Atlantic Council – 6 october 2016
« How does the Euro Area balance growth and fiscal responsibility: Current practice and prospective reflections »
Ladies and Gentlemen, Dear Andrea,
Thank you for inviting me to this event and for giving me the opportunity to explain where Europe is considering taking its fiscal policy.
In the past, Europe’s partners have aired concerns over the impact of its fiscal rules on growth. I am in Washington, DC for the Annual meeting of the IMF, as well as meetings of the G7 and G20. These are forums where such views have been expressed repeatedly.
These concerns are legitimate.
They are also mirrored in Europe. There is a fierce debate between those who support the continuation of fiscal consolidation and those who consider that boosting growth should be our top priority.
This is even more true in my home country. You may know that France will hold general elections next year. A significant number of candidates for presidential primaries – across the political spectrum – are questioning Europe’s debt and deficit rules. Violating these rules is even an explicit and prominent platform plank for many of them.
There is more to these rules than meets the eye, though. What I would like to explain today is how Europe will continue abiding by these rules, without self-sabotaging.
Let me first go back in time and remind you why Euro area members agreed to cap their debt and deficit levels (60% of GDP for debt, 3% of GDP for deficit).
To put it simply: these rules were the result of a political compromise. The euro currency is a shield: joining the euro area means that you will benefit from conditions that were previously available only to Europe’s strongest economies. In exchange, rules were needed to make sure no member would abuse the system and act as a free rider.
So it was a trade-off: solidarity in exchange for fiscal discipline, i.e. common rules to keep our house in order. And European leaders cared enough about this trade-off to enshrine it in the Treaty – our highest legal order. To put it a little bit more dramatically: these rules are the political condition for the very existence of the euro.
This trade-off is still valid today, even if conditions have changed (growth, inflation, interest rates, resilience of the financial sector…). Amending the rules would require preserving this balance between solidarity and responsibility.
My job, as EU Commissioner for economic and financial affairs, is precisely to address current challenges while working with this balance.
Over the years, Europe has applied itself to design smart fiscal policies, i.e. policies that comply with the rules without crippling growth. Both on paper and in practice.
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