Professor Klaas Knot, President of De Nederlandsche Bank gave us a calm view of the future of the EMU and the Netherlands' place in Europe in his talk in the OMFIF Golden Series on World Money, 17th February 2012.
Having the meeting in the auspicious environs of the Armourers and Braziers Hall in London, which had survived the Great Fire of London in 1666 and the Blitz in the 20th century, Professor Knot quipped, was surely an auspicious sign for this talk. Perhaps the small cannon facing his back merely reflected the frisson of uncertainty that the Euro-zone is currently experiencing.
The free trade with the rest of Europe is vital to the economy of the Netherlands as over 60% of its exports are to this area. Furthermore, its cautious economic policies have allowed the economy to broadly mirror that of the EUs powerhouse, Germany. The overall interest is therefore in the success of the EMU.
We were reminded that EMU stands for Economic and Monetary Union – a vital point as it is often confused with Europe in a more political sense. Historically, it initially worked very well as countries aiming to join the EMU put in place stricter economic domestic measures that meant a good convergence. The spanner in the works was the financial crisis, after which there was a dramatic divergence between different EU countries in how they responded. National Debt as a proportion of GDP also varied from 80%, the EU average, to over 140% as with Greece.
I was also fascinated to see how economic efficiency in terms of labour costs was an area where Germany had, in the long run, benefiter from the union of the former FRG and East Germany.
The current crisis has prompted governments into taking major actions to counter the situation. However, a more common and consistent approach is essential across the Eurozone, which naturally means greater EU integration. As Professor Knot pointed out, this could only happen with popular acceptance and a greater democratisation of EU institutions. It was also important that the financial measures or future firewalls were also matched by a consistent narrative that was able to tell the positive aspects of the EURO story, because, despite all the current perceived problems, the EURO is still a resounding success story.
We came away with the feeling that, in the Netherlands at least, there is a very strong interest in the stability and maintenance of the Euro-zone. There was also an inclusive approach to trying to keep Greece in the Euro-zone. For the moment, with the last weeks 3 month solution for Greece, it appears that the situation may match Professor Knots inclusive approach.
In a market with speculation rippling through any conversation by groups of two or more, Professor Knot's presentation was a good attempt of pouring oil on the troubled waters.
Previous OMFIF talk attended at Armourers Hall