WASHINGTON (MNI) – The following is the second and final section of
the text of the statement Saturday on behalf of the European Commission
to the IMFMC by EU Commissioner for Economic and Monetary Affairs Olli
Rehn, published Friday night:

International cooperation will be critical to ensuring the
longevity and sustainability of financial reforms and, therefore, of
financial stability. International cooperation and coordination are also
key to ensuring that global differences are minimized; eliminating
opportunities for regulatory arbitrage; and maintaining a level playing
field. The work of the FSB will continue to play an important role to
that end. But global partners should also accelerate the implementation
of their regulatory commitments, in particular the implementation of the
Basel II and III agreements.

Euro area headline inflation came down from its peak of 2.8 percent
in April 2011 to 2.5 percent in July. Likewise, core inflation (headline
inflation excluding energy and unprocessed food) has also moderated from
1.8 percent in June to 1.5 percent in July. Inflation is expected to
moderate further over the coming year and move below 2 percent. Risks to
the outlook for price developments have become more balanced between
weaker-than-expected growth and higherthan- assumed increases of
commodity prices as well as revenue-based fiscal consolidation.
Inflation expectations meanwhile remain well-anchored. At the Member
State level, inflation differentials persist, with the higher bound of
the range reflecting either short-term adjustment of indirect taxation
in some countries or the more complete pass-through of energy and food
prices in countries with a better cyclical position and labour market
conditions. The EU values the discussions in the IMF on reforming the
international monetary system. Effective IMF surveillance is key for the
efficient functioning of the international monetary system. As pointed
out by the Triennial Surveillance Review, further progress is necessary
to enhance the traction of surveillance; to develop a better analysis of
interconnections, spillovers and external stability and to ensure more
effective financial sector surveillance. The G20’s Mutual Assessment
Programmes will also play an important role in detecting and addressing
imbalances that could spill over to the rest of the world. As we see a
skewed international adjustment process as one of the main reasons for
frictions in the IMS, we call for a progressive move towards
market-determined exchange rates in systemic economies. Developing a
roadmap to broaden the SDR basket, based on clear and transparent
criteria, could support this. Further enhancements of the IMF’s toolkit
and general non-binding principles for the cooperation between Regional
Financing Arrangements and the IMF would also strengthen the
international monetary system. Strong and at times volatile capital
flows raise justified concerns, as does the risk of sudden reversals.
Thus sound domestic policies in recipient countries, including
macroeconomic, prudential and exchange rate policies, are paramount to
cushion the potential negative effects of large capital inflows. We
therefore welcome the proposals made by the G20 for guidelines on
capital flow management as a first step.

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** Market News International Washington Bureau: 202-371-2121 **

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