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AGRICULTURE, BANKING, AND THE EURO

So I posted this item about the U$ Ambassador's ideas on GM foods. 

At Felix Rohatyn Remarks to Credit Agricole Federation in Vichy
          10/22/98
        URL: http://www.amb-usa.fr/usis/text/vichy.htm

you'll find the whole speech - its's more than just food-news. It three
month's old.

Cheers
MichaelP





==================
   Ambassador Rohatyn
   Ambassador Felix G. Rohatyn:
   "AGRICULTURE, BANKING, AND THE EURO"
   Remarks to Credit Agricole Federation in Vichy
   
   ______________________________________________________________________
   
   Thursday, October 22, 1998 - Vichy, France
   
   Vichy, France -- U.S. Ambassador to France Felix Rohatyn addressed the
   Credit Agricole Federation here October 22 on "Agriculture, Banking,
   and the Euro."
   
   "It is clearly in the interests of the United States to see a
   successful euro, since Europe and the U.S. have global
   responsibilities both in the security area through the Atlantic
   Alliance and in the financial area through their cooperation with the
   international financial institutions, the World Bank, and the
   International Monetary Fund," Rohatyn said.
   
   The euro's success, he said, "will be determined by the progress of
   economic and political integration of Europe; by its role in
   stimulating economic growth and the reduction of unemployment; by
   encouraging the enlargement of the EU.
   
   "Success will also be determined by the progress, institutional or
   otherwise, of the member countries, towards a European,
   growth-oriented, market economy combined with an appropriate level of
   social protection.  Europe would then further strengthen its role as
   transatlantic partner to the American economy.  I am confident that
   this will happen and that it will benefit both Europe and the United
   States."
   
   Rohatyn discussed changes in U.S. agricultural policy since 1996, and
   U.S. differences with Europe on issues such as price supports and
   other government subsidies, biotechnology, and labeling of genetically
   modified foods.  "We should open channels of communication, share our
   scientific findings, and isolate our decisions from politics and
   emotion.  Together we can find solutions that give our farmers the
   best available technology and protect our consumers," he said.
   
   He also outlined the trends of consolidation and competition in U.S.
   banking over the past decade.  Rohatyn noted that "at this conference,
   Credit Agricole will consider ways to face increased competition that
   will likely result from European monetary union."
   
   On the risks and benefits of globalization, Rohatyn said, "I believe
   that in the U.S. we have found a formula that works for us: It is
   'popular capitalism.'  It is a high-growth market economy with a
   strong legal and regulatory infrastructure and an ample social safety
   net.  To be a success, the euro will, in my judgment, require a
   European version of this type of structure, or as Prime Minister
   Jospin describes it: 'a market economy but not a market society.'"
   
   He added, "Economically speaking, what is good for the United States
   is good for Europe, and vice versa.  This does not mean that Europe
   can, or should, become a mirror image of the U.S.  But we do have
   parallel interests in economic stability and financial soundness, and
   a successful euro is necessary to achieve these objectives."
   
   Following is the text of Ambassador Rohatyn's remarks:
   
   (Note: In the following text, "billion" equals 1,000 million.)
   
   (Begin text)
   
   "AGRICULTURE, BANKING, AND THE EURO"
   AMBASSADOR FELIX G. ROHATYN'S ADDRESS TO THE CREDIT AGRICOLE
   FEDERATION
   Vichy, France
   October 22, 1998
   
   Thank you Monsieur Bue, Monsieur Stefani, Monsieur Barsalou, and
   Monsieur Douroux for the opportunity to speak here today.  I am
   honored to address this biannual meeting of Credit Agricole and its
   member institutions.  I know that all of you share my interest in the
   financial and economic issues that we face during this time of great
   transformation in Europe -- issues that dominate the U.S.-European
   agenda and will shape the future for people on both sides of the
   Atlantic.
   
   Today, I would like to discuss several important components of the
   economic relationship between my country, France, and the European
   Union, and suggest ideas about where current policies are taking us,
   and how we can chart a course that will further strengthen our
   economies, and, at the same time, our close ties.  Credit Agricole's
   main interests are banking, agriculture, and Europe.  I will briefly
   touch upon each of these issues today.
   
   The United States wants a strong, united Europe with a strong, stable
   euro as a partner in this economic relationship.  I believe the run-up
   to the euro, and the evolution of banking systems in the U.S. and
   Europe point toward this development, and I will address these topics
   a bit later.  But first, I would like to discuss the issue that is,
   perhaps, the most hotly debated between the United States and Europe
   -- the issue of agricultural trade.
   
   Agriculture is an area of strong competition; the U.S. is the world's
   largest exporter of farm goods, and France is second.  It is a subject
   with complex political dimensions, since farmers and food producers
   are major political powers in both our countries.  And it is an area
   in which U.S. domestic policy has evolved significantly in the last
   few years.
   
   Agriculture is at the heart of the U.S. economy.  It employs some 20
   million people, or about 18 percent of the American labor force.  It
   accounts for over 15 percent of the U.S. domestic product. In  Fiscal
   Year 1998 we had an agricultural trade surplus of just over 100
   billion French Francs.  Agricultural products are our biggest export.
   
   The last few years have seen a major shift in American agricultural
   policy -- the greatest change since the 1930s -- due to the
   globalization of agricultural markets, and in particular to the terms
   of the Uruguay Round Trade Agreement, which called upon governments to
   make their agricultural sectors more competitive and more free-market
   oriented.
   
   In 1996, the U.S. Congress passed what it called "the Freedom to Farm
   Act," or the FAIR Act, a law designed to give American farmers the
   ability to react more quickly to changes and trends in global
   markets.  It was also designed to reduce government involvement in the
   agricultural sector, and the budgetary burden of such involvement.
   
   First, the FAIR Act eliminated all government-directed management of
   what farmers grow, giving them complete freedom to cultivate the crops
   that they choose, based on market demand and their own judgment,
   rather than on government policy.  Second, the FAIR Act overhauled the
   old system of commodity price support, and immediately reduced
   government price support levels for many crops.  Price supports for
   other products are scheduled to decline over time.  Price support for
   dairy products, for example, will be completely eliminated by the year
   2000.  Also, direct payments to producers are scheduled to be
   eliminated by the year 2002.  This represents both a dramatic change
   in policy and a dramatic reduction in our government's agriculture
   budget.
   
   The FAIR Act has brought both greater flexibility and greater risks to
   American farmers.  Farm income is more affected by abrupt changes in
   world crop prices.  American farmers have seen their income suffer as
   a result of the Russian and Asian financial crises, the abundance of
   global supply, and the resulting drop in commodity prices.  This
   situation has been exacerbated by recent drought conditions in the
   United States.  To respond to these hardships, the U.S. government is
   seeking ways strengthen the social safety net for American farmers,
   while preserving the market freedoms gained from reduced government
   intervention.  France faces a similar challenge: how to encourage
   dynamism in the agricultural sector and reduce government subsidies,
   while at the same time providing a safety net for farmers whose
   livelihood is often threatened by conditions beyond their control.  I
   believe this shared challenge should be a point of departure in the
   dialogue between our two countries, and that we have much to learn
   from each others' experience.
   
   The proper role of biotechnology in agriculture is a particularly
   delicate issue.  In the United States, we consider the results of
   biotechnology used in farming to be extremely promising.
   Insect-resistant plants or drought-resistant corn are two such
   examples. In each case, biotechnology has increased output.  It has
   also lowered production costs and reduced the use of pesticides and
   water, bringing environmental and health benefits to both farmers and
   consumers.  If we can use biotechnology to increase food stocks and
   permit crops to grow in harsh climates, we may begin to eliminate the
   scourge of famine and hunger in the world.
   
   Given this positive point of view, the use of biotechnology in
   agriculture has expanded rapidly in the U.S.  More than 30 transgenic
   crops have been approved for sale, including such staples as soybeans,
   corn, potatoes, and canola oil.   Three years ago, not a single
   genetically-engineered crop was planted for commercial use.  This
   year, an estimated 65 million acres worldwide were planted with
   transgenic seeds, including about one-quarter of next year's U.S. corn
   and one-third of the soybean crops.  Experts predict that in ten
   years, an estimated 95 percent of America's plant-derived foods will
   be genetically engineered.  Research is underway on the next
   generation of foods enhanced by biotechnology that could have real
   health benefits:  meat without cholesterol, oils with less fat, wheat
   with more protein, to name but a few.
   
   The safety of biotechnology is widely discussed in the European press.
   Confidence in biotechnology in the United States is due largely to our
   confidence in the government agencies responsible for food safety.  No
   genetically modified organisms (GMOs) may be used in the United States
   without meeting strict government requirements.  In fact, three
   federal agencies must review and approve the use of GMOs in the United
   States.
   
   American scientists are not the only ones who have studied GMOs.
   Scientists for regulatory agencies in the European Union, Canada,
   Japan and Australia, plus the World Health Organization, have also
   studied any possible risks -- and have determined that the GMOs on the
   market today are safe for human health.
   
   Another reason that American consumers have generally accepted these
   products is that they aren't really anything new.  All plant breeding
   involves the genetic manipulation of plants.  Virtually all of the
   agricultural products sold and consumed have been altered by this kind
   of cross-breeding.  Genetically-modified foods are as safe as the
   original plants from which the genes were taken.
   
   Every country has the right and the responsibility to establish a
   policy of food labeling.  Since May 1998, the European Union has
   required the labeling of GMO products as such.  However, for the
   reasons I have just outlined, the United States has taken a different
   position.  We believe, for example, that a type of corn that has been
   genetically-modified to resist drought is no different from a hybrid
   corn developed to give higher yields, and therefore requires no
   special label.
   
   The difference of opinion on these issues may result from historical
   and cultural factors, but one thing is clear: American, French and
   European consumers must have confidence in what they consume, and
   producers must be responsible for what they produce.  As we seek to
   meet this common goal, we should open channels of communication, share
   our scientific findings, and isolate our decisions from politics and
   emotion.  Together we can find solutions that give our farmers the
   best available technology and protect our consumers.
   
   Let me now turn from agriculture to finance.  As in agriculture, we
   have seen major changes in America's banking system.  Consolidation is
   the most obvious trend in U.S. banking today.  In the last two
   decades, nearly all the traditional barriers to geographic expansion
   in the United States have been removed, as first states, and then the
   federal government, have relaxed regulatory constraints.  The
   transition to a nationwide banking structure continues to result in
   numerous mergers and acquisitions.  Bank mergers have been an
   important phenomenon since 1980, and about 400 healthy-bank mergers
   now occur each year.  The high level of merger activity is reflected
   in the steady decline in the number of U.S. banking organizations:
   from over 12,000 in 1980 to about 7,000 in 1997.
   
   This diminishing number of institutions has been accompanied by a
   substantial increase in the share of total banking assets controlled
   by the largest banking organizations.  The proportion of U.S. banking
   assets accounted for by the 100 largest banking organizations grew
   from just over one-half in 1980 to nearly three-quarters in 1997.
   
   These statistics don't tell the whole story, however.  It is important
   to realize that the consolidation trend doesn't signal the end of the
   small community banks in the United States.  We remain a country
   characterized by a large number of smaller community banks, just as we
   remain a country characterized by the diversity and, on average, the
   small size of our non-financial businesses.  It is interesting to note
   that fewer banking organizations in the U.S. does not mean fewer
   banking offices to serve the public.  From 1980 to 1997 the total
   number of banking offices in the U.S. increased sharply, from 53,000
   to 71,000.
   
   The U.S. banking industry is dynamic and open to competition.
   Although there were about 1,450 commercial bank failures between 1980
   and 1997, some 3,600 new banks formed.
   
   The pressures of global competition are another reason for the
   consolidation trend in the United States.  In addition, rapid
   technological advances have spurred financial innovations, especially
   in securitization and derivative instruments.  A broad array of
   financial products is now available at lower costs, and traditional
   boundaries among types of financial services providers are blurred.
   The dramatic growth in transnational finance in recent years has
   required that financial institutions expand sufficiently to compete in
   global markets for corporate customers seeking the best funding
   options worldwide.
   
   At this conference, Credit Agricole will consider ways to face
   increased competition that will likely result from European monetary
   union.  I am told that over the last decade, your quest for
   consolidation and increased efficiency has reduced the number of
   Credit Agricole regional banks from 94 to 56, and that you plan even
   more consolidation in coming years.
   
   It is clear that the banking sector in France and Europe, already
   faced with thin profit margins, will encounter increased competition
   with the introduction of the euro.  Capital markets are likely to
   become more liquid, increasing incentives for firms to seek non-bank
   capital, and competitive pressure in the banking system will grow.
   
   At the wholesale banking level, EMU should eliminate remaining
   barriers to cross-border competition that will benefit the most
   efficient banks and result in consolidation of weaker firms.  I
   believe the impacts of increased competition at the retail banking
   level could be larger, given perceived inefficiencies in that sector
   -- overbanking, overstaffing, and high transaction costs.  The
   elimination of a host currency advantage and increased harmonization
   of banking requirements will stimulate demand for EMU-wide banking
   services and will motivate participants to seek the most favorable
   rates when lending or borrowing capital.
   
   While we all expect merger activity in the French banking sector, its
   timing is yet unclear.  Although recent stock price declines make
   banks more attractive, the uncertainty created by ongoing market
   turbulence is seen as an obstacle to consolidation in the near
   future.   Whatever the timing, a round of banking consolidation within
   countries in Europe may well occur prior to cross-border merger
   activity.
   
   I would like to say a few more words about our perspectives on the
   euro in particular and globalization in general.  Recent volatility in
   the securities and foreign exchange markets in the U.S. and Europe,
   combined with the financial crises in Asia, Russia and threatening
   Latin America, are creating questions as to the risks and benefits of
   globalization.  These are valid questions.  Globalization carries with
   it the promise of huge benefits both for the developed as well as the
   developing countries.  However, it carries with it large risks if
   improperly controlled.
   
   I believe that in the U.S. we have found a formula that works for us:
   it is "popular capitalism."  It is a high-growth market economy with a
   strong legal and regulatory infrastructure and an ample social safety
   net.  To be a success, the euro will, in my judgment, require a
   European version of this type of structure, or as Prime Minister
   Jospin describes it: "a market economy but not a market society."  It
   is clearly in the interests of the United States to see a successful
   euro, since Europe and the U.S. have global responsibilities both in
   the security area through the Atlantic Alliance and in the financial
   area through their cooperation with the international financial
   institutions, the World Bank, and the International Monetary Fund.
   
   More directly, the U.S. has investment of about one trillion dollars
   in Europe, and about three and a half million Europeans work for U.S.
   enterprises.  European companies have similar levels of investment and
   employment in the United States; 350,000 Americans work for French
   enterprises in the United States; a similar number of French employees
   work for U.S. companies in France.  Economically speaking, what is
   good for the United States is good for Europe, and vice versa.  This
   does not mean that Europe can, or should, become a mirror image of the
   U.S.  But we do have parallel interests in economic stability and
   financial soundness, and a successful euro is necessary to achieve
   these objectives.
   
   The coming of the euro is no longer discussed in the future tense.
   The euro is here, as a virtual currency.  The stability of
   intra-European exchange rates, interest rates, the convergence in
   budgetary policies, the functioning of the futures and derivative
   markets, all point to the euro as a "fait accompli."  In addition, the
   euro is credited by many as having protected European currencies from
   the contagion of the current financial crisis, and therefore having
   protected European economic growth from a possible downturn.
   
   The question that is now raised, in the United States as well as in
   Europe, is: "What happens next?"  What will be the relationship of the
   euro, serving as single currency for 290 million people, vis-a-vis the
   dollar serving as currency for 270 million people, as well as being
   the reserve currency of choice for central banks all over the world?
   
   There is certainly no simple answer to questions like these.  There is
   no precedent for two major currencies functioning side by side as
   reserve currencies.  There is no precedent for a single currency and a
   single central bank functioning without the institutional framework of
   a unified budget and parallel policies with respect to taxes, social
   benefits, labor, etc., by the countries served by the single
   currency.  The euro is a major act of political will and political
   faith by 11 European countries to leapfrog these uncertainties in
   order to achieve a goal of political and economic integration begun by
   Jean Monnet 50 years ago.  The U.S. has consistently supported these
   goals, beginning with the Marshall Plan; we continue to do so today.
   
   The strength or weakness of a currency today, and its competitiveness
   vis-a-vis other currencies, depend on more than just trade balances,
   monetary policies, or the credibility of central banks.  The Asian
   financial crisis has shown that the rigors of the global economy
   demand a sound and highly sophisticated structural underpinning.  As
   the evolution of the euro takes place, it is likely that more
   attention will be devoted to these structural questions and to how the
   EMU member counties undertake the necessary reforms to assure the
   success of the single currency.
   
   The 1994 Mexican crisis and the current Asian and Russian crises have
   caused investors to be more and more selective in trusting a
   particular currency.  The word "credit" comes from the Latin "credere"
   meaning "to believe."  A fundamental belief in the U.S. dollar,
   regardless of its market fluctuations,  stems not only from the
   strength of the U.S. economy and the soundness of its economic
   policies, but rests on faith in its institutions.  These are legal as
   well as regulatory; they are political as well as philosophical.  The
   U.S. is a continent as much as a country, with four or five regional
   economies, different but complementary.  They are tied together by one
   set of laws, one currency, one capital market, and one language.  They
   function within the framework of a political system which is stable
   and essentially centrist as to economic-social policy -- a system
   which tempers the risks of the marketplace with an extensive social
   safety net.
   
   These are the standards to which the euro will be compared.  The
   dollar does not exist by itself.  It is woven into the fabric of the
   American political, social and economic system, which give the dollar
   its strength and character.
   
   Europe has access to all of the same basic assets as the United
   States: ample capital; advanced technology; high levels of education;
   developed legal systems, and so forth.  It will be up to the economic
   policies under EMU and to the political will of the member countries
   to weave this into a fabric which, while not a European version of the
   USA, will nonetheless have some of its attributes.  It will be a mix
   of a vibrant market economy combined with intelligent and active
   governments to provide an ample social safety net and European
   institutions to provide the architecture to the system.  The euro may
   well be the catalyst toward what Prime Minister Blair refers to as the
   "Third Way."
   
   In my view, two powerful forces will determine the evolution of the
   European market economy.  First, at the macro-economic level, the euro
   will exercise powerful monetary and budgetary disciplines which, in
   combination with   structural reforms, should stimulate growth and the
   creation of wealth and employment.  Second, at the micro-economic
   level, "corporate governance" and the influence of major international
   institutional investors will create pressures for higher levels of
   profitability and competitiveness in the private sector, which should
   stimulate investment, consolidation and increased efficiency.  The
   success of these forces will determine the success of the euro.
   
   The U.S. has an enormous interest in the success of the euro.  What is
   the definition of success?  Its success will be determined by the
   progress of economic and political integration of Europe; by its role
   in stimulating economic growth and the reduction of unemployment; by
   encouraging the enlargement of the EU.
   
   Success will also be determined by the progress, institutional or
   otherwise, of the member countries, towards a European,
   growth-oriented, market economy combined with an appropriate level of
   social protection.  Europe would then further strengthen its role as
   transatlantic partner to the American economy.  I am confident that
   this will happen and that it will benefit both Europe and the United
   States.
   
   (End text)
   ______________________________________________________________________