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European Commission - Speech - [Check Against Delivery]

Keynote speech by VP Dombrovskis at the Brussels Economic Forum on the EMU: restarting convergence and strengthening resilience

Brussels, 9 June 2016

Honourable participants of the forum,

Ladies and gentlemen,


It's good to see such a broad and prominent audience. It is your expertise and your insights that always make the Brussels Economic Forum such a fascinating event.

Keeping in mind the speech of ECB President Mario Draghi, I will outline the work of the European Commission to get the EU and the euro area back on the track of economic growth and job creation.

Monetary policy is set independently, but not in isolation from other policies. They go hand-in-hand.

Our part of the job is clear: as the European economy is slowly but surely gaining force, we need to strengthen the recovery. For this, we have three immediate priorities: re-launching investment, continued structural reforms, and responsible fiscal policies.

But today's discussions will focus not only on the immediate macroeconomic challenges but also on the road ahead: how do we make the Economic and Monetary Union more resilient to future shocks; and how do we re-launch the process of convergence within the euro area and the EU as a whole.


*           *           *


Ladies and gentlemen,


The political context for this is not easy.

In the past, the idea of further monetary integration always gained strength when the economic challenges forced us to reconsider business-as-usual.

Now, the task is to keep up with the work on completing the EMU when immediate market pressure is less present. So we have to provide the momentum ourselves.

Over the last years, we have proved that Europe can be decisive if action is urgently needed.

A lot has been done to close the gaps in the EMU framework and to make it more resilient. In the response to the crisis, we have introduced a number of measures:

-        the European Semester, an upgraded governance framework to better coordinate fiscal and macroeconomic policies among Member States;

-        a Macroeconomic Imbalances Procedure to detect and address economic imbalances early on;

-        more sophisticated fiscal rules, the six-pack, the two-pack regulations and the Fiscal Compact;

-        a financial backstop - the European Stability Mechanism - to provide support to Member States in difficulty, against necessary policy conditionality;

-        and finally, we have created a Banking Union to weaken the bank-sovereign loop and to ensure financial stability. We have established bail-in as a fundamental principle of bank resolution, to make sure taxpayers are not first in line to pay for the banking sector's mistakes.


These efforts have also been supported by the European Central Bank's monetary policy. Mario Draghi's famous 'whatever it takes' helped to calm down financial markets during the Eurozone crisis.

This referred to Outright Monetary Transactions, and in the meantime, the European Court of Justice has confirmed that they are within the mandate of the ECB. The ECB is also helping the economic recovery with its accommodative monetary policy, not least with quantitative easing.

Today, the EMU is already much more resilient than it was just a few years ago.

And we have already seen it during the most recent Greek crisis. It remained just that: a Greek crisis – serious enough in itself – but there were very little spillover effects to other euro area countries and the stability of the euro area as a whole was not in question.

So, we have done the necessary crisis management. But the work is not finished. We need to move further to complete the Economic and Monetary Union.


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In 1989, when Jacques Delors set out his vision of an economic and monetary union, he was very clear: 'Monetary union without a sufficient degree of convergence of economic policies is unlikely to be durable and could, in fact, be damaging to the European Community.'

That is as valid as ever. The question is how to re-launch that convergence, with both political steer and concrete support.

For this, the Five Presidents' Report provides good guidance.

In the longer term completing the EMU may require new tools and institutions. But the first question is not one of revolutionary new steps, but of showing that what we have already agreed is working.

'Deepening by doing' - as the Five Presidents' Report describes the first stage - means fully implementing decisions taken. Advancing further within the existing legislative framework and streamlining its application where necessary. Only consistent implementation of the decisions already taken can provide us with the necessary credibilityto advance in Stage 2.


The Commission has set out how to do so with proposals put on the table last autumn.

To strengthen economic governance, we are revamping the European Semester. We now issue fewer and more focused Country-Specific Recommendations. The euro area recommendations are now issued before the national ones, so that governments can take them into consideration when designing their national reform programmes. We pay more attention to the aggregate fiscal stance for the euro area. And we have reinforced the social dimension of the European Semester.

We have launched a more systematic benchmarking of structural policies. In essence, this means coming to a common understanding of what a desirable policy set-up should be in key policy areas. These benchmarks would then provide a basis for CSRs. All this work is done in closer cooperation with national authorities and social partners than in the past.

We are providing more concrete support to reforms from the European level. With macroeconomic conditionality, EU funds are now more targeted at structural reforms.

The Commission has also set up a Structural Reform Support Service to provide technical assistance at the request of Member States.

We are setting up the advisory European Fiscal Board and we have recommended National Competitiveness Boards,to foster a better common understanding of what drives competitiveness and productivity, and how these can be bolstered across the euro area.

On the external representation of the euro, we have tabled a legislative proposal and drew up a roadmap towards allowing euro area Member States to speak with one voice, notably in the IMF.

Work on the Capital Markets Union is also well under way, so that EU companies can gain access to more diverse sources of financing and reduce their reliance on bank financing only.

The Commission has set out what is needed to complete Banking Union, based on thorough implementation of the two pillars already in place – supervision and resolution, and the agreed common backstop.

We have tabled a proposal for a European Deposit Insurance Scheme, the missing pillar of the Banking Union.

The Commission will make the necessary proposals to further reduce risks in the financial sector. Let me reiterate once again that risk-reduction and risk-sharing go hand in hand.

The European Commission is closely following and facilitating the discussions at the European Parliament and the Council, related to our proposals for the Stage 1 of the Five Presidents' Report. And we hope for real progress already in the nearest future.

As a next step, it is essential that the June ECOFIN agrees on a roadmap to complete Banking Union.


*           *           *


As the work on Stage 1 continues, the preparations for Stage 2 have started as well.

There is broad interest in EMU deepening: public consultation events across Europe continue to raise awareness, and clarify questions on what direction we are heading.

To take stock of this broad consultation, an expert group will be set up later this year. Their work will feed into the Commission's White Paper to be presented in Spring 2017.

So, how do we build a consensus on proposals that are both ambitious and realistic?


Two issues seem most relevant to me at this point:

Firstly, how to restart the convergence process within the euro area.

If the convergence benchmarks are to be made more binding, how do we define the most important, and the most realistic benchmarks? In which policy areas? The Five Presidents' Report mentions some of them - labour markets, competitiveness, businessenvironment and public administrations, as well as certain aspects of tax policy.

The focus should clearly be on the specific policy tools, not on the macroeconomic outputs; on the policy shortcomings that need to be addressed primarily.

Secondly, there might be exceptional circumstances – large asymmetric shocks – when national stabilisation is unable to smoothen the economic cycle, even if a country has been abiding by the rules.

Here, the Five Presidents' Report proposes that 'public risk-sharing should be enhanced through a mechanism of fiscal stabilisation for the euro area as a whole'.

The European Fund for Strategic Investments is an experience we can draw from.

There could be a financial mechanism providing loans, under favourable conditions, to support additional investment in countries facing economic shocks.

This would be a way to provide meaningful support to a Member State's economy, while satisfying the conditions mentioned in the Report: it should not lead to permanent transfers between countries, nor undermine the incentives for sound fiscal policy-making at the national level. However, we would also need to take into account such support when assessing Member States' compliance with fiscal rules.

I am sure that different options for the stabilisation function will be dicussed in today's forum.


*           *           *


Ladies and gentlemen,


The work on EMU deepening continues. But this should not lead to the creation of new barriers within the EU – between countries inside and outside of the euro area.

We should be open and transparent vis-à-vis all EU Member States. We have to uphold the integrity of the common market and the cohesion of the EU as a whole.

In this work, we need both discipline and decisiveness.

The discipline to deliver our ambitious structural reform agenda and to fully implement decisions already taken.

The decisiveness and openness to bridge different views on how to fill the remaining gaps in the EMU architecture.

Only by ensuring the credibility and the effectiveness of the current framework can we build the consensus needed to complete the EMU.

Your input during today's discussions, and your ideas on how to make that happen, will be much appreciated.

Thank you very much.


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