benoit cœure : exchange of views on the ecb ’ s role in the troika remarks by mr benoit cœure, member of the executive board of the ecb, before the economic and monetary affairs committee, brussels, 13 february 2014. * * * madam chair, honourable members, let me first of all thank you for your invitation to this exchange of views. the adjustment programmes implemented in recent years in several euro area member states were an unprecedented answer to an unprecedented crisis. this crisis has affected the lives of millions of eu citizens – hence it is only natural that you, as their directly elected representatives, assess what has happened. this crisis has revealed major shortcomings, mainly in domestic economic policies, but also in the architecture of emu – thus the european parliament as an institution with a truly european perspective is an appropriate forum to discuss what can be learnt from this experience. it is against this background that i am grateful for the opportunity today to explain the role of the ecb in the troika, to discuss our assessment of the adjustment process in the programme countries and to draw with you some key lessons from the last four years. the ecb ’ s role in the troika let me start by recalling the circumstances under which the troika was set up. when a sovereign debt crisis erupted in spring 2010 in the aftermath of an unprecedented global financial crisis, the euro area was caught unprepared. the maastricht architecture had failed to prevent the build - up of excessive imbalances and unsustainable fiscal positions by a number of countries. europe was then ill - equipped to handle a crisis of such magnitude stemming from these developments. there was no framework for dealing with member states losing market access. there was no governance foreseen for such cases. there was no instrument to provide funding. under these difficult circumstances, the member states decided to grant financial assistance subject to appropriate conditionality as part of an adjustment programme. the eurogroup sought to avail itself of the best available expertise to support it in designing and reviewing these programmes. the imf and the european commission in liaison with the ecb with their complementary experience in crisis management, country surveillance and financial stability were asked to take on this difficult task – this is what we know today as the troika. the particular expertise and euro area focus of the ecb, in other words, the views we have on the systemic consequences of the decisions under discussion, were compelling reasons for

. i will now focus on the first feature of the crux, the pitfalls on the climb towards recovery. i see three main pitfalls that may slow down the process of defragmentation or even reverse it : • competitiveness differentials across member states, • public and private deleveraging, and • institutional barriers in financial markets. in the following i would like to address each of the pitfalls one by one. competitiveness differentials across member states competitiveness differentials within the euro area – but also globally – are a challenge because they can lead to macroeconomic imbalances. the recent crisis has taught us a al - eyd, a. and berkmen, s. p. ( 2013 ). fragmentation and monetary policy in the euro area, imf working paper wp / 13 / 208. bis central bankers ’ speeches lesson how imbalances can put financial stability at risk. therefore, it is important that existing imbalances are corrected. in this respect i see remarkable progress in some areas. all periphery countries have recaptured some of the losses in competitiveness that had been incurred previously. there is no single best indicator of competitiveness, as there are many dimensions to this concept relating to both price and non - price factors. this notwithstanding, nominal unit labour cost developments provide a good indication of the extent to which an economy can effectively compete in terms of labour costs. but we should also focus on institutional competitiveness, that is to say the quality of governance, the cutting of red tape and efficiency of tax systems. these aspects have also formed part of the adjustment programmes that some countries are going through. overall, it is important to realise that one reason for the need to implement adjustment measures was a lack of action in the time before the crisis. it is not “ austerity ” that leads to weak growth, but structural weaknesses and low growth potentials caused the need for consolidation. 2 meanwhile we can see encouraging signs that these measures are bearing fruit. stressed countries such as ireland, spain or portugal – but also other euro area countries – have shown significant current account improvements. greece has improved its current account position by over 14 percentage points since 2008. at first, only imports decreased but lately also exports have grown. those countries that have reformed are being rewarded twofold : by their own success and the solidarity and support by the european community. as a result, imbalances within the euro area have decreased. hence, the financial stability risks emerging from