Berlin seminar on the eu accession process
The third annual central bank seminar on the European Union (EU) accession process took place in Berlin on 7 December 2001, jointly organised by the Deutsche Bundesbank and the European Central Bank (ECB). The seminar was attended by representatives of the ECB, the 12 national central banks of the euro area and the central banks of the 12 countries negotiating accession to the EU (Bulgaria, Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, Slovakia and Slovenia).
The purpose of the seminar was to deepen the understanding of key central banking issues ahead of EU accession and thereby to prepare for a smooth future integration of accession countries' central banks into the European System of Central Banks (ESCB) and eventually the Eurosystem. This year's seminar focused on the structure and functioning of the financial sector in accession countries, the impact of capital account liberalisation on exchange rate strategies of these countries and ingredients for a successful catching-up process. The outcome of the discussion can be summarised as follows:
- Financial sector structure and functioning: Accession countries have made major progress towards establishing sound, well-capitalised and stable banking sectors. This is the result of comprehensive restructuring and an extensive opening to foreign strategic investors which currently own more than 60% of banking assets in these countries. However, the development of domestic capital markets has proven to be difficult, and stock and bond markets only play a limited role. Possible financing constraints are alleviated by significant recourse to financing from abroad, either through foreign loans, bond or stock issuances abroad or through direct financing from parent companies. Impulses of monetary policy in many accession countries remain predominantly transmitted through exchange rate changes, rather than through interest rate or credit channels, due to a number of structural features of the economies and their financial sectors. The relevant features include: a high openness of the economies, a strong signalling effect of exchange rate changes on expectations and lower level of financial intermediation through the domestic financial system. It was stressed that independence of the central bank and other supervisory bodies is crucially important. Participants also stressed that central banks should continue to play a key role in banking supervision. They also considered cross-border co-operation among supervisors to be essential, given the high share of foreign ownership in the banking system of accession countries. The establishment of sound banking sectors remains a priority at this stage. Strengthening of the institutional and legal frameworks and improvements in corporate governance were seen as crucial to foster banking and financial sector development and such a development was also seen as conducive to economic growth.
- The impact of capital account liberalisation on exchange rate strategies: All accession countries have to ultimately comply with the principle of full liberalisation of the capital account as part of the acquis communautaire. The pursuit of liberalisation of the capital account, the credible project of accession, as well as the prospect of higher returns on fixed investment during the catching-up process and positive interest rate differentials with the euro area, may translate into the continuation of sizeable capital inflows. While access to external savings is beneficial to the catching-up process, an increased volume of volatile capital flows may be detrimental. In this context, the participants exchanged views on the potential impact of large and volatile capital flows on exchange rate strategies in accession countries.
- Roundtable discussion on ingredients for a successful catching-up process: The accession countries still display income levels – the most easily quantifiable variable used to assess the degree of real convergence – well below that in the EU, namely 44% of the EU average in terms of purchasing power parity and 22% in terms of current exchange rates. The participants discussed the need for continued progress in transition, liberalisation and macroeconomic stabilisation, as the key to fostering growth and ensuring a successful catching-up process.
Participants were welcomed by the President of the ECB, Mr. Willem F. Duisenberg, and the President of the Deutsche Bundesbank, Mr. Ernst Welteke. At the seminar, the Eurosystem was represented by Mr. Tommaso Padoa-Schioppa, member of the ECB's Governing Council and by Mr. Jürgen Stark, Deputy Governor of the Deutsche Bundesbank as well as by Deputy Governors of the other central banks in the euro area. On the side of the accession countries, the meeting was attended by the Governor and one other representative from each central bank.
The next annual seminar will take place in late 2002 in Brussels.