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Time for the Euro to Grow Up

The euro and the euro area will be a major absentee from the IMF-World Bank meetings in Washington. The biggest structural change in international finance since Bretton Woods has so far had little impact on the international financial architecture. It is time for the euro to grow up and play its proper role in the international financial system.  James Morgan, talks to Richard Portes, the author of 'The Euro and the International Financial System' and 'The European Contribution to International Financial Stability' CEPR Discussion papers 2955 and 2956.

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Questions and Answers

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1. Does ‘growing up’ mean that the euro has to challenge the dollar? [James Morgan]
... No...same status in international financial system...role of euro are authorities in dealing with problems of system [Richard Portes]

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2. Who represents Europe in international financial matters? [James Morgan]
... President of ECB…finance ministers…Strauss-Kahn had ideas…need for more coherent representation of the fiscal side  ... ... [Richard Portes]

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3. Are European consensus to match ‘Washington consensus?’ [James Morgan]
... There are coordinated European views on aspects of financial system debate…different from US…moral hazard, bailing out etc ... [Richard Portes]

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4. But there are differences between Europeans too. [James Morgan]
... As there are in Washington – O’Neil-Summers; Clinton White House-Congress on I MF…Euro area has had little experience, inclination to project itself internationally ... [Richard Portes]

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5. But if it is to project itself, doesn’t the euro have to be worth a bit more? [James Morgan]
... There is a psychological effect…but euro is undervalued, dollar will have to fall…psychology will change…external value should not affect euro area’s role internationally ... [Richard Portes]

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6.But if there is a dollar correction, it might take the form of the hard landing that you say could be a shock to the euro area. [James Morgan]
... ... Obviously better if correction is gradual...1984-85 correction led to US BofP surplus…hard landing a possibility…euro area could be better prepared for shocks. ... [Richard Portes]

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7. Many Europeans thought the euro provided a protection against shocks but it doesn’t? [James Morgan]
... Cannot isolate economies…there are vulnerabilities…but euro has provided internal monetary stability...no repeat of 1992-93…a problem of regulation and supervision remains .... [Richard Portes]

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8. If you had the power to guide the ‘growing up’ process what would be your priorities? [James Morgan]
... Develop common position on architecture...launch serious debate on implications of financial globalisation…represent euro views effectively…should promote internationalisation of euro…silly position on adoption of euro in east-central Europe ... [Richard Portes]

DP2955 The Euro and the International Financial System - Report Details
DP2955

DP2956 The European Contribution to International Financial Stability - Report Details
DP2956

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