Mojmír Hampl, Vice-Governor, CNB
Vienna, 12th October 2011
Ladies and Gentlemen,
First, let me express my gratitude to the organizers for inviting me. I am delighted to be here. For someone who comes from Prague, being in Vienna – and Austria in general – feels almost like being at home in many respects (both better and worse).
In a sense it would be more exciting to hold this discussion on the euro in Bratislava today, but with such a distinguished panel I think we can also have a stimulating debate here in Vienna, which is geographically not all that far away from Slovakia.
So, is the Eurozone a Land of Dreams or a Land of Nightmares? For me it is neither the former nor the latter, I must say. Those who do not have unrealistic dreams cannot lose them.
For instance, those who have followed the CEE debate about the euro will know that the Czech central bank and many Czech economists were warning for years before this crisis that simply irrevocably fixing the exchange rate does not necessarily solve the key macroeconomic challenges of any economy and that it might make some problems even more difficult to solve. This is especially true for converging economies, which cannot have fixed exchange rates and low imbalances while growing fast.
You can live well with the euro, and you can live badly with the euro. Likewise, you can live well with your own currency and you can live badly with it. All that matters is your macroeconomic and stabilization policies at home, which must be in line with your currency regime. You must always do your homework. I never understood why having the euro should in itself mean having a better-quality economy.
But neither is it the land of nightmares. The Eurozone is just a specific type of monetary union. It is a currency without a state. This unique arrangement of sovereigns sharing one central bank issuing fiat money not backed by gold or any other metal is unlike anything we have seen before in monetary history, as many monetary historians will confirm.
Therefore, the precedents that are to be approved NOW, at the time of the Eurozone’s very first crisis, are of utmost importance. These will determine how the Eurozone is going to behave in similar situations in the future.
So:
a) if we say that the no-bail-out clause does not hold now, it will hardly ever hold;
b) if we say that the Stability and Growth Pact may be breached now, it may also be breached in the future. How on earth can we believe that we will be able to enforce stricter fiscal rules in the future if we were unable to enforce softer rules in the past? Rules that are subject to political bargaining and horse-trading are no longer rules, they are discretion;
c) and if we think that sovereigns are not solely and entirely responsible for their debts, then they will NOT be in the future either. This means the discussion about common eurobonds has already been resolved. In a sense, the euro banknote itself can be seen as a kind of eurobond. And if we treat it like this, then we should not be discussing issuing eurobonds.
I still believe the future of the euro depends very much on its main sponsor – Germany. Not only financially, but also psychologically and ideologically. The Germans face a crucial dilemma: a Sophie’s Choice, so to speak. In their DNA you can find two things: i) support for European integration, and ii) a desire to have a perfect, strong, solid and admirable currency.
After this crisis the Germans will have to decide which of these two things they want more, as it will be hard to have both. You can have further integration OR you can have a German-style currency with a German-style central bank on a pan-European scale. But most likely not both.
The answer to this question will influence everybody in our region, including the Czech Republic, a country that has had a currency called the koruna/crown (or “die Krone”) ever since 1892, when Emperor Franz Joseph introduced it.
It is always a pleasure to remind audiences here in Austria that the Czech Republic is the only country of the former Austro-Hungarian monarchy to have kept the name of its currency since those old monarchist times until now.
Thank you.