This year the Lamfalussy Lectures Conference was organised for the third time with the participation of more than 400 guests. This year's conference was also a commemorative conference, where the central bank paid tribute to the oeuvre of Alexandre Lamfalussy, who passed away in 2015.
Opening address by György Matolcsy, the Governor of the Magyar Nemzeti Bank
In his presentation – which followed the welcome of all invitees – György Matolcsy pronounced: it is primarily the financial stability and the implementation of structural reforms that may lead to sustainable growth globally. The Governor of the central bank reported: a few weeks ago, at an Asian economic forum almost all lecturers talked about the market turbulences experienced in the beginning of the year and emphasised that at present all major centres of the global economy were ailing, thus there was no real growth driver. He believes that the key message of the event on Monday is that financial stability is of key importance in the global economy. The Governor of the MNB is of the opinion that we could learn from Alexandre Lamfalussy that economic instability easily leads to crisis, thus there is no other way to achieve sustainable growth than through financial stability accompanied by structural reforms.
Presentation of Luiz Awazu Pereira da Silva, Deputy General Manager of BIS: Old and new challenges for 2016 and beyond
The present volatile environment and the low growth are attributable to the lack of confidence. The markets are still uncertain about what the sustainable growth rate and appropriate level of risk-taking are. The market has anchored and even the smallest rumour has an immediate paralysing impact – he said. About the appropriate level of lending the brasil economist said: One of the greatest concerns of Alexandre Lamfalussy was how to control the great upswings, i.e. the credit booms. Capital requirements and prudential regulation are essential and also suitable for keeping the functioning of the economy under control – the economist said.
Presentation of Ewald Nowotny, Governor of the National Bank of Austria: From Euro to banking Union – what can we learn from Mr. Lamfalussy?
Ewald Nowotny – citing Alexandre Lamfalussy – emphasised: crises reveal the need for brave reforms. He added: Professor Lamfalussy, as the inventor of the concept of macroprudential supervision, made it clear that integrated financial markets must be confronted with integrated regulation. The Governor of the Austrian central bank identified financial volatility and poor economic growth as the greatest challenges. In his opinion the Central and Eastern European countries – among the Hungary – have weathered the financial crisis comparatively well, while the quantitative easing by ECB has had a positive impact on economic growth, but it would have been even more effective if fiscal policies had moved in the same direction. According to Nowotny, the extra-euro area states must be convinced of the advantages of the banking union. Among the positive features of a banking union he mentioned the access to the future common fiscal backstop mechanism, more and better information on banks, an improved quality of supervision and increased confidence in the international and national banking systems.
Presentation of Benoît Coeuré, Board Member of the European Central Bank: Towards completing economic and monetary union
The European integration must be carried further and there must be a political strategy for the deepening of the integration to achieve the sustainability of the European Economic and Monetary Union – said the French economist. He mentioned that the global challenges such as migration, terrorism and the climate change should foster closer cooperation among the Member States. The fact that Europe is often unable to take a uniform line in certain questions scares the public and the markets. If the Member States manage to take action together on one issue, it may help cooperation in other cases as well – he said. He emphasised: sustainable economic convergence cannot work without political convergence; however, at present there is no consensus among the Member States on the objective of the monetary policy, thus they also fail to observe the common rules. Integration should not continue as a technical and technocratic exercise, but rather it is time for political leaders to take up the baton.
Presentation of Jan Smets, Governor of the National Bank of Belgium: Navigating in uncharted waters, Alexandre Lamfalussy. The euro and a genuine Economic and Monetary Union
According to the Governor of the Belgian central bank the crisis clearly showed that stronger integration and institutional reforms are needed in the euro area to avoid problems such as in the case of Greece or any other countries that needed a bailout. The expert emphasised: a risk diversification mechanism is required, which helps jointly manage the shocks hitting individual members. There are two types of states in Europe: the small ones and those that have not yet realised that they are small. That is, the countries of Europe can no longer succeed separately, we are dependent on each other – he added in the end.
Presentation of Edmond Alphandéry, former Minister of Economy of France What lessons from Greece can be drawn for EMU?
The chairman of the Euro50 Group recalled that the Greek debt crisis could cause such a great excitement, because the EU was unable to handle the severe disparities among the countries of the currency union. He reminded: in the first years of the euro area the investors had strong trust in the less affluent states, and this was mostly attributable to the simple fact that they were members of the currency union. However, as soon as the crisis has set in, financial investors started to flee from the countries struggling with high deficit. And this generated a fatal spiral: the financing of the debt that was too high from the outset anyway, became more and more expensive – in the case of Greece practically unsustainable – due to the increasing risks.
Presentation of Klaus Regling, Managing Director of the European Stability Mechanism (ESM): Lessons from the Euro crisis
Although Hungary is not the member of the euro area, it has already made a major contribution in the person of Alexandre Lamfalussy – said the managing director, who also mentioned that a number of lessons had been learnt from the crisis; the monetary union, as well as the European banking system and the fiscal solidarity among the countries of the European Monetary and Economic Union (EMU), became stronger after the crisis. He emphasised: the euro area states must avoid excessive macroeconomic imbalance and in parallel manage their government debt. Clearly, the countries must push the general government deficit below 3 per cent – he said. He believed that the active monetary policy must be continued, taking the activity of the ECB as an example.
Panel discussion
Moderator: György Szapáry, Ambassador, Chief Advisor to the Governor of the MNB
Participants:
- Daniel Gros, Director of the Centre for European Policy Studies
- Dániel Palotai, Executive Director and Chief Economist of the MNB
- Niels Thygesen, Professor Emeritus, University of Copenhagen
Dániel Palotai said: the difference between the financial crisis of 2008 and previous crises was that the small open economies were not in the position to "export themselves" out of the crisis, as all countries faced similar challenges. He pointed out: the Hungarian government recognised the fact that it was not possible to recover from the crisis without growth, thus the primary objective was to achieve economic growth. In 2013 the European Union lifted the excessive deficit procedure against Hungary due to achieving economic growth and macroeconomic balance simultaneously – he added. At present the MNB base rate is such that nobody would have imagined a couple of years ago, and the Monetary Council believes that this level has to be maintained at least until the end of 2017 – he declared. Dániel Palotai reported that the MNB managed to pursue a profitable operation without jeopardising the inflation target and it did not need to rely on the assistance of the central budget. The market recognises the performance of the Hungarian economy, however this not the case with the international rating agencies yet; nevertheless, they should also bear reality in mind – he noted.
According to Niels Thygesen, Professor Emeritus of the University of Copenhagen, in the beginning of the '90-ies the political decision-makers decided on the establishment of the monetary union just at the right time. He pointed out: although there were great uncertainties – mostly due to political reasons – the ultimate argument was that it was just about time to create a single market in Europe. He noted: then not only the business actors, but also the trade unions were arguing for a single market and a single currency as the means to preserve high wage levels in Europe.
Daniel Gros, Director of the Centre for European Policy Studies, said: the European financial system is built on the banks, and low interest rates are essential for giving a boost to the economy. By contrast, in the United States capital market funding takes the primary role. According to the economist, in Europe the interests of the national states differ during the quantitative easing launched by the European Central Bank (ECB) and he believed that lenders would lose, while debtors would benefit from it.
In his conference closing speech György Matolcsy emphasised: a consensus was reached among the lecturers of the conference with regard to the urgent need of political stability and structural reforms in the euro area to promote the further development of the monetary union. The tax regime is unsustainable in several EU Member States, there are two-digit unemployment rates and missing confidence – he said. He believes that the EU states should develop a new framework, regain trust and implement brave structural reforms.