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European Commission - Speech - [Check Against Delivery]

Keynote speech of Commissioner Moscovici at the Brussels Economic Forum 2017: Towards enhanced cohesion, integration and prosperity

Brussels, 1 June 2017

Ladies and Gentlemen, dear guests,

Let me first warmly and sincerely congratulate DG ECFIN and Marco Buti's team for their superb work on this year's edition of the Brussels Economic Forum. It is the place to be and I take great pride in working with this Directorate-General, whose expertise is unanimously recognised. It truly is a pleasure and an honour for me to join you today, and I'm very much looking forward to this discussion.

This year's BEF is particularly timely: the European Commission released yesterday its reflection paper on Completing the Economic and Monetary Union. The title is “Enhanced cohesion, integration and prosperity” – and that's also our panellists' theme – and it was very much on our mind when we drafted it.

We need to make the euro a vehicle for shared prosperity. That's what this paper is about. Our single currency is undoubtedly a success story on many levels. But it must deliver even better for all citizens in a context where unemployment remains high and inequalities are increasing. There will be no strong European economy without a strong and stable euro.

It is a matter for all European citizens. After the departure of the United Kingdom from the EU, which will happen – we might regret that but we must respect the will of the British people - the economies of euro area countries will represent 85% of the total GDP of the EU, so we can really speak now of a core Europe. This highlights the euro's central role in the future of the EU at 27. Given its importance to the world, it is just as important to international partners and investors.

Member States and EU institutions took decisive steps in the heat of the economic and financial crisis to preserve the integrity of the euro and make our EMU more robust.

These reforms are now clearly showing results. Recovery is continuing and strengthening, as we enter the fifth year of continuous growth in Europe. Public finances have improved significantly. Some might have doubts about the efficiency of our rules, but the proof of the pudding is in the eating: the deficit is expected to be only 1.4% in the euro area this year and public debt is falling. Unemployment continues to decline, and is now at its lowest level since 2009, and we have a growth which is creating more jobs than yesterday.

However these results which are undoubtedly strong should not obscure the fact that significant differences among Member States and far-reaching legacies from the crisis persist today. Divergence is our problem, divergence is our enemy:

  • Years of low or no growth have created and exacerbated significant economic and social differences. In particular, unemployment levels still differ substantially across the euro area. If I look at the country I know best, France, its unemployment level is almost twice that of its neighbour, Germany. This is something which has had far-reaching consequences, particularly in the countries having had to adjust during the crisis.
  • The crisis also led to financial sector fragmentation across euro area Member States.
  • Weaknesses, as you all know, remain in the quality of public finances and in the way the euro area is governed. We cannot be satisfied with the euro area governance as it is. We need less technocracy and more democracy and not the reverse.

These tell the story of the still incomplete architecture of economic integration, and this calls for action. The “Monetary” pillar of the EMU is, as we all know, well developed now. But the “Economic” component is still lagging behind, with less integration at EU level hampering its ability to support fully the monetary policy and national economic policies. This is symptomatic of the need to strengthen political will to cement the “Union” part of EMU.

The Five Presidents' Report of June 2015 recalled the need to complete Europe's EMU and mapped out the way forward by 2025. It initiated a first phase of “deepening by doing” until June 2017 – that's now. The steps needed for the second stage towards 2025, however, still need to be discussed and agreed among Member States and that's precisely what our reflection paper is about.

It is against that background that we published yesterday our reflection paper, which I truly believesets out possible ways forward for deepening and completing our economic integration with a view to reaching a shared vision of this future design.

It is our contribution, the contribution of the Commission, to a debate which – I'm aware of that – is complicated by what I consider an unhelpful haggling between solidarity and discipline. It is no use to oppose both. It is no use to oppose risk sharing and risk reduction. It is no use to oppose solidarity and responsibility. These are the two faces of the same coin and must be addressed together. One does not exist without the other, and we will achieve neither if we don't find a balanced agreement on the way forward. Completing the EMU will take time, we know that. But the agreement on how to proceed must be reached without delay.

Furthermore, we have now a window of opportunity because this year has been a defeat for populists all over Europe and we have a pro-European narrative which is now possible – it was obviously not the case recently.

We have therefore proposed to divide the work into two stages. First, the paper focuses on concrete actions to be implemented by the next European elections in 2019 – that's tomorrow. For the period afterwards, we identified key areas for action, including possible options, although we have one central scenario. The details of these still have to be developed and made operational. It is not a legal paper. It is an economic and political paper.

Moving ahead would involve taking steps in three key areas in our view: First, we need to complete a genuine Financial Union; we need to achieve re-convergence in a more integrated Economic and Fiscal Union – that's our motto; and finally we must anchor democratic accountability and strengthening of euro area institutions.

Our first priority clearly must be to build as I said a genuine Financial Union, comprising a complete Banking Union and the Capital Markets Union.

A consensus needs to be found on the way forward, both for the elements already on the table and for the additional steps that need to be taken between now and 2025. The Banking Union, let's be clear, is still unfinished and that puts limits on its capacity to deliver although it has already delivered a lot and I'm quite sure that we couldn't have, with what we've already achieved, a financial crisis like the one of 2008.

Risks are still there. Risks resulting from non-performing loans on banks' balance sheets need to be addressed urgently and in a comprehensive manner to overcome the legacy of the crisis and to prevent future ones.

Two key components of the Banking Union remain outstanding and they must be implemented now without any delay. First, we need to have a credible backstop to the Single Resolution Fund. It is essential to make the new EU framework for bank resolution effective. We see here the clear benefits of a solution based on the European Stability Mechanism. Second, the European Deposit Insurance Scheme has to be agreed on swiftly, to reduce further the risk of market fragmentation in times of financial stress. I know that there are debates and positions about that, but still the proposal is on the table and it must find its way.

More steps also have to be taken to diversify the sovereign portfolios of banks and therefore cut the toxic link between banks and their domestic sovereigns. We have already done a lot, but still this work has to be finished. In the short-to-medium term, sovereign bond-backed securities could serve that purpose. But in the longer run, the development of a genuine euro area safe asset is absolutely necessary, in my view. It is not to be confused with eurobonds, but it has to be built and it's clearly set out in our reflection paper.

I am aware of objections, and I agree that the mutualisation of legacy debts has to be avoided. There seems to be however scope for other constructions that can deliver what we need. The creation of a euro area safe asset that fulfils some key requirements is in my view a precondition for changing the currently risk-free status of sovereign bonds, which some see as the ultimate measure for reducing banking sector risk.

Achieving economic and social convergence should be our second – no less important – priority.

For that, we could first strengthen the coordination of economic policy via the European Semester or the EU budget. These are already existing tools. In the longer term, convergence could be based on more binding instruments. We need to have real tools for an economic policy of the eurozone. That's clearly the message of this paper. But this would require more reflection. As far as I am concerned, we do not need, as I said, more rules or more bureaucracy; what we need is stronger national ownership, better incentives for Member States to take on the necessary national responsibility, and we need stronger, deeper democratic accountability. I will come to that in a moment.

There is also a strong case for building new tools at the euro area level to enhance our common stabilisation capacity and to contain cyclical divergences. We all agree that national fiscal stabilisers should be the first line of defence in case of a macroeconomic shock. This is not to be discussed. But it is not enough. These national stabilisers can be overwhelmed in case of a significant crisis. This is why they need to be complemented by a stabilisation function for the euro area as a whole.

The Commission will therefore look into concrete options for a macroeconomic stabilisation function for the euro area. There are many questions there to be answered. What is the best design? What should be the financing mechanism? And that's about also the design of own resources for the European Union as a whole and for the euro area. Does the euro area need a budget? My personal view for a long time, and my personal answer is that yes, we need a budget for the euro area. That we need that fiscal capacity dedicated either to investment or, as Pier-Carlo has proposed, to fight unemployment. We have to continue this discussion, that's maybe what the panel will be about, and then proceed with concrete actions.

These far-reaching changes in our shared toolbox would lead to more convergence within and between euro area members. But precisely because this is far-reaching, it must go hand in hand with making euro area decision-making democratically accountable. We are here on this stage three ministers - for Johan and for Pier-Carlo, and I, a former minister and now Commissioner, to attend the Eurogroup meetings, and we must not be so proud of that. Deciding behind closed doors on the fate of Greece without any democratic accountability is something that cannot go on forever. That's not what we need.

I truly believe that Member States must accept to share more responsibilities and to take more decisions jointly on euro area matters, within a common legal framework. And decision-making has to be transparent and subject to democratic scrutiny. I have long been advocating for the creation of a Euro Area Finance Minister heading a Euro Area Treasury, possibly with a euro area budget. That means also that there needs to be a Euro Area parliament, meaning the MEPs of the Eurozone controlling the budget and the minister. This would combine several executive responsibilities and functions: both existing ones and ones still to be created. Decisions could be taken by a formalised Eurogroup with formalised responsibilities, accountable to the European Parliament, which must be equipped with sufficient powers of oversight.

To do that, we suggest that a strong possibility, it is my obvious preference, would be the merging of the position of the Eurogroup President with that of the relevant member of the Commission. That would create a single figure responsible for the interest of the euro area. It is a plan certainly not for tomorrow, but for the longer term, and it should be clear that further political integration should proceed in an incremental way. But to be very frank with you, I hope that my successor as Commissioner for ECFIN can be the next, and the first, euro area finance minister. I believe that it is absolutely necessary, if not decisive, for the efficiency of euro area governance and its democratic legitimacy. The euro area and euro are tools to fight populism. If we reduce divergences through a budget and a treasury, if we are capable of having better governance through stronger management by a minister of finance, and if it is controlled by the European Parliament - that means also addressable to the citizens - then we will feel much more comfortable and populism will move back.

Jean Monnet, one of our founding fathers, if not the godfather, once said: “Europe will be forged in crises, and will be the sum of the solutions adopted for those crises.[1]He knew – he had a vision - that building Europe would require efforts, hard work and dedication to our shared values and shared goals, and he was perfectly right. During the economic and financial crisis and its aftermath we have learnt the hard way what it means to be part of an incomplete Economic and Monetary Union. Now, now that this crisis is probably over, now that we also have challenges coming the other way, from the Atlantic that urges us to really integrate more our European Union and euro area, I think that it is high time to take the steps that are badly needed to deliver on what the euro and what EMU were made for: shared prosperity. And ultimately that's what our reflection paper is about. It is a strong message to the governments, to the stakeholders, a strong message to you - let's debate on how to create that euro area capable of creating not only stability - its present strength - but also shared prosperity, fairness, justice, well-being.

Thank you.


[1] Jean Monnet, Mémoires


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