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Über dieses Buch

The Economic and Business Consequences of the EMU A Challenge for Governments, Financial Institutions and Firms Hubert Ooghe Conference Chairman, Vlerick Leuven Gent Management School alld Ghent University EMU finally got under way on 1 st January 1999. Since then 11 European countries share a common currency, the Euro, and pursue a common monetary policy managed by the European Central Bank (ECB). After forty years of economic integration, Euroland has the wherewithal with which to enter the 21 st century. However monetary union has implications for nearly all areas of economic activity and decision-making. Throughout the academic world researchers are fully occupied with the theoretical analysis of the impact of the Euro and the effects of incorporating the new operational framework into their economic models. Businesses and government departments are concerned primarily with the practical implementation of the single currency. For all those who playa part in the economy, it is a question of making the most of the macro and micro­ economic opportunities offered by the Euro and minimising any threats. On 17th and 18th March 2000, after the EMU and Euro were in operation for one year, an international conference was held in Ghent (Belgium) on the economic consequences of the introduction of the EMU and the Euro for governments, financial institutions and firms.



Chapter 1. Beyond EMU : The Need for New Momentum

In January 1999 eleven European countries joined the Economic and Monetary Union (EMU). Considering the expectations that had been raised — especially at the optimist side — in the years before, a new world might come about. Key words were transparency, discipline, stability and efficiency, leading to high growth, job creation and low inflation. Pessimists, on the other hand, questioned Europe’s single currency project mainly for social reasons and for reasons of macroeconomic management. In section 2 of this paper we first revisit the main expectations that had been raised. In section 3 we confront these expectations with recent facts and developments in 1999 and early 2000 and with the results of recent research, presented in this book or in the related literature. We conclude in section 4 by drawing a number of policy conclusions. Mainly, we will argue that EMU in itself has not brought Europe in wonderland, to quote Klaus Gretschmann (1991). It might however act as a catalyst. Our main thesis will be that policy can make EMU either succeed or fail. Success requires that Europe proceeds along the road of further reform, mainly on labour and product markets. To make these reforms possible, however, it is our view that monetary and fiscal policy makers cannot stand aside. We will argue that the creation of a new momentum in Europe requires a co-operative effort from all players.
Freddy Heylen, Rudi Vander Vennet

Chapter 2. European Competitiveness and the Euro

The title of my address may deserve a few comments in order to put my statement in perspective. The introduction of the Euro — which is now underway — will contribute to European competitiveness. However, it must be clearly understood that other factors are more important for European companies’ability to compete world wide. It would be dangerous if we were to believe that a single currency would be panacea for competitiveness.
Leif Johansson

Chapter 3. The Euro: The Issues for the Future

The Euro has passed its freshman test after the first year of its existence. The transition to the new monetary regime was smooth, the monetary policy instruments have proven to be satisfactory, the new currency is well off the ground operationally, and the expansion of the European bond market can be seen as a first major positive impact of the Euro. The open questions that remain may be teething problems of the young baby. Nevertheless, at this stage, the market participants do not have the new currency in their hands yet, and with the Euro representing a new institutional regime, some stumbling blocks lie along the future road. Monetary integration is a process, and some aspects of the new institutional arrangement, especially of its implementation, are not yet completely settled. To look out for the stumbling blocks or the issues for the future means identifying the conditions for success of the new European common currency.
Horst Siebert

Chapter 4. EMU from an Historical Perspective

In this paper two topics are investigated: the genesis of the European Economic and Monetary Union and the reasons why the efforts to create a single European currency were finally successful.
Jan Smets, Ivo Maes, Jan Michielsen

Chapter 5. Monetary Policy in the Euro Area and the First Year of the Eurosystem

A long process of economic and political integration in Europe has preceded the introduction of a single currency, the Euro, in eleven of the fifteen European Union members on 4th January 1999. Nevertheless, until as late as a couple of years ago, serious doubts remained about whether the whole Maastricht process would end up in tears. As discussed in Corsetti and Pesenti (1999), the most surprising fact ex post is that, in spite of the setback experienced in 1992 and 1993 during the ERM crisis, the creation of a single currency in eleven of the fifteen EU countries has largely occurred according to the time-table and modalities agreed upon in December 1991 in Maastricht. Against this background and the fact that the European Central Bank as an independent institution came into being only on 1st June 1998 and thus had about six months to finish the preparations for the establishment of monetary union, it is equally remarkable that the start of the single monetary policy has occurred without any major glitches. Contingency plans designed to deal with possible market anomalies, ranging from the possibility to exclude unprepared agents from market operations to the introduction of special procedures for monetary policy, remained unused. The new payments system, TARGET, was from the start a success and performed its functions with high technical reliability.
Frank Smets

Chapter 6. How the Euro Affects Investments

The influence of the creation of European Economic and Monetary Union on investments can be analysed from a number of different angles. The emphasis can be laid on the instruments (have new types emerged as a reaction to the Euro?), on market developments (has there been any influence on correlations?), on the organisation of the market (what is the position as regards the rapprochement between the stock exchanges?; has there been any change in the regulations?), on the organisation of the market participants (are asset managers and brokers already organised differently to what they were before the start of EMU or are there any plans to that effect?; what is the situation as regards the way the issuers are organised?), on investment taxation, etc…
William De Vijlder, Frédéric Mackel, Peter Praet

Chapter 7. The Evolution of National Tax Structures in View of the EMU

To cover their expenditures, governments dispose of an almost infinite number of different taxes. Actual tax choices depend on economic, political and sociological constraints imposed on government. National differences in these constraints explain why considerable tax structure heterogeneity exists (section 2). Still, a prominent characteristic of the last decades has been the internationalisation of both economic and political life. As a consequence, tax choices have become less a purely national matter. While making tax choices, governments have to consider the effects from and on other countries. It has been shown in the literature that a growing interdependence may lead to diverging as well as to converging tax structures.
John Ashworth, Bruno Heyndels

Chapter 8. Challenges for Successful Wage Setting in Europe

The creation of the European Monetary Union (EMU) fundamentally alters macro-economic policy-making in the eleven participating countries. The loss of the exchange rate instrument through the introduction of the single currency, the transfer of monetary sovereignty to the European Central Bank (ECB) and the budgetary discipline of the stability pact severely narrow the scope for governments that wish to address adverse economic shocks (see e.g. Bayoumi and Eichengreen (1992), Carporale (1993)). By lack of these familiar policy instruments, the focus is shifted towards wage adjustments as a means of coping with changing macro-economic conditions.
Filip Abraham, Karolien De Bruyne, Isabel Van der Auwera

Chapter 9. EMU and European Labour Markets

Is Economic and Monetary Union the long expected cure for European unemployment as often proclaimed, or does EMU stand for Even More Unemployment? In this paper we try to shed some light on the effect monetary union could have on European unemployment. The issue is not only relevant from a theoretical perspective, but it is also of utmost social importance. Many European countries struggle with high and persistent unemployment. Table 1 shows equilibrium unemployment rates in the EMU countries. We consider equilibrium unemployment rates to correct for differences in the business cycles among countries. Another reason to consider equilibrium unemployment rates is that standard macroeconomic theory tells us that monetary and fiscal policy have no lasting effect on equilibrium unemployment1. The data show that average unemployment in EMU is almost twice as high as in the non-EMU countries. Moreover in five EMU countries (among which France, Germany and Italy) equilibrium unemployment has increased in the 1990s, while the other EMU countries experienced stable or decreasing equilibrium unemployment rates. In the non-EMU group only four out of eleven countries saw their equilibrium unemployment rates increase in the 1990s (among which two potential EMU members, viz. Greece and Sweden). The other countries (like the US and the UK) registered stable or falling equilibrium unemployment rates.
Alain Borghijs, André Van Poeck

Chapter 10. Social Protection Competition in the EMU

Every step towards the completion of European integration appears to be greeted with renewed, not to say increasing, concern over its possible unwanted negative social side-effects, particularly as regards protection against social risks (unemployment, sickness and invalidity, age, ...) and poverty. Not only the governments of the different Member States but also the two EU Commissions headed in the past by Delors were deeply worried about the ability of the Member States, by applying incomes policies and social security measures, to pursue beggar-my-neighbour policies in an integrated market and all the more so in a monetary union. The EMU would provide an even greater temptation for them to do so because other economic policy instruments such as trade policy or monetary policy are kept under tight control, thereby increasing the relevance of incomes policy as an instrument at their disposal. Moreover the very creation of a single market would allow potentially more substantial gains from a competitive advantage as competition and the price elasticity of the demand of “tradables” increases. This applies in particular in a monetary union in which international transparency increases with the removal of transaction costs.
Wim Meeusen, Glenn Rayp

Chapter 11. Central and Eastern European Countries and the Advent of the Euro: Is Euro-isation a Good Idea ?

The Euro will affect CEEC (Central and Eastern European countries) well before their accession to the EU. There has been some speculation about the question whether the CEEC first wave entrants (the Czech Republic, Estonia, Hungary, Poland, and Slovenia) should enter the EMU at the occasion of their accession to the EU. There has been suggested that the EU should not expect EMU-accession right away. The European Commission itself mentions that “… they are not expected to join the European Monetary Union directly, because of formal and substantial reasons” (European Commission, 1998, p. 135). Therefore we do not limit ourselves to the accession of the CEEC to the EU and EMU but also focus on the question how the CEEC should react on the advent of the Euro. Section 2 focuses on the question whether the CEEC should link their respective currencies to the Euro or not. In section 3 we analyse whether it might be interesting and feasible for some CEEC to adopt the Euro unilaterally, before accession or even without reference to accession at all. We address the question what role the EU could should play in this process and show that there is scope for a gamble for sustainable Euro-isation. Section 4 summarises and concludes.
Koen Schoors

Chapter 12. Price Differences and Price Setting in the European Car Market

The creation of the Economic and Monetary Union (EMU) and the introduction of the Euro on 1st January 1999 have resulted in great expectations in several fields, not least in that of competition. In the first issue of the “Competition Policy Newsletter” in 1999 it was suggested that the introduction of a single common currency would have a profound impact on competition in Europe and would do so for three reasons: Firstly, the article argued, the Euro would enhance the benefits of the “Single Market Programme” by eliminating exchange rate risks and transaction costs. Secondly, the Euro would increase price transparency. Thirdly, the Euro ought to improve the efficiency of the capital markets and so attract more newcomers to the market and increase the number of mergers. At the same time the article warned that the increased competition as a result of the Euro might tempt businesses to try to compensate for it by indulging in new anticompetitive practices, such as preventing parallel imports, creating anticompetitive mergers and applying for state aid.
Jan Bouckaert, Frank Verboven

Chapter 13. Strategy and the Euro: The Impact of the Single Currency on Business Strategy

The introduction of the Single Currency has been widely spread out in many journals and newspapers over the last year(s). In academia as well as in popular business publications, the Euro has been on top of the agenda.
Paul Verdin, Nick Van Heck

Chapter 14. Banking in the EMU: an Industrial Organization Perspective

The start of the Economic and Monetary Union (EMU) at the beginning of 1999 is generally presented as the cherry on the cake of the European financial integration process. This view sees the EMU as a catalyst towards more intense competition. The remaining price differences for the comparable financial products within the European Union would diminish or totally disappear (EC Commission (1990)). Banking in one currency would be a synonym for banking in one uniform and integrated market, without remaining barriers. Recent evidence, however, points at existing price differences across and within European countries (Economic Research Europe (ERE) report ‘Credit Institutions and Banking’). This contribution offers a review of competitive forces between financial institutions in the EMU-context. In particular, we analyse how the EMU affects market imperfections and other forces of change in the financial sector. We investigate whether the above reasoning of financial integration applies, or whether certain market imperfections are persistently determining banking competition.
Hans Degryse, Jan Bouckaert, Rudi Vander Vennet

Chapter 15. Impact of the Introduction of the Euro on Financial Reporting in the EMU

January 1st, 1999 marked the introduction of the Euro, a crucial step in the establishment of the European Monetary Union [EMU]. Since then, the exchange rates between the currencies of the 11 countries of the Euro-zone have been fixed. This fact has important consequences for the way in which business is conducted in the countries of the Euro-zone (e.g., it eliminates all exchange rate risks). In this paper we study one effect of the introduction of the Euro on business practice, namely the impact on the accounting and reporting process by companies in the Euro-zone.
Peter Joos, Véronique Weets

Chapter 16. How will the Euro Affect Corporate Finance?

Much ink has flowed over the possible effects that introducing the Euro might have on various aspects of economic life in Europe. Despite that, however, up to now relatively little attention has been paid to its possible impact on the financial management of businesses. In this paper we aim to examine what effect the Euro can be expected to have on the financial policy of business corporations, by concentrating on two key aspects of financial management: on the one hand the funding decision and on the other exchange rate risk management and cash management.
Marc Deloof, Sophie Manigart
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