Bank research suggests that the spillover from tightening in US monetary policy to foreign GDP is now twice its 1990-2004 average, despite the US’s rapidly declining share of global GDP. Financial instability in advanced economies also causes capital to retrench from EMEs to ‘safe havens’, as it did during the 2008 financial crisis and the 2011 euro-area crisis (Chart 6). Connally’s dictum “our dollar, your problem” has broadened to “any of our problems is your problem”. Moreover, the structure of the global financial system – or the “pipes” – is increasingly amplifying capital outflows from EMEs when these push shocks occur. For EMEs, market-based finance has accounted for all the increase in foreign lending since the crisis, as bank lending has declined and FDI has stayed fairly constant (Chart 7).21 While this shift has brought welcome diversity to the financial system, it also reduces the sustainability of capital flows, as market-based flows are particularly sensitive to changes in global risk appetite and financial conditions. Investment fund flows are particularly flighty (Chart 8), especially under stress. The increasing role of “push” factors and the “pipes” of the system means fast-reforming EMEs could soon be running to stand still in their quest for more sustainable capital flows (Chart 9). Bank researchers estimate that the growing shares of FX-denominated debt and market-based finance have increased the sensitivity of “Capital Flows-at-Risk” to push factors by 50% since the crisis, largely using up the selfinsurance purchased by EMEs.
The matters of economic policy that are up for EU discussions are also more specific than before. How is economic policy to be formulated? How can the labour market be made to function better? At the European Central Bank we have missed the train on which the participating central banks designed their monetary policy strategy and decided how the functions of the system of central banks are to be performed. If we join the monetary union in the future, influencing the procedures of the ECB and the formation of monetary policy will be more difficult. In the economic domain the European Union is also increasingly tending to establish joint European positions, for example on such matters as the crises in Russia and Brazil, the role of the IMF, etc. Here, too, I consider we are in a formative phase. Guidelines are now being drawn up for how Europe is to be represented on international bodies and in the work of developing a new international financial structure. The questions include the future status of the G7, G10, G33 and other informal groups. In these contexts we are now becoming rather isolated. Conclusion Now for a brief summary and some conclusions. EMU is a part of the effort that has been in progress for more than five decades to bring the countries of Europe closer together. Today the monetary union is perhaps the most important EU project and as a member of the Community we cannot disregard it.