Ladies and gentlemen,
I am very pleased to join you today; thank you for inviting me. Half a year has passed since I last visited Washington and there have been many notable changes in Europe since then – both on the economic and political fronts. I would like to address some of the implications of these changes with you today.
First, economics. The euro area is today enjoying a strengthening economic upswing. It’s the fifth consecutive year of economic growth in Europe but it’s the first year in which this is really perceived by people, because the recovery is becoming solid. It has been firming and broadening across sectors and across our Member States. GDP figures for the 2nd quarter of 2017 confirm that the European economy is growing strongly and our economic growth is set to be significantly stronger than we forecast in the spring. I think that figures of around or a little above 2% are possible for 2017 – we will see when we present our forecast a few weeks from now. Unemployment is at lowest in eight years; and confidence is at its highest in a decade. A year ago, the recovery still seemed fragile and uncertain. We are now on much firmer ground. When I started sitting in the Eurogroup and attending IMF meetings five years ago, the eurozone was clearly the problem: today I really feel that we are part of the solution.
Political developments in Europe have also been positive. A year ago, Europe was haunted by the fear of populism. Today, European populism cannot be pronounced dead, but it’s clear that they have lost quite a lot of battles and have suffered quite severe defeats over the past few months – in Austria, the Netherlands and most notably in France, where President Macron’s platform was enthusiastically pro-European. Nobody could imagine that someone running such an enthusiastic European campaign could win an election in France, but that is what happened. These elections gave a clear signal of support for the EU – and mostly for the euro. Together with the upcoming election in Germany this coming Sunday – where, whatever happens, you will have a strongly pro-European government in Berlin – they have helped to deliver a renewed impetus for deepening our Economic and Monetary Union. If we assume, and I do, that the UK will leave in March 2019, then the eurozone will represent 85% of EU GDP. So you can see how important it is that we strengthen the Economic and Monetary Union.
Improving economic and political conditions open up a unique window of opportunity for us to strengthen the euro area. But why do we need to do it? What is the case for strengthening the Economic and Monetary Union?
First of all, as President Juncker recalled in his State of the Union speech last week, the euro is destined to eventually become the currency of all EU members. This is the letter of our Treaties: every EU country is supposed eventually to join the euro (except Denmark, which has a formal an opt-out). The euro area is the economic engine of the EU and it must be open to all Member States to join when they are ready. Let’s be clear, nobody is going to be forced to join the euro. What we want to say is that the eurozone is an inclusive area and the door is open to those who want to join. The euro will then strengthen the functioning of the single market in all EU Member States – as it was always intended to do. Its further expansion must be prepared actively – by making the Economic and Monetary Union more attractive, and by providing support to those Member States that wish to join to prepare to meet the criteria.
Making the euro area more attractive means tackling its current shortcomings. For the euro to reach its full potential and be adopted by all EU Member States, one point that we must deal with is convergence (both within the euro area, and between euro area members and other Member States), and our institutional set-up must be more democratic.
Convergence within the euro area is needed because at present what we see are persistent – and in the long run, unacceptable – differences. To name but three: Italy’s public debt is double that of Germany; Germany’s current account surplus is twice the euro area average; while its unemployment rate is half the euro area average. Conclusion: the euro area suffers from major macroeconomic imbalances and politically it is absolutely necessary that we address that.
Where do these divergences come from? There are several factors at play, but one in particular should be highlighted: the legacy of the crisis, which continues to weigh heavily, but unevenly, on our economies.
It manifests itself through high public and private debt, high long-term and youth unemployment – somewhere around 20% in the EU – and too low investment. The fragmentation of the financial sector and enduring weaknesses in the banking system are also part of this legacy, notably the high levels of NPLs in parts of the euro area.
These divergences are problematic on several levels:
- First, they make it harder to coordinate economic and fiscal policies. You just have to think of how difficult it is to plot an overall course for fiscal policy in the euro area, one which also makes sense for each of the Member States. We have rules for the Member States; we don’t yet have a rule for the euro area as a whole.
- Second, they mean that the strengthening economic upturn will not benefit all members of the euro area equally, which means we won’t have the same support for the euro area evenly. And there, I will say a word about Greece, a country about which I am now optimistic. We see the light at the end of the tunnel and in the summer of 2018, we will be seeing the end of the programme, and not starting a new one. I do not want to see a fourth programme for Greece, I want to see normalization for this country.
- And third, they have a political dimension which must be taken into account. The social and economic disparities make it more difficult to agree on the common interest of the euro area and on a shared vision for its future. They also undermine the promise of shared prosperity, which was central to the political consensus that drove the creation of the euro. This promise is not yet met.
We must deal with these differences by putting in place pro-active tools for re-convergence within the euro area:
- The idea of a “fiscal capacity for the euro area” has been discussed for many years in Brussels and other European capitals – let’s call it a budget, to make it simple. President Juncker clarified last week that we intend to work on the establishment of a dedicated euro area budget line within the EU budget, providing for a stabilization function (among other important purposes). There can be other conceptions – some could imagine that this could be outside the EU budget, that it could have its own resources. So there will be a debate there.
- In the medium-to-long term, it will be necessary to establish a genuine European safe asset. This safe asset would ultimately be a new instrument for issuing common debt. We are not talking about Eurobonds, which would be a red line for some such as Germany, but could be a vehicle for future issuance.
- Eventually, in this gradual and sequenced introduction of new instruments of cohesion and governance, the time would come to reform our budgetary surveillance rules, to make them simpler, more effective and more democratic. And they are more complicated, paradoxically, when all countries are outside the Excessive Deficit Procedure, which I hope will be the case from next year provided France and Spain bring their deficits below 3% of GDP. There might be a reflection on a more flexible, more intelligent, simpler way of achieving the goals of the Pact.
Convergence between euro area members and other Member States should also be encouraged. The euro area budget line that will be created will support and assist “outside” Member States in their efforts to join EMU. President Juncker proposed a kind of pre-accession support for those countries that want to join the EMU.
In addition we must strengthen our institutional set-up. Because there is a glaring lack of democracy in our existing structures – particularly in the Eurogroup. The current President of the Eurogroup, Jeroen Dijsselbloem, has taken some important steps to increase transparency, and my argument is no reflection on his very effective presidency. It is not a criticism of decisions taken: I have solidarity with the decisions taken there! After all I have also been sitting in the Eurogroup for the past five years.
No, the problem is a structural one. The Eurogroup was conceived as an informal body, and that is what it remains. Yet this body takes major decisions in relation to national budgets and reforms, or programmes such as those agreed for Greece, Ireland, Portugal Cyprus or Spain. These decisions are first prepared by officials – in almost complete opacity – and then taken by Ministers behind closed doors. We have very limited discussions sometimes; we have no formal rules; and we have no common accountability to a parliament. Unlike in a normal formation of the EU’s Council of Ministers, in the Eurogroup, the European Commission is not able to promote and advance the general interest of the euro area as a whole.
It is true that some ministers face much greater scrutiny than others through their national parliaments. German Finance Minister Wolfgang Schäuble, for example, faces very strong scrutiny in the Bundestag. But who is accountable for these decisions to the European Parliament? Only the Commission, and we are not the ones taking the decisions in the Eurogroup! I believe that our Economic and Monetary Union requires a quantum leap forward on the institutional front to fix this and other flaws in the governance of EMU.
Reforming the euro area’s governance is also a prerequisite for increased solidarity. Because any strengthening of EU powers must be reflected in a more democratic euro area.
It is no secret that I believe this institutional rebalancing should be achieved through the creation of a permanent Minister of Economy and Finance.It’s not a recent idea: I put this on the table in 2013 when I was a minister in the Council. It’s an idea that received the strong backing of President Juncker last week and I know that it is also on President Macron’s mind. This European Minister should:
- Be institutionally robust, by combining the roles of European Commissioner for Economic Affairs and President of the Eurogroup. This exists already in the foreign affairs area with Federica Mogherini, and it works well – it does not damage national sovereignty, it helps efficiency.
- Be democratically legitimate. This means, she or he, would be accountable to the European Parliament. As I indicated earlier, Eurogroup decisions should be subject to proper oversight by Europe’s elected representatives. That’s very important if we want to have control and transparency.
- Be technically supported by a euro area Treasury, which would be responsible for coordinating the economic policy of the euro area.
I know that some of these proposals sound very ambitious. We are not seeking to change the EMU landscape overnight but we do want to seize this unique historical opportunity to drive this discussion forward. As I said there is a window of opportunity and I think we have no more than a year to make the decisive moves to launch this process. We will use the coming months to deepen our reflection and refine our thinking, before coming forward with a set of specific proposals in what I would call a eurozone package in December.
One final word: we have no real choice between the status quo and strengthening EMU. As early as the mid-1950s, Jean Monnet, who remains one of our mentors on Europe, said ‘Our countries have become too small for today’s world, faced with the America and Russia of today, and the China and India of tomorrow.
At the time, Europe accounted for 37% of global GDP and 13% of the world’s population: today, these figures have fallen respectively to 24% and 7% respectively. If we do not combine our forces and our resources better, we will fail to halt this retreat – I dare not speak of decline, but I think that this threat is ahead of us. So we do need to make that quantum leap I mentioned a few moments ago.
The debate on the future of the euro area is in any event more open than ever before and is set to accelerate politically in the coming weeks and months. To say that very clearly, I think it will start next week, as President Macron is due to deliver a major speech, after the State of the Union speech of President Juncker and just after the German elections.
Our single currency is already a powerful symbol of European unity. We now need to ensure that it also becomes a real instrument of convergence and sustainable growth. We also need to make sure that it is politically driven, and democratically led. That’s the challenge ahead of us.
Thank you very much.