The Eurosystem: Some observations by Dieter Spethmann

The following article was written by Prof. Dr. Dieter Spethmann and was originally published in The Walsingham Papers by The Walsingham Institute.

The Euro, common currency for now 13 member States (Eurozone) of the European Union (EU), was introduced on January 1st, 1999. Eight years of experience invite some questions and observations.

Is the common currency a single currency?



Not really. The European Central Bank (ECB) does not print or issue money. This right is reserved for the national central banks. 12 of the 13 member States of the Eurozone print (not including Slovenia) and issue their own bills, each of them identified by a letter preceding the number. X stands for Germany, U for France, Z for Belgium, L for Finland, Y for Greece, V for Spain, T for Ireland, S for Italy, R for Luxemburg, P for the Ne-therlands, N for Austria, M for Portugal. Each central bank has to finance a different inflation rate.

Are transnational payments easier now than before?


Yes. A bill issued in one member state is legal tender in each of the other member states.

How are such payments reflected in the pocket of the citizen?


If citizens of a member state find bills in their pockets that carry letters of origin from other Eurozone member states, such non-national bills have probably/possibly flown into their country because they purchased more there than at home.

Is there an inflation differential between the member states?


Yes. From 1999 through 2006 the aggregate inflation of each member state was: Slovenia 44,9 / Ireland 28,8 / Greece 26 / Spain 25,7 / Portugal 24,3 / Italy 18,6 / Netherlands 18,4 / Luxemburg 18,3/ Belgium 16,2 / Austria 14,4 / France 13,6 / Finland 12,4 / Germany 11,8. This means for Germany an annual inflation rate of 1,5%, for Ireland of 3,6%, for Spain of 3,2% etc.

Which are the inflations differentials measured against the slowest infla-ting country which is Germany?


Slovenia 33,1 / Ireland 17 / Greece 14,2 / Spain 13,9 / Portugal 12,5 / Italy 6,8 / Netherlands 6,6 / Luxemburg 6,5 / Belgium 4,4 / Austria 2,6 / France 1,8 / Finland 0,6.

Is there any chance for monetary compensation between the member states?


No. If a Euro bill has a smaller purchase power at home than in any of the other 12 member states, it possibly flows into one of these other countries. Thus, Euro bills flow from higher inflating countries into the others: Spanish Euros buy more and more German companies which was not possible for Pesetas. Because the divergence in purchase power is structural, there is no logical reason for a compensation between the respective economies. The inflow of non-natio-nal Euro bills increases the inflation in the slower inflating countries.

Has the central bank of the country of inflow any claim from a surplus in non-national bills?


Not to my knowledge. Here is the essential privilege for higher national inflation inside a common currency: Print money and use it in another Euro country with lower price levels.

Is this a new type to settle current account deficits between nation states?


Yes. Beggar thy neighbour and inflate his money supply. The govern-ment of Portugal says in the internet frankly: “Portugal’s foreign trade balance has regularly shown a heavy deficit, which it finances through … net transfers from the EU.” Voilà. By the way: Portugal in 2006 showed a current account deficit of 9,3% of GDP – higher than the USA.

Nominal interest rates and real interest rates. The ECB offers the same len-ding rate to everybody inside the Eurozone. Thus, real interest rates diverge depending on national inflation.

Does this mean that borrowers in the slowest inflating country pay higher real interest rates than borrowers in any other member state?


Yes. And vice versa. Spanish borrowers may pay a zero real interest.

Does a diverging real interest influence the job situation?
Yes.

How is it possible that Spain shows a current account deficit of $ 108 bn or 8,6% of GDP and has no problem financing it?


See Portugal, or Greece, or Italy, or others. The twin system EU/ECB takes care of such deficits.

How does the ECB acquire such big volumes of foreign exchange?

Through transfers from the surplus countries Germany, The Netherlands, Bel-gium, Luxemburg, Austria or Finland.

Do such surplus countries receive a fair value for transferring their foreign exchange to the ECB?
Not to my knowledge.

How will the deficit countries ever reach equilibrium in their current accounts?


I do not see this. They are laggards in the globalization but do not have to worry. They find tranquillity at the expense of their surplus brothers.

Is all this compatible with the solemn no-bailout-clause in Art 103 of the Maastricht Treaty?


No. It is a contradiction and violation: “Actions of consolida-tion” inside the Eurosystem, between 13 Central Banks and their subsidiary ECB. None of these events are part of national bookkeeping although their influence on national economies is enormous: The deficit brothers buy value for paper money, the surplus brothers lose value for paper money.

Stand these figures for an optimal currency area?


No. They stand for diver-gence rather than convergence. Equilibrium is now further away between the Euro member states than in 1999. An optimal currency area would comprise the surplus countries Germany, The Netherlands, Belgium, Luxemburg, Austria and Finland. Such structure would permit the deficit countries to devalue and thus to regain competitiveness in the world market.

For more information please visit www.eurospethmann.de or www.hankelspethmann.de

Ottawa focuses on IP cameras to secure facilities

The following article was orginally published in ITWorldCanada.com by Nestor E. Arellano

The City of Ottawa is replacing its aging army of 400 closed circuit television (CCTV) cameras with Internet Protocol (IP)-enabled units that will improve data gathering and security system integration.

The older cameras, installed in 2002, are credited for reducing damage to public property.

“Our vandalism bill dropped from $900,000 to zero when we deployed these cameras,” said Bob Gauvreau, manager of corporate security, for the City of Ottawa.

Early last year, however, Gauvreau saw the need to replace the cameras to keep up with emerging technology. “Our CCTV cameras did their job, but we needed to take advantage of new technology to improve our capability.”

The older surveillance devices were most effective in securing the city’s 14 pools where vandals often threw garbage, harmful chemicals and even dog feces. The cameras were linked to the municipal local area network that fed images to a central command centre. The system reduced the need for manual patrol of city property.

The City of Ottawa encompasses 11 former regional municipalities, covers 2,800 square kilometers and is home to more than 700,000 residents. Gauvreau looks after the security of some 15,000 public employees and thousands of visitors who use the cities 900 facilities and some 700 parks. Replacement of the older units is expected to be completed before summer.

Gauvreau said the new IP cameras will provide better image resolution. He said grainy pictures produced by the CCTV units hampered identification and cost his team precious time. “We were losing time in trying to identify people in grainy images or empty scenes captured by the camera. That was not acceptable.”

The IP-based surveillance camera from Sony Electronics Inc. uses the company’s new distributed enhanced processing architecture (DEPA).

The feature allows pre-processing of data to take place in the camera. The method reduces network communication and bandwidth requirements but also produces clearer and sharper images, said Carlos Varela, product manager for Sony Canada.

The lower bandwidth requirements and elimination of “environmental noise” such as rustling leaves from the system “leads to faster searches of video material,” he added.

With the older system, a separate motion detector sent a signal to the camera to pan, tilt or zoom towards a particular spot where the sensor detected movement.

Motion detectors are integrated into the Sony camera’s body reducing the need to purchase another device to add to the system.

Varela said the unit’s motion sensors can distinguish between actual target images and false alarms caused by environmental noise. “This ensures that only real events are recorded and data storage is not wasted on useless footage.”

The cameras can also be attached to an alarm and two-way audio system to enable security personnel to talk to and receive verbal response from persons in the camera’s view.

While CCTVs, analog cameras and tape-based video recorders still dominate the security market, these are aging technologies, according to Gauvreau.

Centralized surveillance monitoring, once a major advantage offered by CCTV could now be a disadvantage in an increasingly mobile world where access to security videos might be demanded from a laptop or wireless handheld device, he said.

Gauvreau is also planning to integrate the new cameras with an automated card entry system that the city uses for its employees.

Reliable means of authentication have become more vital to organizations as technological advances make it easier to fabricate or steal identity, according to Alicia Wanless, visionary and coordinator of the Walsingham Institute, a Toronto-based security think tank.

“Organizations are increasingly searching for more tamper-proof means of identification,” she said. For instance, Wanless said, governments are increasingly moving towards biometric ID cards.

Although not yet widely used in the government space, biometrics has trickled down to the consumer space. “We now have simple biometric locks for laptops that sell for as low as $20. We’ll see more of these types of gadgets as prices go down further,” said Wanless.

While Ottawa does not employ biometric cards, IP cameras deployed at city building entrances will provide an extra layer or authentication, Gauvreau said. “Apart from magnetic card IDs, we will also have visual confirmation and recorded images of the person entering the building.”

New Mechanisms Needed For Lawful Interception

Originally printed on InterGovWorld.com:

Recently, Liberal MP Marlene Jennings reintroduced the Modernization of Investigative Techniques Act (MITA) as Bill C-416.

The private member’s bill is a peculiar choice for pushing forward the Liberal’s tough-on-crime agenda considering the bill’s unpopularity and shortcomings when first introduced in November 2005 and subsequently died on the order paper when the previous government fell. Little has changed in terms of the contents of the bill or opinions surrounding it.

MITA is a wiretapping specific bill that would mandate communication service providers (CSP) – including those offering Internet – to “put in place and maintain certain capabilities that facilitate the lawful interception of information transmitted” over service provider networks.
Lawful intercept or lawful access, which allows law enforcement agencies to legally, yet covertly track and eavesdrop on a suspect’s communications, is a valuable investigative tool in many jurisdictions.

Canada currently has no separate legislation covering lawful access. Lawful access legislation is a crucial bridge that can facilitate criminal investigations, provide a framework for how CSPs are to assist in such investigations and protect the rights of citizens.

Without legislation there is no fixed way to intercept a suspect’s communications, service subscriber information can be requested and received without following due processes and information regarding the official use of wiretaps can be difficult to find.

The shortcomings of MITA are clearly the source for its unpopularity among industry, privacy advocates and members of the public. In terms of potential abuse, MITA continues to base prevention of potential abuses of lawful access on a warrant-based system and an ex-post facto review process.
MITA provides no insight as to how CSPs will be expected to comply (in terms of technology or standards) with the bill or who will ultimately decide this. MITA also leaves CSPs with no legal means to recoup the operational costs of lawful interception, which include staffing specialized engineers and maintaining interception equipment.

An approach, which has curiously been left out of MITA (in 2005 and now), would be to establish an outside governing body that would oversee lawful access from compliance to reviews. Such a body might be comprised of specialists representing expertise in privacy, law enforcement, technology and law.

The responsibilities of this body could entail establishing a framework for lawful access compliance, ultimately deciding whether the benefits derived from enhancements are worth the costs associated with them, overseeing the implementation and maintenance of interception capabilities as well as the issuing of warrants, and investigating errors and allegations of abuse.
Surely, such an approach would go a long way in quelling the concerns of industry and privacy advocates while also fostering a sense of accountability in public opinion.

Canada does need lawful access legislation to ensure that law enforcement investigators do have access to useful tools while not infringing on the rights of law-abiding citizens. Unfortunately, MITA in its current form does not offer this.

Hopefully, the reintroduction of the bill will spark renewed discussions on how best to approach lawful access legislation that will finally lay the matter to rest.