While the purpose of the conference was intended to be a discussion of how countries should prepare for the monetary union that follows accession to the EU, some of the speakers seemed to be equally interested in doing damage control to boost the image of the euro, which has been taking a battering in financial markets of late. "There is an excess of preoccupation with the low euro and we are losing our long-range view," said Pedro Solbes, the EU's Commissioner for Economic and Monetary Affairs. "The euro is undervalued and it will appreciate over the medium term as we continue with structural reforms," he said.
Solbes refused to comment about the currency's short-term prospects. While the EU's rate of growth is lower than that of the United States, Solbes said that Europe is more stable and that investors aren't taking this into account. He also pointed out that 13 percent of the world's currency holdings are in euros and that 40 countries are connected to the currency by using it as an anchor. He also said that a "no" vote in Danish referendum on monetary union would have no effect on monetary expansion in the rest of Europe but offered few details as to why he believes this.
Solbes said external shocks such as the Asian and Russian recessions as well as the hike in oil prices were the main reasons for the weakness in the euro. Helmut Maucher of Nestle, Germany was somewhat more critical. "The markets are deciding right now. The international investment community is not looking positively at the euro. Right now there is too much talk about harmonization through regulation and this is the problem," he said.
Maucher thinks that there are too many leftist and liberal governments in Europe who back a Latin and French philosophy of centralization versus a German and English philosophy of decentralization. He said investors are skeptical about bureaucratic solutions to economic problems.
Preparation for monetary union is going to be an uphill climb for countries wishing to join the EU. Christa Randzio-Plath, president of the European Parliament's Monetary Commission, believes that more effort is needed from both the EU and aspiring countries. "We are lost in decision-making structures designed for six member states," she said. While she was positive about changes in Eastern Europe in the last decade, she said much more work is needed. "Central and Eastern European countries still have major problems, even the IMF (International Monetary Fund) says this. They still need major amounts of continuing foreign investment."
Randzio-Plath said that more legislative work is needed in the areas of banking, competition, corruption and intellectual property. "Another concern is the independence of central banks. We are noticing that politicians are still tempted to give instructions to them; they need to be independent structures."
Monetary union will only be possible a minimum of two years after a country has been accepted to the ranks of the EU. "We need to be certain that there is financial stability in a country prior to monetary union. Some countries may experience currency fluctuations after joining, as large amounts of capital will be moving around," said Solbes.
Nestle's Maucher was very positive about the long-term outlook for Eastern Europe and confident that many will join the EU, calling enlargement "a political must".
"Remember Germany's situation after World War II. We were a poor country but we had low costs. Take advantage of your low costs. To generate wealth you need to generate profit, and you can do this with low costs," he said.
Please enter your username and password.
2024 © The Baltic Times /Cookies Policy
