Continental European countries “may finally be driven to do the right thing” and sort out their supply side and labour market flexibility issues once they join the single European currency, a Bank of England official has said.
John Townend, deputy director of the Bank told the ICAEW Board for Chartered Accountants in Business FD conference in Eastbourne that because such countries would be denying themselves the opportunity to devalue their way out of inflationary trouble, reforms would be needed to allow labour markets to act as adjustment mechanisms when economies get out of synch.
“The danger is that once Emu starts there will be significant regional imbalances continuing around the euro area of the sort that you get in national economies now, but without the same kind of efficient adjustment mechanisms (such as) labour migration or fiscal redistribution,” Townend warned. Language barriers and EU restrictions will make it more difficult for economic discrepancies between participating countries to be resolved by such means.
He explained: “One of the potential outcomes almost certainly will be a greater concentration on supply side policies to improve the flexibility of labour markets, the kind of policies that we think in the UK are essential.
Having thrown away the exchange rate mechanism … the only thing, frankly, that is left is to improve the supply side of the euro area economies and that would be a huge benefit.”
With a few dozen days to go before the launch of the euro, it still isn’t clear how foreign exchange dealers will quote rates against sterling or the dollar. The European Central Bank and national central banks, including the Bank of England, intend to quote rates per euro – #0.711 or $1.209, for example. But this is contrary to London dealers’ convention of quoting foreign currency units per pound or per dollar – E1.406 against sterling, E0.827 to the dollar. “Institutions may have to prepare for quoting both ways round,” Townend warned. “The consensus will emerge very quickly in the marketplace – perhaps in a matter of days from the start of next year.”
Join Financial Director & Concur for this FREE web seminar on how to combat internal expense fraud
Finance, as a function, continues to struggle to find its place, define its function, and become the dynamic enabler it should be
The IoT represents a potentially game changing breakthrough. Targeted small scale investment could change the way your business works forever, finds Christian Doherty
A lawsuit has been filed against Oracle over claims it used improper accounting methods to inflate its cloud computing revenues