Brussels Economic Forum 2008
EMU: looking forward to the next decade
The tenth anniversary of monetary union provided the perfect opportunity to look back on the creation of the single currency, its successes and the work still to be done. The first session focused on the impact that the euro has already had and the prognosis for the future as we face challenges including environmental change, globalisation and an ageing population.
In his keynote address, Jean-Claude Juncker, President of the Eurogroup and Prime Minister of Luxembourg, was keen to sing the praises of monetary union and to stress its importance. The euro is “a political symbol of European integration,” Juncker explained, “but it is not just a symbol, it is a shared objective”. It is “an undeniable success”, he said, which has been realised despite all of the claims that it was doomed to failure. He praised the vision of the EMU’s pioneers who, despite objectors, remained unfazed and continued with their bold plans to create a new monetary union.
Accustomed to stability
All of the speakers touched on the euro’s rocky path to inception, but commented that the doubters had been confounded. Tommaso Padoa-Schioppa, Italy’s former Minister of Finance, praised the sense of normality that the euro has achieved, saying that “we only feel symptoms when we are in pain”; on which basis it can be concluded that the EMU is in good health. Wouter Bos, Deputy Prime Minister and Minister of Finance for the Netherlands, echoed this sentiment, saying that “We have become so used to stability that we have almost forgotten to look upon it as an achievement”. He also pondered what might have occurred over the past ten years if the EMU had not come into being, painting an unhappy hypothetical picture of poorly controlled inflation and tensions between Member States.
An example of the positive effects of the euro for a Member State was presented by Spain’s Deputy Prime Minister and Minister for Finance, Pedro Solbes, who said that the single currency is at the basis of the strong performance of the Spanish economy in the last several years. Malcolm Knight, General Manager of the Bank of International Settlements, explained the global impact of the creation of the world’s new second currency, which continues to gain in acceptance and usage. Theo Waigel, former German Minister of Finance, praised the strength of the currency, saying “Ten years ago I said the euro will be as stable as the Deutschmark – and I was right!” Now he predicts that in the long run the euro could develop into an equal competitor to the dollar.
A member of the audience asked whether this is possible whilst the euro is the only currency in the world not backed by a single state. Joaquín Almunia, EU Commissioner for Economic and Monetary Affairs, believes that it is, as the ECB acts as a strong and independent central bank, and surveillance and economic coordination in the Eurogroup is getting stronger. Knight supported this view and highlighted the importance of euroarea- wide financial regulation and supervision, while Bos pointed out that the US is also a somewhat heterogeneous entity composed of over 50 diverse states.
A symbol of unity and stability
“Over 320 million Europeans from Nicosia to Helsinki carry euro notes and coins in their pockets, purses and wallets. The single currency is an immensely powerful symbol of unity, of stability and of confidence. The euro has more than proved its worth. The doubters have been confounded. The challenge now is to realise its full potential.“
Commission President José Manuel Barroso on ten years of EMU.
Achieving its full potential?
The panel was not entirely unstinting in its praise for the euro, however, and there was discussion of the areas in which the EMU has not yet yielded all of its potential benefits. Growth has been robust, but not sufficiently so; employment is up and unemployment figures are down, but there is still room for improvement. And whilst deficit levels are at their lowest for 25 years, public debt remains at far too high a level. Overall, Juncker argued, “the standard of living has not necessarily gone up enough” compared to the other changes. Summing up the situation, he said that there remains a “gap between our ambitions and our achievements”, which must be closed.
The debate was broadened beyond purely economic affairs, as Waigel told the audience that it was important to remember that Europe was, and remains, predominantly a political project. “Europe must not be narrowed down to merchandise trade, currency and exchange rates,” he said. Pervenche Berès, Chair of the European Parliament’s Committee on Economic and Monetary Affairs, reiterated this point, warning against turning the euro into a tool for protection and forgetting that other policies, such as employment and social affairs, must run alongside it. As an active participant in designing and launching the euro area, Waigel judges the results of EU policies so far to have been somewhat mixed: on the plus side, human rights legislation and EMU have been implemented successfully, but Europe still lacks a common foreign and security policy.
Towards stronger governance
The session served not only as a retrospective, but also as a glimpse of what is to come. Session Chair Marco Buti, Deputy Director-General of DG ECFIN, set the tone in stating, “We are in forwardlooking mode”. A number of the speakers outlined key objectives to ensure the future success of the monetary union. Bos argued for stronger crisis management, tighter budgetary coordination between Member States, and greater accountability of EU spending. Berès applauded the euro’s ability to protect the European economy but said that it could do more. “We are better as guardians of stability than as guardians of growth,” she explained. The single currency should be used as a tool to boost the European economy as a whole.
Juncker argued that greater unity amongst the euro-area members, particularly in terms of having a single voice at international level, was vital for the continued success of the euro. Coordination is “easy in the good times, but harder when the going gets tough,” something which must change if the euro-area members are to reap the long-term rewards. The Eurogroup is vital for this and Juncker expressed his satisfaction at the extension of its scope beyond purely budgetary matters to look at such issues as prices, wages and competitiveness, although their decisions on these areas have no binding effect.
The question of whether the Eurogroup should have greater powers, or even institutional status, was raised by a member of the audience during the panel discussion. Replying, Juncker said that it is important not to divide the EU into two camps: those who use the euro, and those who do not. At the time of its formation, the UK, Denmark and Sweden, which have not joined the euro area, were not keen on a formal role for the Eurogroup that might devalue the importance of the ECOFIN Council. Commissioner Almunia supported this analysis and pointed to the recent enlargements, which mean that several Member States will remain outside the euro area – in the near future at least.
Who dares wins
Of course, no one can be certain of what the future will bring. As Wouter Bos asked, “Ten years of the euro has been a success, but what will the next ten years bring?” Only time can really tell us, but what is certain is that EMU is in a strong position to meet both external and internal challenges, with the Commission’s recent Communication on the EMU@10 showing the way.
A recurring theme of this session was that the EU is most successful when it strives for bold aims. “The EMU seemed impossible for some,” said Juncker. “It is a success and we should be proud of it.” It shows that “if Europe is brave enough, it is capable of doing great things”.