Axel Jochem

Real and Nominal Convergence in the Central and East European Accession Countries

Following their accession to the EU, which is planned for May 2004, eight central and east European countries will subsequently strive for integration into the Eurosystem. The Eurosystem underlines the need for simultaneous real and nominal convergence as a prerequisite for integration into the euro area. But some of the acceding countries argue that, at least in the short to medium term, a strengthening of nominal convergence makes real economic convergence more difficult. The following paper investigates this issue by means of an empirical study and attempts to establish to what extent real and nominal convergence are compatible.

International Financial Competitiveness and Incentives to Foreign Direct Investment

Summary International financial integration has become an important factor for economic performance in the globalisation process. Access to international capital markets is crucial for a country’s ability to meet its financial needs and to keep up with the challenges of a changing global landscape. In this paper, “financial competitiveness” is interpreted as the attractiveness of a country as perceived by foreign investors, which is reflected in refinancing costs in international capital markets. The study concentrates on foreign direct investment (FDI), which is an essential feature of the globalisation process and has immediate implications for the real economy. An index of international financial competitiveness is calculated which is given by the ratio of the market value to the book value of inward FDI stocks. For a panel of five advanced economies from 1980 to 2006 it is shown that price competitiveness, stable inflation rates and registered patents have a positive impact on the index. Institutional factors like EMU membership or Anglo-American legislation also play a role. Financial competitiveness in turn encourages FDI inflows whereas it benefits fixed investment relative to M&A. There is also some evidence that an innovative environment accelerates investment decisions by promoting competition among investors.

The role of global financial conditions for credit supply in EMU periphery countries

ABSTRACT The article analyses the role of global financial conditions for credit supply and growth performance in individual member states of the European Monetary Union (EMU). In line with the risk-taking channel of monetary policy, we find that in the short run, the Fed and European Central Bank (ECB) interest rate policy compensate for changes in global risk assessment thereby supporting net private credit flows to the European periphery. However, in later periods, a worsened risk sentiment weighs on credit flows to these countries. In contrast, EMU core countries are generally less affected by global financial shocks. This asymmetric influence of global conditions on EMU member states are smoothed by the uniform access of commercial banks to the Eurosystem’s open market operations in conjunction with the redistribution of liquidity via the TARGET mechanism.

Erfordert die Europäische Währungsunion die Koordination der aktiven Arbeitsmarktpolitik in den Mitgliedsländern? / Does the EMU necessitate the Co-ordination of Active Labour Market Policy in the Member Countries?

Zusammenfassung Durch den Vertrag von Amsterdam vom 2. Oktober 1997 wurde der acquis communautaire der Europäischen Union um ein Kapitel zur gemeinsamen Beschäftigungspolitik erweitert. Ihr Schwerpunkt liegt in der aktiven Arbeitsmarktpolitik. Die vorliegende Arbeit geht der Frage nach, inwieweit der Einsatz aktiver Arbeitsmarktpolitik Probleme aufwirft, die nur innerhalb einer Währungsunion auftreten (oder durch diese erheblich verstärkt werden) und eine Koordination auf europäischer Ebene notwendig machen. Tatsächlich erschwert der sogenannte Stabilitätspakt die Finanzierung arbeitsmarktpolitischer Maßnahmen. Da gleichzeitig der nominale Wechselkurs als Anpassungsinstrument zwischen den Mitgliedsstaaten der Währungsunion entfällt, tritt ein verschärfter Steuerwettbewerb auf, der ein suboptimales Angebot aktiver Arbeitsmarktpolitik zur Folge hat und durch finanzielle Koordination vermieden werden kann. Die von einigen Politikern beabsichtigte Einbindung der Europäischen Zentralbank in die beschäftigungspolitische Verantwortung birgt allerdings die Gefahr eines exzessiven Einsatzes arbeitsmarktpolitischer Maßnahmen, der bei zunehmender Globalisierung zu einem schwerwiegenden Standortnachteil gegenüber dem Rest der Welt führt und letztlich höhere soziale Kosten verursacht als ein vollständiger Verzicht auf beschäftigungspolitische Kooperation. Summary The Treaty of Amsterdam has enlarged the acquis communautaire of the European Union by a chapter concerning the common employment strategy. It focuses on the co-ordination of active measures. In this paper it is examined, whether active labour market policy may cause problems, which only occur in a monetary union and necessitate the co-operation of the member states on the European level. Indeed, the so-called stability pact impedes new debts and the lack of nominal exchange rates as an instrument of adjustment intensifies intra-Union tax competition. The resulting sub-optimal level of active labour market policy can be raised by financial co-operation. On the other hand, a centralised employment strategy is the consequence of political efforts to involve the European Central Bank (ECB). If the ECB resists the political pressure and concentrates on internal price stability, fiscal co-ordination will lead to an excessive use of active labour market policy and affect European competitiveness on the world markets. Eventually, social costs will be higher than in the non-co-operative equilibrium.

Currency board and crawling peg

The Russian financial system is caught up in a vicious circle of lack of credibility, inflationary expectations and non-sustainability of the exchange rate, which is driving the country to the brink of disaster. This has revived the debate as to what would constitute an adequate exchange rate system. The following article examines the arguments for and against a currency board and a crawling peg, and concludes that a combination of the two would be the best strategy.