luis maximo dos santos : the euro 20 years on - the debut, the present and the aspirations for the future closing address by mr luis maximo dos santos, vice - governor of the bank of portugal, at the conference “ the euro 20 years on - the debut, the present and the aspirations for the future ”, lisbon, 15 november 2019. * * * 1. twenty years ago we launched an unprecedented, historic experiment. eleven free and sovereign nations, including portugal, democratically decided – after checking compliance with the criteria set out in the maastricht treaty – to share monetary sovereignty, and exercise it jointly. it is true that history has witnessed several monetary integration processes ( and also some disintegration processes, by the way ). but none have been quite like the creation of the euro, given its nature and complexity. indeed, never before has such a vast and heterogeneous group of nations, in terms of both economic and social development and their history and institutions, decided willingly and in peacetime to live together under a monetary union. the step taken 20 years ago, pursuant to the provisions set out in the maastricht treaty, stemmed from the political ability to seize on the historical opportunity which then arose and was fully consistent with the need to complete the internal market and affirm europe ’ s position in the face of globalisation. but this was not at all an impulse driven by circumstance. on the contrary, it fulfilled a longsought ( but not always explicit ) goal of the european integration process and was the result of a long journey, full of breakthroughs and setbacks, which continued a gradual monetary integration process. the clearest example of this is the european monetary system, created in 1979. regardless of how we assess its rationale and results, it is appropriate to state that the creation of the euro was one of the boldest acts of economic and political proactivity ever performed and, for that very reason, has led us, to some extent, into uncharted territory. this gives us a precise idea of how fundamental it is to take the necessary measures to ensure that the european monetary unification is successful in the long term. 2. despite structural shortcomings in the economic and monetary union ( emu ) project, which were far more serious in its initial version ( and which have been discussed here today in part ), it is important to emphasise 20 years on that : i. the number of euro area member countries

how rapid and strong their effect, if any, is. this applies regardless of whether such measures are aimed at productivity or incentives to work more. for some time, the number of people in employment relative to the number of 20 - 64 - year - olds has been close to a level not previously seen, even in an international context. one option could be to increase average working hours, which are not high by historical or international standards. however, working hours are determined by complex interaction between individual choice, collective agreements and cultural norms. even if it was possible markedly to change the incentives to work more – e. g. through a sizeable reduction of the marginal tax rate – this would take effect with a lag, and we have very little knowledge about how long this lag would be. moreover, uncertainty about the ultimate impact is considerable. if the marginal tax rate would be reduced to provide an incentive to work more, and this would be done by way of fiscal easing, i. e. not fully financed, it is very unlikely that the capacity - enhancing effects would balance the additional increase in demand. obviously, a lower marginal tax rate should not necessarily be unfinanced. it could be implemented as part of an actual tax reform and funded by increasing the tax base, i. e. by reducing existing tax deduction options and reducing selective tax benefits. as a main rule, reduction of tax deductibility in itself entails structural improvement, as tax deductibility often provides an incentive to engage in economic activity where the motivation is tax savings rather than other economic advantages. but there are considerably fewer tax deductibility options left to weed out than there used to be. another way to finance a lower marginal tax rate is to reduce ( growth in ) public sector spending. in that case, the net impact on capacity pressures in both the short and long term would depend on the actual tax and expenditure cuts introduced. if funding is achieved by reducing public sector spending, this can be expected to have a dampening effect, in net terms, on overall demand in the economy. this is mainly because the import share of public consumption is lower than the import share of private consumption triggered by lower taxes. as regards the issue of labour market pressure, the short - term question is whether the type of labour released via e. g. lower growth in public sector spending can fully or only partially make up for the extra labour required when lower income taxes push up private consumption. the lion