The New York Fed has hosted a series of informal meetings in New York bringing together banks, securities firms, settlement systems, insurance companies and regulators to help each understand better the perspectives of others around the table. The New York Fed also is participating in joint efforts with several industry associations that focus on Year 2000 contingency planning and on testing. For these two issues, in particular, it is critical that an active dialogue be established between the public and private sectors. The final element of cooperation needed for an effective approach to Year 2000 is cross-industry cooperation. Most financial market participants are not accustomed to gathering extensive information from other industries, such as the telecommunications industry. Yet financial firms, among others, depend critically on the proper functioning of sectors such as transportation, electric power generation, and government services. In the absence of cooperation and coordination, the lack of information flowing across sectors can create serious obstacles to achieving successful Year 2000 outcomes. Errors of omission in coordinating your efforts broadly can be far more significant than you might realize. Based on our experience in the United States, the creation of a government body to assist in coordinating preparations can play an important role. In the United States, the President’s Council on the Year 2000 Conversion has been active in promoting cross-industry discussions and tracking the progress of different industries. Governments in other countries such as Australia, Italy, Japan, Mexico, Saudi Arabia and the United Kingdom have also implemented national Year 2000 strategies.
Here, a more stringent implementation of rules and procedures to check and correct excessive deficits and debts will be essential, among other things by increasing the automaticity and speed of procedural steps. Ultimately, the process needs also to comprise non-pecuniary forms of deterrence. In the most severe cases of persistent non-compliance, a limitation or suspension of voting rights should be considered. The second area of institutional reform tackles one further aspect of the crisis: the fact that seemingly sound public budgets can sometimes reflect an overheated economy. When rising asset prices boost revenues from financial and housing market transactions, the budget looks sound; but when asset prices fall, the budget can go into profound distress. So for all its critical importance, reinforced fiscal surveillance is not enough. We need reinforced macroeconomic surveillance. There is one indicator that can reveal underlying weaknesses as they are forming: losses of competitiveness. Within a monetary union, the relative competitiveness of economies measures the sustainability of national price and cost developments, the compatibility of national nominal trends with those that are likely and appropriate for the union as a whole. The third area of institutional reform will be a crisis management framework. This framework has to respect strict conditionality and minimise moral hazard. It is an issue that has not yet been addressed in the task force itself.