Benoît Coeuré: The political dimension of European economic integration
Speech by Mr Benoît Coeuré, Member of the Executive Board of the European Central Bank,
at the 19th Université d'automne de la Ligue des droits de l'Homme, Paris, 23 November
2013.
* * *
I would like to thank Jean-Francois Jamet for his contribution. I remain solely responsible for the opinions
contained herein.
Ladies and Gentlemen,
Before I start, let me thank the Ligue des droits de l'Homme for inviting me to speak today.
As we approach the 100th anniversary of the First World War, it is worth remembering that
the European project emerged from a moral imperative. Following two tragic episodes of
selfdestruction and the abandonment of the most fundamental humanistic values, Europeans
acknowledged that, in the words of Robert Schuman 50 years ago: "Serving mankind is a
duty demanded of us equal to that of national loyalty".1
Europe thus became our common political project, a project of peace, democracy, freedom
and economic reconstruction. And in fact the European Union has succeeded on each of
these accounts.
The people of Europe have also expected European integration to promote convergence
towards high standards of living and social protection. An enlarged European Union has
welcomed poorer countries which fully belong to the European project. The resulting
dispersion in income levels has been a first challenge to the convergence process. The crisis
has then reversed this process across Europe, with states having to launch debt reduction
programmes accompanied by structural reforms, and rising unemployment bringing
widespread social hardship. Faced with the costs of this adjustment, many people are
tempted to turn their backs on Europe.
And the more they do so, the further we are from a solution.
It is, I think, acknowledged that the crisis had its roots in a flawed vision of European
integration that should now be corrected. But this reconstruction work will only be legitimate if
it creates the conditions for growth and employment. So I want to consider three issues
today:
First, I'd like to make a case for the EU and the euro's achievements, which are too often
overlooked in the current crisis.
Second, I'll explain how policies at European and national levels can help to restore growth
and reduce unemployment, with a focus on what the European Central Bank (ECB) can -
and cannot - achieve.
Finally, explore ways to strengthen the political legitimacy of our Economic and Monetary
Union (EMU) and revive the political dimension of the European project.
1. The benefits of European integration
European integration has been our quest to achieve a common civilisation. Today, we
frequently forget how much it has contributed to the reconstruction of Europe - morally,
politically and economically. In what ways?
European integration means peace in Europe. Not only did it end the long-standing
FrancoGerman confrontation, it also reunified the continent after the Cold War - a point which
resonates even more strongly for people of my generation.2 There is however a creeping
temptation to take this achievement for granted and to underestimate the risks posed by
nationalist tendencies being stirred up by the crisis in Europe.
European integration has contributed to the spread of democracy, freedom and the rule of
law. For the founding countries, the European project was a unique chance to anchor
democracy on this side of the Iron Curtain. The enlargement of the European Union has
helped to strengthen democratic principles in countries that suffered years of dictatorship.3
European integration supported post-war economic reconstruction in Europe. For Europe's
founding fathers, making war impossible meant making Europe resistant to another Great
facto
Depression. This was obtained by way of a "de solidarity"4 based on the pooling of coal
and steel production, and the gradual creation of a single market, and subsequently
complemented by cohesion policies and the creation of the euro.
Let me also say a few words on the benefits of our common currency.
The euro is the most visible and most internationally known symbol of a united Europe.
Surveys show it has become the first element of the European identity: when asked to
identify the most important elements that make up that European identity, 41% of
respondents in the euro area first mention the common currency, just ahead of democratic
values (40%).5 Moreover, the euro is the world's second reserve currency after the US dollar:
in 2012, around 24% of declared foreign reserves were held in euros.
With the euro, we enjoy the benefits of price stability, which preserves the value of incomes
and savings, especially for the most fragile in society, who hold their savings as cash or bank
deposits and can't protect themselves against inflation. Since the creation of the euro,
inflation has risen on average almost exactly 2% per year in the euro area. By comparison,
inflation from 1961 to 1991 (when the convergence criteria for participation in Economic and
Monetary Union were decided) averaged over 10% in Portugal, Greece and Spain, but also
6.6% in France and 3.4% in Germany.6
The euro reduces transaction costs for producers, their employees and end
clients. It
facilitates price comparisons and bank transfers, while eliminating currency risks in intra-euro
area trade and investment. Note that close to 50% of France's exports go to other members
of the euro area.
Finally, and above all, the interdependence and shared responsibility implied by the euro
create a European solidarity imperative in the face of the crisis. This "de facto solidarity" is
the greatest challenge that the European Union faces today, against the background of a
greater disparity across countries. If I may turn Schuman's formula on its head, it now calls
for "concrete achievements". The temptation to go it alone in economic affairs, so evident in
the past (remember the competitive devaluations of the 1980s and 90s) is no longer
appropriate. This does not preclude countries from having different views or different
interests, but it creates a duty to overcome these differences and act together.
2. Reducing unemployment
The current crisis, with its associated fall in incomes and rise in unemployment, has however
bred misunderstanding and sometimes anger in many parts of Europe. Unemployment in the
euro area stood at 12.2% in September 2013, compared with 7.6% at the beginning of the
financial crisis in the second quarter of 2007. Young people have been hit especially hard:
more than 3.5 million persons under 25 are now without a job in the euro area - that's almost
one in four. In Greece and Spain the youth unemployment rate is over 50%. Absent a strong
push for growth, there is a tangible risk to create a "lost generation", as Europe has done in a
more tragic way in 1914-1918.
This situation is undermining trust in national and EU institutions.7 And it is worrying because
we cannot resolve this problem by resorting to the nationalist solutions of the past. Only a
joint effort can reduce unemployment in a sustainable manner, using both national and
European instruments.
Our first objective must be to reduce financial fragmentation in the euro area, which is
illustrated by the different borrowing conditions in the various euro area countries and which
has contributed - among other factors - to a divergence of investment and unemployment
rates. Stressed economies are also those where investment has decreased the most.8 As a
result, the average unemployment rate now stands above 18% on average for the group of
countries hit by financial stress,9 whereas it is below 8% on average in non-stressed
countries. Interestingly, these average unemployment rates were essentially the same before
the financial crisis.
Against this background, what can European institutions do?
The ECB has reduced its key interest rate, the rate at which banks refinance themselves
every week, to a historic low of 0.25%. We have said that, in view of the subdued outlook for
inflation, we expect interest rates to remain at current or lower levels for an extended period
of time. Additionally, we have taken several measures to ensure that euro area banks can
pass on these low interest rates to the real economy, in particular where they are needed the
most. The measures include providing banks with as much liquidity as they need - against
adequate collateral. We have offered them the possibility of depositing additional collateral
consisting of credit claims from their clients (for example, SMEs) directly with the ECB and
have announced that we would intervene via Outright Monetary Transactions (OMTs) to
remove unwarranted risks to the integrity of the euro area. Such support has benefited
directly to the stressed economies, even though they ultimately benefit the entire region.
These measures have been entirely in line with the ECB's primary mandate of medium-term
price stability. Contrary to what is sometimes said, this objective has in no way constrained
our ability to act and support the euro area economy at a time of crisis, when downward
pressures on prices have appeared.
These measures will however be efficient only if banks pass on to their clients the favourable
financing conditions (in terms of price and quantity). The priority is to re-establish trust in the
strength of the European banking sector and its capacity to finance the economy. With this
aim in mind, the ECB will become the single supervisor of around 130 of the most significant
euro area banks in November 2014.10 Until then, it will conduct a comprehensive assessment
of their balance sheets to create greater transparency in respect of the risks and ensure,
should the assessment reveal excessive risks or insufficient capital, that they take prompt
corrective action when warranted.
Rules recently adopted or still under discussion in the European Union also ensure that
shareholders and creditors will have a strong interest in banks avoiding excessive risk-taking,
for a simple reason: they will now be first in line to absorb possible losses, rather than
taxpayers.11 Let me be clear on this: the time when taxpayers were first in line to bail out
banks is behind us. Banks' senior managers will also be held responsible: the new
framework sets a cap on executive remuneration as long as a given bank is undergoing
restructuring or relying on state support.12
These new principles complement all the international rules adopted under the auspices of
the Financial Stability Board and which aim to put the financial system on a sounder footing,
as well as other measures under discussion, such as the separation of banks' proprietary
trading, on which the European Commission will shortly submit a proposal. For many
European citizens, these reforms take too much time and they question the reassuring words
they can hear. I understand their impatience, but this is about changing a system as a whole,
and it takes time.
While making the financial system sounder is key to recovering investment, further steps are
needed to support job creation in a sustainable way. These measures are the responsibility
of states, either individually or in a coordinated way.
 The euro area economies can become fairer and more competitive, for instance, by
removing the barriers to entry in the labour market, which protect those with a job
but reduce opportunities for the unemployed, especially the young. Likewise, it is
also possible to reduce barriers to entry in goods and products markets, which
maintain artificially high prices for the benefit of a few, and create obstacles to
entrepreneurship. It is a matter of both efficiency and fairness, and imposes no
burdens on public finances.

It is necessary to create a climate that favours business investment. Given the
above figures, there will be no sustainable recovery in employment without a pick-up
in productive investment, and that pick-up is also likely to rebalance growth in
Europe, which is weak today because it relies too much on demand from the rest of
the world, which is uncertain.

Our social model(s) are only as sustainable as our public finances. We therefore
need to rebalance fiscal revenues and expenditures. This rebalancing will
undoubtedly weigh down on growth over the short term. But not keeping public debt
and deficit in check would be tantamount to accepting that an ever greater share of
fiscal revenues is channelled towards servicing debt instead of financing collective
action - which comes down to accepting a loss of sovereignty. It is also as if the
state, in the future, gives up performing its function of consolidating the economy
during a slowdown or a crisis - but there will be other downturns and other crises.
When debt does not result from crisis action or from socially valuable investment, it
is unfair to future generations. We cannot build future growth on new debt.

This consolidation will promote growth sooner or later only if it is used as a lever to
make public spending more efficient, notably in the form of investment in R&D, and
education and training.
These adjustments to our social model are not forced by the crisis, and even less so by
Europe. In all the large countries, the crisis has simply revealed trends that were
unsustainable, encouraged by an unchecked financial environment which allowed the
financing of untenable promises. In the five years preceding the financial crisis, the annual
rate of growth of public spending exceeded that of GDP by 0.25 points in the euro area, by
1.5 points in the United States and 2 points in Japan.
For each of these steps, there is both a national and a European dimension: each Member
State has to act in the knowledge that what happens domestically has direct implications for
the rest of the monetary union, while recognising that what happens in the rest of the union
will also impact on its own situation. This is the only way we can create the basis for shared
responsibility and solidarity in EMU.
This leads me to my third point: if we are to strengthen responsibility and solidarity in EMU,
we need a strong political dimension to accompany financial, economic and fiscal integration.
3. Reinstating the political dimension of the European project
Together, we Europeans have created and developed public goods that make us stronger,
such as the euro. These are our shared res publicae. To be properly managed, they need a
well-functioning and legitimate political system. In words which will be familiar to us, the res
publica needs a republic. The European "republic"13 in my view does not mean a European
state, but rather a widely shared agreement on the scale and management of the goods we
have in common, with a view to contributing to our ultimate goals: peace, democracy and
shared prosperity.
So what could be the pillars of a renewed political project for Europe?
First, a common culture
It is often suggested that Jean Monnet said "if I had to do it again, I would first start through
culture".14 Given the emphasis on social and economic policies in European integration, a
shared European culture should include common economic and social understanding and
values.15
In this respect, and limiting myself to the economic domain, if something can be learnt from
the crisis, it is that we share responsibility for preserving financial stability in the light of
spillover effects and interlinkages within Economic and Monetary Union. In addition, growth
should not be pursued at all costs, and certainly not on the back of unsustainable policies
leading to debt overhang and macroeconomic imbalances, which inevitably lead to costly
adjustments in terms of activity, employment and social protection. At the same time,
risktaking must be at the service of entrepreneurship, not of financial speculation.
Common values imply exemplary institutions. This is true in terms of ethics; in this respect,
EU institutions in general and the ECB in particular have enacted strict codes of conduct for
their staff members and senior executives. This is also true in terms of offering equal
opportunities and promoting diversity. In the words of Jorge Semprun, "Europe cannot be
based on the exclusion of diversity; it must be built on the essential unity of diversity".16 The
ECB has recently launched an initiative to promote gender diversity, including detailed
targets at management level. These efforts would be significantly complemented if Member
States were also to promote this diversity in the ECB's top decision-making body, the
Governing Council - which consists solely of men.
A second pillar should be European cohesion
From the domestic perspective, cohesion entails having a common understanding of fairness
and showing solidarity. Cohesion also - and notably - means clarifying the rights and
responsibilities between member countries so that it is based on mutual trust. It also implies
that Member States should submit to stronger fiscal, economic and financial governance.
Once trust is established, the social contract between member countries - solidity with
solidarity - can be expressed in a variety of ways.
One way is by having public and private mutual insurance against shocks: the European
Stability Mechanism already provides a public safety net, while Europe-wide insurance
mechanisms financed by banks would allow the costs arising from the resolution of banks to
be covered (Single Resolution Fund) and, ultimately, depositors to be protected (European
deposit guarantee fund).
Another way is to combine resources for the provision of public goods at European level. For
instance, shared public investment in research and development (R&D) and network
infrastructures help to "denationalise" industrial policy, thereby aiding the functioning of the
Single Market.
Any steps beyond that would imply identifying common sources of funding, either in the form
of common tax resources or of common issuance of public debt. Tax or financial techniques
are, however, no substitute to politics. Such common sources of funding could only be
envisaged after the establishment of a genuine fiscal union among euro area Member States
that includes a sharing of fiscal sovereignty and proper accountability vis-à-vis the European
Parliament and national parliaments. Without that framework, the fiscal union would not be
democratic. This does not imply that it will never happen: for instance, it could start on a
limited scale around common projects, jointly financed and aimed at enhancing long-term
growth in the region in a way that benefits to all.
There is also an external dimension to cohesion. It is in our relationship with the world that
we become aware of our European identity. When asked in Eurobarometer surveys which
policies they would want to see transferred to the European level, a majority of Europeans
point to foreign policy. However, the external dimension of the European project has so far
remained underdeveloped. Strong external powers were transferred to the European level
only as regards trade.17 More could be done, with a view to bringing together scarce
resources, defending European interests globally and pushing the European agenda in
respect of "global common goods" (e.g. improving global economic and financial governance,
protecting human rights). This is not only about selling products that create jobs in our
economies, but also about being able to exert influence on the future course of globalisation.
Europe, if it were to speak with one voice in international financial fora, would be in a
stronger position to shape global policy outcomes. In this regard, creating a unified euro area
representation in global economic fora would be consistent with the very high level of
economic and financial integration in EMU. The two euro area countries that each have a
permanent seat on the IMF Executive Board, France and Germany, could lead by example
and merge their seats.
The third pillar would be the strengthening of democratic accountability at European
level
Trust in EU institutions rests on both input legitimacy (the legitimacy of their mandate) and
output legitimacy (the achievement of the objectives set in the mandate they have received).
Concretely, this means citizens must be confident that EU institutions are democratically
accountable.
For the ECB, this means fulfilling its democratically assigned mandate of price stability. It
also implies resisting the temptation to act in ways that are not compliant with this mandate.
To give a few examples: it is within our mandate to provide liquidity to banks so that they can
fund the economy, but it is not in our mandate to provide them with capital in place of their
shareholders and investors. It is within our mandate to eliminate financial market distortions
that hamper the effectiveness of our monetary policy, but it is not in our mandate to ensure
the solvency of states or to aim at distributing wealth between countries in place of
democratically elected governments.
There is sometimes a thin line between these choices, which call for the monetary authorities
to show judgement. Hence, we need transparency and accountability vis-à-vis the general
public and the European Parliament.
This takes the form of a monthly press conference, extensive reporting, public hearings in the
European Parliament and replies to MEPs' written questions. The Governing Council of the
ECB will also be examining how it can enhance the transparency of its decision-making
processes and how it could publish an account of its monetary policy discussions. This will
also be the case for the new bank supervisory tasks that the ECB will assume. In this regard,
the ECB has agreed to an Inter-Institutional Agreement with the European Parliament that
foresees extensive information and reporting.
Ensuring a high degree of democratic accountability is also key for European political
institutions. This is particularly important given the increase during the crisis of the degree of
European intrusion into national economic and fiscal policies, which have re-distributional
consequences. For instance, concerns have been voiced that European support to countries
under stress, and the conditions on which it is granted, are decided only by the Eurogroup,
i.e. by governments of euro area countries, themselves subject to parliamentary controls of
very different kinds.
Stronger involvement by the European Parliament could be a way to alleviate such concerns.
It would be similarly important for European issues to feature more prominently in national
parliamentary affairs and in national conversations so that citizens can allow their voices to
be heard. But above all, only in a truly European public space can common solutions
emerge. We can witness today a renationalisation of European politics, including when it
comes to protest against European policies.18 This renationalisation carries with it the seeds
of an erosion of our common values.
Conclusion
In 1935, the German philosopher Edmund Husserl warned us that "Europe's greatest danger
is weariness".19 History has proved him right already and risks proving him right once again.
To counteract that danger, we should continuously reaffirm our commitment to improving
institutions and policies in Europe, in line with our common values.
Thank you for your attention.