1. Comments on the Keynote Speeches Tanaka Soko, Chuo University 14 th OCU International Symposium Osaka, 27 October 2006

2. The Euro has become established. ECB: proved to be able to ensure price stability in the Euroland Euro: Anchor for accession countries in East Europe Euro: Introduction as the Target for CEECs (Slovenia: 13 th members from 01.01. ’ 07) Euro: Catalyst for financial integration

3. Problem of the Euro (1) No Optimal Interest Rate or Divergence 1 Real interest rate: low in inflationary countries like Spain, Portugal or Italy, but high in stability-oriented countries like Germany Divergence 1: inflationary countries become further inflationary and high growth, but stable countries further stable & low growth (a kind of vicious circle)

4. Monetary Policy of ECB: too tight or too loose? Minimum bid rate (MBR) in main refinancing operation 2% during June 2003 to December 2005 “ It should have been 1.5% or 1% for stagnating Germany to recover its potential growth rate as soon as possible. ” “ too tight ” “ It must have been too loose for bubbling countries like Spain. ” “ too loose ”

5. “ Too loose ” - neglecting “ reference value ” M 3

6. Problem of the Euro (2) Divergence 2 Stable countries: more competitive vis- à -vis inflationary countries. Germany has been getting more and more competitive. Germany ’ s exports increase dramatically inside Euroland and to the world market. Italy ’ s exports stagnate and its trade balance worsens. Should Italy get out of the Euroland? Or The “ Lira-isation ” of the Euro

7. Stability & Growth Pact Germany, France and Italy etc. breached 3% upper limit. How do the keynote speakers evaluate the breaching of the Pact? Germany: VAT rate 16% to 19% on 01.01.2007

8. Advantages of the Euro No forex volatility: advantageous for small countries Small countries excluding Portugal have shown good performance in budget balance etc. Big countries breached the Stability and Growth Pact. Why?

9. Structural Reform: Panacea? Euro: Currency of Reason. Participating countries need EMU mentality. Italians: Strikes, Inflation, Low Productivity Growth: Reasonless Behavior: No EMU- mentality: What kind of structural reform for Italians now? Germans: EMU mentality or habits?

10. Future of the Euro CEECs will participate in the Euro: problems. High growth rates and Inflation of young CEE Developing Countries: Dangerous after they enter the Euro? Fifth Condition: Economic Development level

11. International Role of the Euro (1) As Invoicing/Settlement Currency or Trade Vehicle/ Forex Vehicle: European International Currency Prospect to compete against the US Dollar will be slight. Most Important Object of the Euro: Stabilization of Europe: OK.

12. Figure 3-1 Turnover of spot market inter-dealer transactions: global market （％）（ 2004 ）

13. Figure 3-2 Turnover of spot market inter-dealer transactions: global market （％）（ 1998 ）

14. Table 4 Currency distribution of forex market turnover （ Percentage shares of average daily turnover in April ） [Note] 1. “ EMS total ” =D-Mark + the other EMS currencies + ECU. ２. The percentage of ” All currencies ” becomes 200.0, because, for example, direct USD/euro volume is counted twice, once in USD volume and once in euro volume. ［ Source ］ BIS (2002), p.9 & BIS (2005), p.9.

15. Figure 4 Euro and the dollar in spot inter-dealer transactions: Daily averages in April 2004 ( ％ )

16. International Role of the Euro (2) As International Asset Currency: the Share of the Euro has been rising. 1/3 of the Russian Foreign Reserves is denominated in Euro. Coming big Depreciation of the US Dollar: Euro may show its implication of Birth.