Birgir Ísleifur Gunnarsson: Monetary issues in the European Union and Iceland Speech by Mr Birgir Ísleifur Gunnarsson, Chairman of the Board of Governors of the Central Bank of Iceland, at a seminar organised by the Iceland Trade Council, Euro Info office in Iceland and the EU Commission on the theme: Does the Euro affect Iceland?, Reykjavik, 31 October 2001. *  *  *  Ladies and Gentlemen: The evolution of European integration during the second half of the last century is remarkable in many ways. This process began soon after the end of World War II and represented an effort to forge stronger bonds between European nations and thereby, among other things, reduce the likelihood of further conflict on the continent. Although I shall not go into its history here, many notable milestones can be cited along the course that has been taken. One of the most notable was the formal establishment of the Economic and Monetary Union in the beginning of 1999. Now the abolition of the individual member nations’ separate currencies is in sight. As of next year they will be replaced by Euro notes and coin. Not only will prices of goods and services be calculated and stated in a single currency in the twelve EMU countries, but the same notes and coin will be used for business in them all.
Our strong reaction in 2006 have contained inflation expectations and we predict that inflation expectations will continue to move towards the medium term target of 4 percent as the headline inflation comes down in the next couple of months. However, it should be noted that there are also other important factors in determining the inflation expectations, such as incomes policy and the course of fiscal policy, or political aspects, etc. Apart from short-term interest rates, communication skills are also critical tools in guiding the expectations towards the target. What we do is important, but equally important is how we convey this to our target audience. That is not only what we communicate but also to whom we communicate. Of course the target audience of central banks are financial markets in particular and the public in general. When communicating we try to make our messages simple and straightforward. However this is easy said than done. Again this is the art side of monetary policy. Ladies and gentlemen, before concluding, I would like to note that the existence of independent and autonomous institutions along with the practice of good governance principles is vital for Turkey. An independent central bank has constituted and will continue to constitute a cornerstone for structural transformation towards good governance and good institutions in Turkey.