テキスト ボックス: (Honorifics omitted) Iwata: We heard some valuable comments from our two discussants about the uniqueness of the market as well as theories or shall I say opinions from an academic standpoint. Now I would like to ask our speakers to come up to the stage to begin the discussion. If everyone would please come up? I am Iwata and I will be the facilitator. I will be helped by Professor Banincova. She is from Slovakia and is multilingual. I think that the main arguments on today's theme have all been touched upon by our speakers and commentators. The first point has to do with the attribution analysis of a crisis, namely, why this sovereign crisis occurred, and how the 2008 financial crisis reached its current level. It seems that there was common thinking on this issue amongst the speakers and commentators as summarized in Mr. Bekx’s presentation. The second is how the defects within the EU, which became clear by the onset of a crisis, should be corrected. In concrete terms, the following must be addressed: Whether or not the present level of fund scale (firewall) of the EFSM-EFSF as emergency measures and ESM (Europe stabilization mechanism), which is due to be put in place next year, may be sufficient; how the ECB should be concerned with emergency communications at the time of financial crisis; whether or not the current financial agreement (Fiscal Compact) is sufficient; and whether or not institutional arrangements of Eurobonds, which currently contain three parallel proposals, may work. On these points there are some different opinions, and I think we would like to deepen our discussion of them. The third point to come of the current crisis is a larger debate. Within the overall history of the EU's institutional evolution over the years, the debate on a transfer union has gotten much more heated since last year in Europe and the possibility of a fiscal union has been debated since the 70s. And the existence of a single currency without a single financial system has always been debated in academic circles. Now there is an evolution occurring right before us, which will define what the EU should be and what the financial system of the EU should be, and there is much debate on these complex issues. So focusing on the issues raised by Professor Onoe, we will discuss what is a “transfer union” and what is a “fiscal union.” How should we think of fiscal federalism? What is the time frame we should be looking at to realize this? I believe these issues should be discussed by us in an open forum such as this. We don't necessarily have to focus solely on this, but since we received some valuable comments from our two colleagues, we can keep the points I just outlined in mind. We will now hear from the three professors who presented today. We will now switch over to English and I'll have Professor Banincova take over. Thank you. Banincova: Okay, thank you Professor Iwata for your summary. So now following the comments from our two discussants Mr. Nakajima and Professor Takaya, I would like to invite our three speakers to respond to the comments we have just heard. Each speaker can have about 10 minutes for his response. So, first, Dr. Bekx could you please give us your response? Bekx: （not published at the speaker’s request.） Banincova: Thank you very much Dr. Bekx. Okay, next I would like to ask Professor Rawlinson to respond to the points which were raised by the discussants. Rawlinson: Thank you. I’d like to respond to a few points that the commentators and the chairman made. First of all, monetary union without fiscal union: how far towards fiscal union do we need to go or can we go? I think we’ll go some way towards fiscal union, but it will be in small steps. The next steps are in the pact. They involve deeper and more extensive coordination of fiscal policies. The reason we can’t go very fast in this area is sovereignty. Member states will not give up sovereignty entirely in this area. Deeper coordination is the most we can hope for at the moment. But in future I think further steps towards fiscal union will occur. Fiscal coordination is already a very tall order, because it involves adjusting your own fiscal policies to the requirements or the good of the currency union as a whole. That has hardly ever been done so far. It’s a question of the big and strong countries like Germany adjusting their own fiscal policies for the good of the weaker countries, which are perhaps not as well administered, like Greece. It’s extremely difficult for Germans to admit that their current account surpluses, and perhaps some unwise lending by their banks, partly caused the crisis. Coordinating economic policies involves a loss of sovereignty. The remaining sovereignty that member states have is largely in the fiscal area, involving taxation and social security systems. Secondly, I’d like to take up a point that Mr. Nakajima made about the markets and I entirely agree that we have to allow market disciplines to operate. We should facilitate this and not give false signals. The signals we give should point markets in the right direction for assessing the degree of risk attaching to government bonds or to securities. Not all politicians understand the markets. Bureaucrats should help the politicians to understand and should resist proposals that interfere too much with markets. This is currently a danger in the EU with some of the proposals for tighter regulation of securities markets. On the possibility of default, I agree with private sector involvement. There has to be a possibility of default because there shouldn’t be an in-built guarantee of all government bonds. It’s unrealistic. But you should not make that risk too great, because no one will buy bonds that are subject to too high a risk of default. Therefore, the system of fiscal coordination has to be such as to reduce the risk of default and to avoid situations that lead to such a risk. The clauses that are to be introduced into bonds are good for the market because they will induce them to assess the risks better in future. But the risks should be contained. The system should prevent such risks actually occurring. On the question of Eurobonds, I agree that if the crisis gets worse we’ll probably get them, but if it doesn’t get worse we probably won’t get them for some time, though they will come in the future. I don’t think there need be a problem of moral hazard with Eurobonds, provided fiscal coordination is sufficient to prevent anyone accumulating excessive debt levels, and provided deficits are contained. Eurobonds must entail a guarantee that the temptation to run excessive deficits and run up excessive debt is avoided. On structural reforms, yes, there is still a competitiveness gap in Europe between the more advanced countries and one or two peripheral countries, Greece and Portugal in particular. Some other countries, too, such as Spain and Italy, need to continue the structural reforms that are under way. The problem is, will Greece be able to carry out the reforms fast enough and will Portugal be able to diversify the structure of its economy so as to become less dependent on developing-country type exports. A personal point about the UK: as a British national, I very much regret that the UK is becoming detached from the EU. I think this is not because the British people have a different view of economics or of their own economic interests, but because of a lack of proper information - indeed, to some degree, active misinformation - about the EU and what the benefits of EU membership are. I wish politicians in all countries, but especially in the UK, would make a bigger effort to explain to the population the benefits of EU membership. Finally, I am glad that in the last few weeks there have been hopeful signs that the crisis is being contained and that the measures taken are beginning to work. It seems that markets are no longer reacting to downgrades by the credit rating agencies and that Ireland seems to be on the road to recovery. I am glad about Ireland because I come from a part of Britain, North-West England, that is very close to Ireland and a large proportion of whose population are of Irish descent. I’m also pleased that Spain and Italy also seem to be doing the right things to get out of this crisis. So we have hopeful signs and I hope this progress continues. Thank you. Banincova: Okay, thank you Professor Rawlinson. Professor Onoe, please could you give us your comments on the points raised by the discussants? Onoe: Yes. I would like to thank you very much for very important comments of Mr. Nakajima, Professor Takaya, and Professor Iwata. I would like to reply for them as far as possible. First, for Mr. Nakajima’s comments; he criticized the achievements for transfer union and political integration from the viewpoint of German policy. For the moment, it is true. I quite agree with his opinion. So I would like to focus on German policy. I think it might be able to say that Greek problem means also German problem. Certainly, Germany now opposes the establishment of transfer union, the enlargement of the EFSF and the ESM and the issuing of Eurobonds. It is said that, in Germany, 60% of the people are not interested in the destruction of the Euro Zone. Such a German attitude shows the Euro Zone in danger of shifting toward a Ptolemaic system with Germany at its center. Germany requires economic adjustment by others to protect the interests of German taxpayers. This tendency, however, makes the Euro Zone as a whole increasingly unstable. For example, German austerity policy, which is imposed even on the debtor countries, would push the Euro Zone in deflationary spiral. Even George Soros, one of the most famous investors, recently blamed this German excessive austerity policy, and also one of the most famous economists in the world, Paul Krugman was recently interviewed by French newspaper Le Monde and there he insisted that inflation was not the problem, but a solution. It might be true. I think Germany’s responsibility is to lead in saving Europe. They must now point the way to deepen European integration. As Professor Takaya said, now there is a big problem about the current account disequilibrium. Germany has got a lot of current account surplus because they could export much within the EU. So such surplus must be invested in factories in southern Europe and also welcoming migrants from southern Europe for escaping from unemployment. This represents a real transfer mechanism which was executed by Great Britain in the 19th century. Now Germany must play the same role as that of Great Britain. Under these circumstances, Germany is now ready to offer the rescue plan for the Euro Zone together with France. For example, French Financial Minister Baroin and German Financial Minister Schauble have given a joint communiqué in which they insisted on the necessity of the Euro and declared to defend the Euro. I think German politicians now are changing their minds gradually. For example, the former Prime Minister, Mr. Schroeder, was also interviewed by Le Monde. There he insists on the necessity of the economic government and more federation in the EU. The idea of economic government has been stressed by French politicians such as Mr. Delors and Bérégovoy. However, it has been so far rejected strongly by Germany because the authority over the ECB might be deprived of by that. So Schroeder said that Germany should go forward with the French idea. He stresses that Europe must construct not a German-like Europe, but a European-like Europe. This argument shows really a great change. Now it is said in the EU that solidarity is being dissolved, but it’s not true. The partnership between Germany and France is becoming enforced. I expect this partnership is growing more and more. It has been said that to attain political integration, it is necessary to make good economic conditions. Now, on the contrary, to achieve economic integration, political solidarity is needed. I would like to insist on this point. And for Professor Takaya’s comment about fiscal integration, I think there are several steps for proceeding through fiscal integration or fiscal union. First, the ECB must become the lender of last resort. Second, the ESM must be enlarged. Third, the Eurobond must be issued. And fourth, the economic governance must be legitimatized. And finally, for Professor Iwata’s comment about the meaning of transfer union. I think this means indirect intervention, not direct one. So it means just fiscal federalism, as I said　through Barbier-Gauchard’s opinion. Of course, the problem of the concrete mechanism of transfer union remains. It is very difficult to design such a mechanism, but I hope, gradually, the transfer union will proceed. That’s all. Bekx: (not published at the speaker’s request.） Onoe: Okay. Me, too; I have to say something. Probably Mr. Bekx has a little bit of misunderstanding about my opinion. Yes. I introduced Professor Krugman’s idea. Of course, he also exaggerated a little bit, like general American economists. It’s a sort of scandal. But, he is a post-Keynesian, so according to Keynesian policy, from the viewpoint of short-term period, the inflation policy is reasonable. It is now stressed among the Keynesians. I don’t agree the idea of Krugman completely, but I can understand his idea, because I am afraid of the deflationary spiral, especially in the poor and small　countries, such as Greece or other　southern European countries. It is a very serious problem. I would like to say so. Iwata: Okay, Professor Takaya, do you have any ideas? Takaya: May I speak in Japanese? With regards to the inflation problem that was just brought up, if there is a common currency being used, then inflation would probably not be a possible solution. In that case, it wouldn't be Krugman's theory but only that of the ECB that could make the Euro's cooperative system work. The reason for this is that it is difficult to get all the countries to increase by the same 5%. Even 10% would be difficult. It could end up that one country would be at 30% while another country is at 5%, so you'd have that discrepancy. In the end, when the Euro is adopted we must have a goal of a common inflation rate and that rate must be at a low level. So in that sense, using inflation as a solution strategy when you already have a common currency is I believe difficult. There is another point that I'd like to ask about and that is, as Mr. Beck and Professor Rawlinson believe, whether we have gotten through the worst of the crisis. I believe we have. I believe that was the consensus at yesterday's summit. What I want to point out however is that perhaps now we are seeing less tension, less nervousness. That is to say, people think the crisis is over, we've bottomed out and so they have relaxed. I believe this is a very dangerous state, that this in itself is a crisis. We should continue to stay on our guard as we think about the next steps for reform. So as with the previous discussion of the introduction of a common Euro bond, because we have gotten through the worst of this crisis many countries may not agree to this right now, but it is because we are in this state that we should consider adopting this so that we will be prepared for the next crisis that will come in the future, perhaps even sooner than we expect. I feel that the climate right now is a little dangerous in that sense and that is why I wanted to bring this up. Banincova: Okay, so now I would like to proceed to taking questions from the audience. Could we please have the mike here? Here please. Hayashi (EUSI Tokyo): Thank you very much everyone for comprehensive speech and discussion. I have two questions, mainly for Mr. Bekx, but this is related to also Professor Rawlinson and Professor Onoe and two comments. The first question is the banking crisis and the financial regulation. As we know and as many have discussed, the ECB policy to provide the three years operation was very effective,but it is understood that the effect to stabilize the situation of financial market is temporary. On the other hand, the banks are required to enhance the capital adequacy ratio. But isn’t the coordination of financial regulation in the EU, which will help to strengthen the financial markets still under way? The second question is the Eurobonds and the fiscal discipline.we classify the Eurobonds into two categories. One is the Eurobonds with the bad quality and two is the Eurobonds with the good quality. I mean the first category without fiscal discipline, which should be rejected by Germany. But if the middle or long-term discussion to strengthen the fiscal discipline is included in the design for the Eurobond as the second category, which the global market players including Japanese one may accept. So I’d like to get your opinion on this topic. Thank you. Banincova: I’d like to take maybe three more questions from the audience and then we can have the answers. Can we have the mike on the left side? Maybe the gentleman on the… (Man attending conference): I have two questions. I would like to know if the crisis in Europe has really recovered. And my second question is about funding. You mentioned Japan as well but the funds from Japan would come through the IMF and the central bank. Is it possible that funds may come from China? Banincova: The time is late. Maybe I will take two more questions from the audience, please. (Man attending conference): My question is about the relationship between China and Europe. I think that, in the long run, today’s problem is viewed as one aspect of the global, the so-called global imbalance of financial resources in the world, in other words, the worldwide current account disequilibrium. So, therefore, I think the main problem, the most important problem for Europe, one of the most important problems for Europe is how to attract money from China or other emerging markets. So my question is does EU have any policy initiatives to attract money from China or other emerging markets in the long run? Banincova: Okay, thank you. And I think we will take one more question and then we will go to the… (Lady attending conference): My father is German and my mother is French, so I somehow feel very European, so I am very interested in that discussion. I am sure the Europeans on that stage hear this question quite often, but this kind of question has not been posed yet, so… I have the feeling that the citizens in Europe don’t feel very involved into this problematics or not properly involved into this discussion in several ways. European citizens first of all are citizens of the countries of Europe, so automatically become European citizens, but there is not such a thing like European citizenship yet. And votes in the EU are also national votes and the European votes have a quite, relatively low participation and level of discussion and visibility in many countries. Also, now especially in the last few months, some European politics gained a bad reputation. So for all those reasons, I think, citizens in the EU have a problem to give up the sovereignty of their countries because, for them, it might be somehow giving up the sovereignty of the people, which is a very important point for building up some democratic structures. So my questions is do you think it is possible to revise in the short-term the fiscal policies of the EU, especially towards further integration or some kind of federal policy without first reforming the European institutions, I mean, especially going towards deeper involvement of the citizens into the European institutions? So how could that be done in a short time and taking into account the citizens’ demands? Thank you. Banincova: Okay, thank you. So now I would like to ask our speakers to respond to the points which were raised. Maybe we will start with Dr. Bekx and then we will go to Professor Rawlinson and Professor Onoe. Bekx: （not published at the speaker’s request.） Banincova: Thank you Dr. Bekx. You have replied in much detail and I’m afraid we are running out of time slightly. It is okay, so maybe I will ask Mr. Nakajima and also Professor Takaya if you have something to add maybe, and then if we have that time we will also ask our speakers. Nakajima: I have just one point. There was a question on whether the European crisis had recovered, and the situation is that there is a growing sense of ease with the large amount of funds from the ECB. Of course the signing of the Fiscal Compact just yesterday means the fiscal deficit will be contained in the long run and so this is extremely positive news. The firewall will probably grow later this month, which will mean more positive news so at least for the time being the news out of Europe will be positive. But in the end, the root of the problem began with the fiscal deficit, so my concern is the austerity measures taken within this negative economic growth and whether the Greek fiscal deficit will really decrease as everyone has promised. For example, Spain set its deficit target at 6% but only managed 8.5%, and this year has set 4.4% as its goal and so this will be very difficult. So in six months or a year if the fiscal deficit numbers don't change as expected, the market, because it's frankly quite childish, the market may repeat the game it played before. This is my thought. Takaya: Yes, if I may also comment on the question of the Euro crisis, as Mr. Nakajima pointed out, the bazooka fired by the ECB is working very well right now so that we can look at the current situation as a lull. But this does not mean that we have gotten rid of the entire cancer. This is just a temporary lull. So then the question becomes how do we get rid of the whole cancer? We must come up with a growth strategy, and as the Democratic Party of Japan says, there can be no growth without fiscal reconstruction, so we must have a strategy that includes growth. So then do we go ahead with fiscal reconstruction first or growth first? That is a difficult question and although it will be hard, it is probably inevitable that we must try to do both at once. Although the road to fiscal reconstruction is already somewhat laid out before us. That is why I believe the market has stabilized somewhat. But there hasn't been that much debate on growth. There hasn't been that much done in terms of putting it into action, and in particular the countries in southern Europe, Greece and Portugal, for example, must come up with a strategy for growth and actually show the growth in numbers, although this will be a longer term issue we must think about. If that strategy isn't made concrete, however, the fiscal reconstruction will not work and that may bring about the next crisis. So this is why I would like to emphasize growth. In particular I would like to see a strategy with an emphasis on innovation. This is my hope. Banincova: Yes. I’m afraid we are running out of time, but Professor Onoe if you have anything to add, please. Onoe: I would like to reply for the question about the financial regulation in the EU. I didn’t mention it today, but it’s a really important problem. I’m going to publish one book in this April. There I stress the importance of financial regulation because it is the financial regulation that the EU has appealed after the financial crisis. It’s very important. I quite agree with your opinion. Iwata: Thank you very much. Our time is up. We've gone over about five minutes. I don't think we have time to summarize everything that was discussed but we did clarify what issues are being discussed locally and globally, including Krugman, and by doing so we have achieved half of our goals for today's conference. There still are unresolved problems, problems regarding systems. The market is for now in a positive state, we are optimistic, but there are still some concerns and we must continue to be aware of these. In the mid to long-term on the issue of inflation discussed earlier, this is a very broad topic that begins at economic philosophy and goes all the way to the issues around the design of capitalism and what that entails. For a long time, the ECB and the Commission clearly have had discussions based on anti-inflation but Professor Onoe presented a slightly different view. I never expected we'd come up with a solution today but I hope we can see this as a starting point for further discussions. I would like to thank Dr. Bekx, Professor Rawlinson, Professor Onoe, and Mr. Nakajima and Professor Takaya for a very focused discussion since this morning, and what I believe was a very high-level debate on the topic. Thank you all very much. Please give them a hand. テキスト ボックス: EUIJ-Kyushu First Annual International Conference European Challenges for Overcoming the Crisis 3 March 2012 テキスト ボックス: 【Third Session】 Discussion テキスト ボックス: Discussants: Peter BEKX, Director of International Economic and Financial Relations, Global Governance, DG ECFIN, European Commission. (Mr. Bekx’s comments are not published at the speaker’s request.） Francis RAWLINSON, Professor, Kwansei Gakuin University Shugo ONOE, Professor, Seinan Gakuin University Seiya NAKAJIMA, Chief Economist, Itochu Corporation Sadayoshi TAKAYA, Professor, Kansai University Co-chair:　Kenji IWATA, Professor, Kyushu University Co-chair:　Eva BANINCOVA, Associate Professor, Kobe University