francois villeroy de galhau : the sustainability of european monetary union and institutional reform speech by mr francois villeroy de galhau, governor of the bank of france, at the ecb and its watchers xix conference, organised by the institute for monetary and financial stability, frankfurt am main, 14 march 2018. * * * accompanying slides. ladies and gentlemen, in order to make the european monetary union sustainable in the medium term, we have to make it more resilient to future crises. the current economic cycle is admittedly in a very robust phase today, but this will come to an end at some point. if we do not want to overburden monetary policy during the next recession, we need to strengthen our economic union. these objectives should be, including here in germany, two sides of the same coin. to ensure monetary policy does not remain “ the only game in town ”, we have to arm ourselves with stronger economic instruments at the european level. there is a serious risk, however, of missed opportunities as the present debate over the future of the euro area seems to be getting bogged down in neverending arguments such as on the european deposit insurance scheme ( edis ) or sovereign debt restructuring. we should rather focus our efforts on the many other proposals that are more consensual. in my remarks today, i will elaborate on the three old cliches that are paralysing the debate and that we must put behind us to move forward in the euro area. but before that, let me say a few words about our monetary policy. our monetary policy is doing its part, thanks to its persistence and patience, as mario draghi stressed this morning. past questions about its effectiveness and our exit strategy seem to have receded – and rightly so. we confirmed last week our course of gradual normalisation, with the removal of the so - called “ easing bias ” on the app. what we see now is a welcome alignment of the stars : against the economic background of a robust expansion with gradual progress on inflation, there is a broad convergence of market expectations with the views within our governing council. at present, there is very little debate among us. but this convergence doesn ’ t preclude vigilance. we ’ re closely watching the somewhat slow pace of inflation – i believe the phillips curve is still at work, although with a time lag – and the global risks, starting with us trade policy and the evolution of the exchange rate

. let me now turn to the core of my message : the need to strengthen our monetary union by making concrete progress on economic union. there is currently a window of opportunity : the economic recovery is robust, and many euro area reform proposals point in the same direction, including the commission roadmap of december 2017, president macron ’ s speech at the sorbonne last september and, more recently, the european chapter of the german coalition agreement. the outcome of the recent elections in italy shows that we can ’ t waste any more time with theoretical debates. we as central bankers are concerned here with avoiding overburdening monetary policy by the next recession, but it is of course the responsibility of politicians to act. 1 / the first cliche that emerges when we talk about reforming the euro area is the opposition between vision – be it french or otherwise – and pragmatism – seen as a northern european virtue. we must be practical, and take real needs and particularly those of businesses and entrepreneurs as our starting point. at the same time, we need a political ambition if we are to act – call it a “ vision ” if you wish. today, the key to growth in the euro area is investment and innovation. but to innovate, in digital technology or in the energy transition for example, companies need to be able to take more risks, which requires more equity financing over the 1 / 3 bis central bankers'speeches long term, rather than debt financing. the euro area is seriously lagging behind in this respect : equity capital amounted to only 73 % of gdp in the third quarter of 2017, compared to 123 % in the united states. this brings me to my first solution for strengthening our economic union : a european - level " financing union for investment and innovation ", which would better channel the euro area ’ s eur 350 billion savings surplus into equity financing for innovation, in digital or renewable energy technologies. this financing union should bring together existing initiatives and, as a priority, the capital markets union, but also the banking union and the juncker investment plan. there is no tremendous political obstacle on this rather technical agenda. within the governing council of the ecb, we all find it extremely regrettable that the capital markets union is currently being overlooked and last thursday we urged that “ specific and decisive steps ” be taken in that field. 2 / the second cliche is the complacent idea that action at the european level would be a substitute for national reforms. let