by Michael C. Bonello, George M. von Furstenberg, Kari Kemppainen, Sinikka Salo, Vienna, 2006
A joint publication with the Central Bank of Malta
On May 4–5, 2006 SUERF and the Central Bank of Malta jointly organized a seminar “The Adoption of the Euro in the New Member States: Challenges and Vulnerabilities on the Last Stretch.” This SUERF Study contains three important contributions to the Malta Seminar.
Michael C. Bonello, Governor, Central Bank of Malta, presents in his keynote speech an overview of benefits and costs of euro adoption in the New Member States. He explains the importance of fiscal consolidation aiming at reducing deficit and debt levels to at least comply with the Maastricht criteria. The mandatory period in which a country participates in ERM II is perceived as a testing period, and in the current global environment it is really a challenge for the New Member States to satisfy the convergence criteria. The Governor concludes by stressing that in the examination that follows a country’s request for a convergence report due consideration should be given to the policy consistency and credibility of the applicant country. In the paper “The Economics of Offshore Financial Services and the Choice of Tax, Currency, and Exchange-Rate Regimes,” George M. Von Furstenberg, Indiana University, combines macroeconomic factors with the political framework for business activity. His main point is that policy choices are based on both. Concern for the development of international financial business activity can influence exchange rate policy and the choice between maintaining a separate national currency instead of an internationally well known currency as the euro. The author compares exchange rate policy choices in Denmark and Malta, in offshore financial centers in Europe and in financial centers in East Asia. He concludes that in some jurisdictions, concern for the business interests of the international financial services industry may tip the balance towards choice of fixed exchange rate policy or adoption of an internationally important currency like the euro or the dollar. In the paper “Promoting Integration of European Retail Payment Systems:Role of Competition, Cooperation and Regulation,” Kari Kemppainen and Sinikka Salo, Bank of Finland stress the importance of creating a level playing field for different providers of payment services in Europe. A well-functioning and integrated payment system is a necessary condition for the existence of a truly single market. According to the authors, the political aim should therefore be to complete a Single Euro Payments Area. The analysis is based on network economics. They conclude that authorities must promote some form of coordination among the market participants. Besides, authorities must monitor the market and ensure that anti-competitive practices are avoided. Read together, the three papers illuminate some of the important challenges from different perspectives that the New Member States must meet in their policy choices before and to some extent after they have adopted the euro.
The Adoption of the Euro by New Member States: Challenges and Vulnerabilities
Michael C. Bonello
The Economics of Offshore Financial Services and the Choice of Tax, Currency, and Exchange-Rate Regimes
George M. von Furstenberg
Promoting Integration of European Retail Payment Systems: Role of Competition, Cooperation and Regulation
Kari Kemppainen and Sinikka Salo
Keywords: Offshore Financial Centers, International Financial Services, Exchange-Rate Regime, Taxation of Nonresidents, Currency Substitution, financial integration, network economics, retail payment systems, Single Euro Payments Area
JEL Codes: F31, F33, F36, F53, G10, G28, L14
ISBN No.: 978-3-902109-35-4
Authors: Michael C. Bonello, George M. von Furstenberg, Kari Kemppainen, Sinikka Salo