Jörg Asmussen: Building deeper economic union: what to do and what
to avoid
Speech by Mr Jörg Asmussen, Member of the Executive Board of the European Central
Bank, at the Policy Briefing at the European Policy Centre, Brussels, 17 July 2012.
* * *
Ladies and gentlemen,
The crisis has made us all a few experiences richer. The question is whether we can draw
"experience is the name everyone gives
the right lessons from those experiences. After all,
to their mistakes" [Oscar Wilde]. And there have been a few mistakes in the way economic
policies and governance were managed inside monetary union. Policies and governance
clearly needed to be strengthened. What is less clear is how best to do it. What to do and
what to avoid is what I would like to discuss today. Thanks for inviting me to share my
thoughts with you here at the European Policy Centre.
Without a doubt: over the past two years, much has happened in the field of economic
governance. There have been a lot of proposals; the number of suggested Pacts, Compacts,
Agreements and Treaties is almost inflationary. We are having a healthy debate about the
future of EMU. But it is not only talk.
The report "Towards a genuine Economic and Monetary Union" presented to the June
European Council by the four Presidents van Rompuy, Barroso, Juncker and Draghi sets out
a shared vision for EMU over the next decade. Its content will be fleshed out over the coming
months. But the devil is, of course, in the detail. Let me structure my thoughts around three
main themes:
•
Are we on the right path with the reforms so far?
• Are we tackling the right issues with reflections currently underway?
•
What does this imply for the ECB?
1. Are we on the right path with the reforms so far?
Here in Brussels, much of the attention is naturally focused on European institutions and
processes. But we should not deceive ourselves: The proper management of euro area
economy needs both EU and national action.
Any governance process at European level is only as good as its record of actual application.
That needs determined action by those responsible at the EU level - notably the
Commission and the Council. And of course, implementation at national level.
On paper, significant progress has been achieved at EU level with the "six pack", the Fiscal
Compact and the 2012 European Semester. This package of reforms has the potential to
fundamentally change the way we conduct mutual surveillance. Common oversight of
national economic policies is broader and more intrusive. Take the Commission's in-depth
studies which revealed the existence of various degrees of imbalances in 12 countries. Or
the new more automatic decision-making rules, in particular the "new comply or explain
procedure" for the Commission's country-specific recommendations. These were all
premieres.
This procedure puts a great responsibility on the Commission to present accurate
recommendations. It also reinforces the collective responsibility of the Council.
Last but by no means least, the European Parliament introduces a degree of openness into
the policy discussion. It has conducted two economic dialogues with national finance
Ministers. Our democracies require and deserve this additional layer of common public
scrutiny of the economic policies.
So far, so good. But none of this is worth the great fanfare, if it remains without
consequences. Member States have to address the identified problems through determined
reforms.
Unfortunately, the past track record of implementation of recommendation has not been very
good in this regard. Many Member States accumulated large fiscal and economic
imbalances. Essential structural reforms had been postponed because of resistance of
vested interests. The political costs were seen as too high, and the pressure from the EU
level as too intangible. Multilateral efforts, such as the Lisbon Strategy or the Europe 2020
programme have been not effective in stimulating reforms.
Why was this? I see two main weaknesses: First, excessive politeness and the principle of
non-intervention. Second, a misunderstanding of the principle of equal treatment. Let me
take them in turn.
Much has been written about the "excessive politeness" and the culture of non-intervention
among Ministers. And, indeed also on "preemptive obedience" on the part of the Commission
when presenting its proposals and recommendations. But this lack of peer pressure among
decision-makers has real costs - as we had to learn painfully during this crisis. And, it
seems, the lesson still has not been learnt completely: deadlines for the correction of
excessive deficits are being relaxed; the corrective tools that are available even under the
new procedures, are simply not being used as the cases of Spain and Cyprus in the recently
conducted macroeconomic imbalance procedure illustrate. If mutual surveillance is meant to
be effective, this needs to change.
Second, differentiation among countries is still largely a no-go area in economic surveillance.
And this despite the fact that the crisis has amply demonstrated the detrimental effect of
excessive divergence and heterogeneity. Countries are different. The severity of imbalances
varies, and so does the urgency to address those vulnerabilities. They need to be treated
differently under the governance procedures. It is self-defeating to treat all countries similarly,
for sake of alleged consistency, equal treatment or avoidance of stigma effects.
We all know that inappropriate policies in some euro area countries create negative
externalities for the rest of the monetary union. And we cannot afford to allow some euro
area countries to run policies which create a burden on others and destabilise the whole of
EMU.
This begs the most important question in the debate: Are we at the end of the road with EU
coordination? Do we need a qualitative leap forward? Is it time for a transfer of competencies
to the European level? This leads me to my second point:
2. Are we tackling the right issues in the ongoing reflections?
The report "Towards a genuine Economic and Monetary Union" presented to the June
European Council provides an answer to this question implicitly. The report recognises that
we are at a crossroads and states upfront: "national policies cannot be decided in isolation if
their effects quickly propagate to the euro area as a whole [and that] there have to be ways
on ensuring compliance when there are negative effects on other EMU members." The vision
for the future of EMU is built around four building blocks: integrated financial market,
budgetary and economic policy frameworks as well as strengthened democratic legitimacy
and accountability.
This is very much what we at the ECB had been suggesting, motivated by three reasons:
1. First, a shared vision of EMU ten years down the road will anchor expectations. The
euro is here to stay. This should mitigate doubts about the survival or integrity of our
currency. It is a clear signal to the markets: underestimate the degree of political
commitment to the single currency at your own risk.
2. Second, the four building blocks present a holistic view. Policy-makers have
understood that the time for partial solutions, for tinkering at the edges, is over.
"Muddling through", with hesitant and incomplete steps at each and every summit,
will no longer do the trick. Progress needs to be achieved on all four fronts.
3. Third, it is acknowledged that euro area countries need a strong institutional
framework which is commensurate with their high degree of economic and financial
interdependence. The problems in Greece did not spill-over to its geographically
closest EU neighbours in southeastern Europe. The contagion channel from Greece
did not lead to Bulgaria or Romania but the western Mediterranean were affected.
The deeper union in the euro area is necessary and is not in contradiction with the
process of integration among all 27 EU Member States.
This longer-term vision has now to be turned into a fully-fledged roadmap. Matters are
moving forward, in a very concrete manner, especially with regard to the creation of a
financial market union with a unified supervisor, involving the ECB. This brings me to my
third point:
3. What does it imply for the ECB?
The Commission will present proposals on the basis of Article 127(6) after the summer.
Naturally, also the ECB Governing Council has started its own reflections. But here again,
there are things to do, and things to avoid.
The ECB stands ready to play a role of supervisor for the banks of the euro area as
requested. But it is of utmost importance that this framework allows the ECB to act with
effectiveness, independence and without risks to its reputation.
We will need strict arrangements to safeguard the independence of the ECB's monetary
policy. Moreover, with the new tasks, higher standards of democratic accountability will have
to be fulfilled. We are fully aware of that and stand ready to satisfy them.
Carrying out of the new supervisory task will be challenging. But its implementation will be
greatly facilitated by the fact that the ECB can count on the central banks of the Eurosystem.
Most of them are already responsible for banking supervision in their own countries and have
a full wealth of expertise and knowledge.
To say that the task ahead is complex is probably the understatement of the year. But we
have to get it right. Even if it means that we need more time.
Let me also stress that unified supervision is only the starting point of a financial market
union. The latter should also provide for common mechanisms to resolve banks and to
guarantee customer deposits. This is necessary to break the vicious circle between banks
and sovereigns which is at the source of the fragility of the euro area financial system.
You are surely aware of the public debate about banking union that is currently raging: we
see open letters by economists for example, which can be very influential on the public at
large. Although it is not always clear, if these academics are aware of the responsibility they
have in public debate, because they seem to either deliberately or light-heartedly blur the
facts and play with clichés. The steps we are about to take are very significant. This is why it
is good to have this debate. But there should be no hesitation that - ultimately - we need to
take those steps.
This leads me to my conclusion.
The core of the current debate about the future of economic union has a name: the further
sharing of sovereignty. It means endowing the euro area with the power to effectively prevent
and correct unsustainable policies in every euro area Member State. Concretely, this would
imply that a euro area authority would have competence to limit countries' ability to issue
debt and have intervention rights into national budgets, and to compel Member States to
correct their policies, be that in the fiscal, structural and financial fields.
Intervention rights into national policies would be confined to cases where policies
substantially deviate from agreed reform commitments and pose a serious risk to the smooth
functioning of the EMU.
Those powers would have to be strongly legitimised. Whatever we do as further integrative
steps, we need to strengthen democratic legitimacy. Deeper euro area integration can only
be sustainable with corresponding progress on democratic legitimacy and accountability.
Incidentally, it should not be the central bank that continuously emphasises this point.
Already now, steps could be taken to better involve the national parliaments. Domestic
parliamentary debate and political decision-making needs to internalise what it means to be
part of monetary union. If one looks at any of the national media, and the discourse of the
domestic debates, one can see how sorely this is missing. EU recommendations are often
perceived as a "Brussels diktat".
This must be overcome. One idea to ensure that would be for the Commission to present the
country-specific policy recommendations to national parliaments and social partners. This
would foster a political debate and national ownership. Another one would be to disentangle
more clearly in communication that reform requested by Brussels are actually improving
social justice, for example, more efficient tax system, or the end to rent-seeking by vested
interests. Those policy prescriptions are not only about austerity, which gives them a
negative connotation. When governments implement the Commission recommendations they
do this not only to "comply with Brussels" but for the good of their own countries.
Ladies and Gentlemen,
Thank you very much for your attention. I look forward to a stimulating debate.