Mario Draghi: The future of the euro - stability through change
Contribution from Mr Mario Draghi, President of the European Central Bank, published in
"Die Zeit", 29 August 2012.
* * *
Across Europe, a fundamental debate is taking place about the future of the euro. Many
citizens are concerned about where Europe is heading. Yet the solutions presented appear
to them unsatisfactory. This is because these solutions offer binary choices: either we must
go back to the past, or we must move to a United States of Europe. My answer to the
question is: to have a stable euro we do not need to choose between extremes.
The reason this debate is taking place is not the euro as a currency. The objectives of the
single currency remain as relevant today as they were when the single currency was agreed.
To spread price stability and sustainable growth to all European citizens. To reap the gains of
the world's largest single market and make the historic process of European unification
irreversible. To raise Europe's standing - not only economically but also politically - in a
globalised world.
The debate is taking place because the euro area has not yet fully succeeded as a polity.
Currencies ultimately depend on the institutions that stand behind them. When the euro was
first proposed, there were those who said it would have to be preceded by a long process of
political integration. This was because sharing a currency would imply a high degree of joint
decision-making. Member countries would be a "Schicksalsgemeinschaft" and would need
strong common democratic underpinnings.
But a deliberate choice was made in the 1990s not to give the euro such features. The euro
was launched as a "currency without a state" to preserve the sovereignty and diversity of
member countries. This informed the so-called "Maastricht setup", which laid the euro's
institutional foundations. But as recent events have shown, this institutional framework left
the euro area insufficiently equipped to ensure sound economic policies and effectively
manage crises.
For this reason, the way ahead cannot be a return to the status quo ante. The challenges of
having a single monetary policy but loosely coordinated fiscal, economic and financial
policies have been clearly revealed by the crisis. As Jean Monnet said, coordination "is a
method which promotes discussion, but it does not lead to a decision." And strong decisions
have to be made to manage the world's second most important currency.
A new architecture for the euro area is desirable to create sustained prosperity for all euro
area countries, and especially for Germany. The root of Germany's success is its deep
integration into the European and world economies. To continue to prosper, Germany needs
to remain an anchor of a strong currency, at the centre of a zone of monetary stability and in
a dynamic and competitive euro area economy. Only a stronger economic and monetary
union can provide this.
Yet this new architecture does not require a political union first. It is clear that monetary union
does
entail a higher degree of joint decision-making. But economic integration and political
integration can develop in parallel. Where necessary, sovereignty in selected economic
policy fields can and should be pooled and democratic legitimation deepened.
How far should this go? We do not need a centralisation of all economic policies. Instead, we
can answer this question pragmatically: by calmly asking ourselves which are the minimum
requirements to complete economic and monetary union. And in doing so, we will find that all
the necessary measures are firmly within our reach.
For fiscal policies, we need true oversight over national budgets. The consequences of
misguided fiscal policies in a monetary union are too severe to remain self-policed. For
broader economic policies, we need to guarantee competitiveness. Countries must be able
to generate sustainable growth and high employment without excessive imbalances. The
euro area is not a nation-state where persistent cross-regional subsidies have sufficient
popular support. Therefore, we cannot afford a situation where some regions run
permanently large deficits vis-à-vis others.
For financial policies, there need to be powers at the centre to limit excessive risk-taking by
banks and regulatory capture by supervisors. This is the best way to protect euro area
taxpayers. There also needs to be a framework for bank resolution that safeguards public
finances, as we see in other federations. In the U.S., for example, on average about 90,
mostly smaller, banks per year have been resolved since 2008 and this had no impact on the
solvency of the sovereign.
Political union can, and shall, develop hand-in-hand with fiscal, economic and financial union.
The sharing of powers and of accountability can move in parallel. We should not forget that
60 years of European integration have already created a significant degree of political union.
Decisions are made by an EU Council filled by national ministers and by a directly elected
European Parliament. The challenge is to further increase the legitimacy of these bodies
commensurate with increasing their responsibilities and to seek ways to better anchor
European processes at the national level.
A more solid political foundation should allow for agreement on a basic principle: that it is
neither sustainable nor legitimate for countries to pursue national policies that can cause
economic harm for others. This constraint has to be built into how countries design their
economic and social models. The only sustainable model is one that is consistent with the
terms of a common currency. Countries have to live within their means. Competition and
labour markets have to be reinvigorated. Banks have to conform to the highest regulatory
standards and focus on serving the real economy. This is not the end, but the renewal of the
European social model.
From the ECB's perspective, a strong economic union is an essential complement to the
single monetary policy. Building this will require a structured process with correct
sequencing. Yet citizens can be certain that three elements will remain constant. The ECB
will do what is necessary to ensure price stability. It will remain independent. And it will
always act within the limits of its mandate.
Yet it should be understood that fulfilling our mandate sometimes requires us to go beyond
standard monetary policy tools. When markets are fragmented or influenced by irrational
fears, our monetary policy signals do not reach citizens evenly across the euro area. We
have to fix such blockages to ensure a single monetary policy and therefore price stability for
all euro area citizens. This may at times require exceptional measures. But this is our
responsibility as the central bank of the euro area as a whole.
The ECB is not a political institution. But it is committed to its responsibilities as an institution
of the European Union. As such, we never lose sight of our mission to guarantee a strong
and stable currency. The banknotes that we issue bear the European flag and are a powerful
symbol of European identity.
Those who want to go back to the past misunderstand the significance of the euro. Those
who claim only a full federation can be sustainable set the bar too high. What we need is a
gradual and structured effort to complete EMU. This would finally give the euro the stable
foundations it deserves. It would fully achieve the ultimate goals for which the Union and the
euro were founded: stability, prosperity and peace. We know this is what the people in
Europe, and in Germany, aspire to.