Introduction and principles
Honourable members of the European Parliament,
Honourable members of the national parliaments,
I am very grateful to the Estonian presidency for organising this debate. The European Parliament and national parliaments have a key role in working towards a more efficient, transparent and democratic Economic Monetary Union.
Having it here in Estonia adds a symbolic point: like the country I know best, Latvia, Estonia has opted for the euro after the financial crisis – following the fundamental logic of monetary integration even or especially in difficult circumstances. The single currency gives us an additional sense of stability in a global economy and provides us with the opportunities for growth, giving small but open economies the chance to make full use of the freedoms of the EU single market.
At the same time, the Estonian case shows how each Member State needs to make the best possible use of these opportunities for itself. Economic and social convergence cannot be guaranteed from the outside. Even in the Eurozone framework, much of the responsibility and many of the tools remain primarily at national level.
In the case of Estonia we see that the results are there: the Estonian economy is well on track. GDP growth is revised up to 4.3% for this year, according to government estimates. The Commission will issue its forecast next month, and we expect these to also point to a strong economic performance. Both the employment rate and labour force participation are at their highest in 20 years. Congratulations on this solid economic performance!
Yet today's discussion highlights the fact that, even with growth steadily broadening across the euro area, we remain aware of the need to improve the performance of our economy. With flaws exposed during the crisis and convergence stalling ever since, the debate on how to make the Economic and Monetary Union perform better is ongoing.
The Commission, as you know, is taking the initiative in this discussion: certain options were outlined in our reflection paper in May; President Juncker elaborated on some of these ideas in his State of the Union speech last month; and we will come with specific proposals on the 6th of December.
There are some key principles that should drive the discussion on completing the Economic and Monetary Union. First, completing the Economic and Monetary Union is not an end in itself, but a way to provide jobs, growth, social fairness, economic convergence and financial stability. Responsibility and solidarity, risk-reduction and risk-sharing have to go hand in hand. The Economic and Monetary Union should remain open to all EU Member States, and the decision-making process must become more transparent and democratically accountable.
With those principles in mind, it's clear that the discussion on EMU reform is one in which all EU member states should actively participate.
Ladies and Gentlemen,
To be sure, since the crisis many of the weaknesses have been addressed, for instance with stronger oversight of fiscal and economic policies, a more watchful eye on banks, focus on prevention and correction of harmful imbalances, and more attention to cross-border aspects of policies and risks.
In the short term, completing the Banking Union and the Capital Markets Union are the most immediate priorities for future reform. Both are needed for our economies to improve access to the financing they need for future growth.
They are also vital for us to be able to absorb shocks and share risks through private channels, and to ensure that taxpayers are not first in line to pay for the mistakes of the financial sector .
We must step up our efforts to implement the decisions that have already been taken, such as the agreement on the backstop to the Single Resolution Fund and the strategy for non-performing loans.
And we should strive to agree quickly on the remaining proposals such as the risk-reduction package of last November and the European Deposit Insurance Scheme (EDIS).
This is where our recent communication on completing the Banking Union comes in. It's a contribution to support co-legislators in finalizing key pending banking union files before the end of this legislature.
The communication suggests a possible re-modulation of the European Deposit Insurance Scheme proposal introducing it more gradually, having two instead of its original three phases. The first re-insurance phase of EDIS would concentrate on all liquidity support to national guarantee schemes, while the second phase would maintain the ambitions that EDIS would cover losses. Eventually we would move to 100% European system, making the move towards second stage conditional of the asset quality review.
To be clear, we are not presenting a new legislative text Our proposal of 2015 remains on the table. Here we are just providing some food for consideration and possibly help to unlock the deadlock in this discussion.
We are also following with interest the ongoing ESRB work on Sovereign Bond-Backed Securities (SBBSs). If the technical work is successful, the development of such securities could facilitate the diversification of banks' sovereign portfolios, thus further weakening the bank-sovereign nexus and boosting private sector risk-sharing. Being market-driven, SBBS would not require mutualisation or a change in the regulatory treatment of sovereign bonds.
Despite progress made, we have not yet been able to sufficiently reverse the social and economic divergences across the EU. These centrifugal forces come with a heavy economic and political price.
If they remain unaddressed, they are likely to weaken citizens’ support for the EMU.
In his State of the Union address President Juncker announced a number of initiatives with both short-term and long-term perspectives.
The announced creation of a dedicated euro area budget line within the EU budget should provide for a number of functions directly relevant for convergence:
- Structural reform assistance: we know structural reform works - but also that it is a slow, painstaking and sometimes costly effort. Since this year, we have in place a Structural Reform Support Programme to provide technical assistance to Member States for the implementation and evaluation of reforms. We can build on that further and we see that interest from Member States to use this instrument is very large indeed.
- A euro area fiscal stabilisation function, for which we presented three options in the EMU reflection paper in May. One of the options is a European Investment Protection Scheme. In times of strain, public investment is the first item to be cut from national budgets, and this can harm future growth. Such a scheme could take the form of a financial instrument but we are currently exploring different designs of putting European Investment Protection Scheme forward. Other options for stabilisation instruments include a European Unemployment Reinsurance Scheme and a rainy day fund.
- And a convergence instrument was also announced. This could give pre-accession assistance to Member States that intend to adopt the euro. This would help those countries in their preparation for joining the euro as well as prosper in the euro area once they have done so.
Last, but not least, we must talk about the future governance of the Economic and Monetary Union. At present, economic governance is based on the mix of EU and intergovernmental arrangements, which makes this institutional landscape difficult. The Commission is proposing to bring intergovernmental agreements created during the crisis under the Community framework. This would allow us to achieve more efficiency any democratic accountability within the Union.
For the Treaty on Stability, Coordination and Governance in the EMU, which included the Fiscal Compact, this was already foreseen since its inception.
In the same spirit, the Commission is also proposing the turning of European Stability Mechanism into a European Monetary Fund, anchored into the Union framework. This would help us to tackle any future crisis in the Eurozone in more efficient manner while ensuring greater democratic oversight.
With a view to 2025, the proposals also include the setting-up of a European Minister of Economy and Finance, who would be in charge of overseeing structural reform efforts and coordinating the economic and fiscal policy in the euro area. Exploratory work on European safe assets should be continued.
Our EMU package of 6th December will hammer out these and other proposals in more detail.
With the European economy noting consistent and broad-based growth, this is not a moment to sit back and relax.
Rather, we need to use this time to strengthen the resilience of our economies, and work further on the adjustment capacity of every EU economy and of the EMU as a whole.
A well-functioning and well-integrated EMU can be much more than the sum of its parts.
Thank you very much.