Vice-President Valdis Dombrovskis

"Standing on our own feet: the case for completing the Economic and Monetary Union"

Vienna, 6 September 2018

Ladies and Gentlemen,

Grüß Gott!

Es ist mir eine Ehre, hier in der wunderschönen Stadt Wien für das Eurofi Financial Forum 2018 zu sein. Diese Stadt hat eine wichtige Rolle in der Geschichte Europas gespielt, als Treffpunkt, Handelszentrum und Machtzentrum. Und das tut sie auch heute noch.

Die günstige Lage an der Donau, die sieben EU-Länder im Westen und im Osten verbindet, hat dazu sicherlich beigetragen. Aber Wien sitzt nicht am Ufer der Donau herum, und wartet dass neue Gelegenheiten den Fluss heruntergeschwommen kommen.

Earlier today, I visited WeXcelerate, one of the world’s largest start-up accelerators, where entrepreneurs are working in new areas such as Fintech. These innovators are shaping the future, instead of merely reacting to it. This is exactly the kind of proactive attitude that we need to build the future of Europe. So my hope is that the Austrian presidency of the EU will channel this dynamic spirit into their work for the next four months.

This is important, because today, Europe is confronted by new challenges to our economic model:  we see international diplomacy being undermined; we see the WTO and the multilateral rules-based order being weakened; and we see a trend towards authoritarianism in some places.  

In this new situation, Europe should speak up for its values, for an integrated international economic system, and for multilateralism. To do so, Europe must stand on its own feet, and protect its economic interests globally. And to stand on your own feet, you need a strong and resilient economic and financial system, as well as a credible and attractive global currency.

This brings me to the euro, which will soon celebrate its 20 year anniversary. And it has come a long way since 1999. For the 340 million Europeans who use it every day, the euro has brought price stability and made it easier to do business and to travel. Today, it enjoys strong support from Europeans - 74 percent think having the euro is a good thing for the EU. And it is the world's second reserve currency, with 60 countries linking their currencies to it in one way or another.

But despite important institutional reforms to strengthen its resilience, the architecture of the Economic and Monetary Union remains incomplete.   So last December, the Commission put forward a Roadmap to deepen the Economic and Monetary Union, followed by several concrete proposals. By putting in place these missing pieces, we could support our future prosperity, help guard against another financial crisis, and strengthen the international role of the euro.

Our summer economic forecast showed 2.1% growth forecast for 2018, but growing downside risks to the economy. So we do not have much time to carry out the reforms we need. The right time is now, before next year's European elections:

Today I would like to highlight three priorities:

First, we need Member States to keep reforming to become more resilient and more competitive.

Second, we need more integrated and shock-resistant financial markets.

And third, we need to keep strengthening our crisis-management tools.

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Let me begin with structural reforms in Member States. Such reforms are fundamental to modernise our economies, strengthen resilience, and foster economic convergence.

In response to the vulnerabilities revealed during the crisis, many EU countries that embarked on ambitious reform paths were able to catch up remarkably. Today, countries like Ireland, Spain, the Baltics, or Portugal are all growing and adding jobs quickly. And the EU has supported such reforms along the way, including through the European Semester, which flags immediate reform needs and builds up peer pressure.

Reforms imply costs and often administrative and political challenges. This is why since last year, we have a programme offering technical support to design and implement growth-enhancing reforms in all Member States. It has been very successful, supporting almost 350 reform projects in 25 EU countries. Demand for support has exceeded all expectations.

For the next Multiannual Financial Framework, the EU's 7 year-budget, we have proposed a Reform Support Programme. It is a comprehensive toolbox to foster reforms in all EU countries. Discussions on this proposal have started, and we hope to make rapid progress towards its adoption.

* * *

Alongside Member State efforts, deeper and more interconnected financial markets are also key for economic resilience. So this is my second point today. More integrated financial markets would create a cushion to absorb sudden shocks, and allow risk to be shared by private actors across EU borders. In turn, this would reduce the need for taxpayer-funded bank bailouts in the future.

This is a lesson from the crisis. It was the threat of national bank failures spilling over to Government finances that plunged the euro area into a second recession in 2012. So the same year, EU leaders agreed to create the Banking Union.  Today, EU banks are better capitalised, more coherently supervised, and much less likely to ask for a taxpayer bailout in a crisis.

But the Banking Union itself is still incomplete. To secure the credibility of the current system, we need to put in place two missing elements: the first is a backstop to the Single Resolution Fund, which was agreed by Member States already in 2013. And here we are finally making progress.

Euro area heads of state recently agreed that the backstop will be provided by the European Stability Mechanism. The Commission insists that this backstop should be credible and readily available to use. Now we need to work towards an agreement in principle at the December European Council. 

The second missing element is a European Deposit Insurance Scheme. The Commission tabled its proposal in 2015, and last October we presented additional ideas to help reach a compromise. Euro area heads of State and Government have now agreed to advance work on a clear calendar that will allow us to launch political discussions.

In parallel, we have made progress in reducing risks in the banking sector. We are working closely with the European Parliament and Member States to finalise the banking package, which puts internationally agreed standards into EU law.

And we are working together to reduce Non-Performing Loans in the EU banking sector. Here we have also made good progress. The EU's average NPL ratio stood at 3.7% as per the first quarter of this year. This means a reduction of 3 percentage points since the end of 2014. However, this rate still varies considerably among Member States. We recently put forward a package of proposals to support further reduction, which is advancing well with co-legislators.

As a necessary complement to the Banking Union, we also need a genuine single market for capital. This is why we launched the Capital Markets Union. It is our flagship project for building deeper and more interconnected EU capital markets. In addition, it aims to foster well-developed local and regional markets, and ensure a strong position for Europe in the ongoing Fintech revolution.  

This Commission has already put on the table a range of proposals to build the different elements of the Capital Markets Union. But so far, 10 out of 13 proposals are still under discussion by EU co-legislators.

I welcome the recent declarations by France and Germany, and also from eight other Member States on the need for decisive progress. But I also count on the EU Council and the European Parliament to follow up on these declarations with real action in the coming weeks and months. This is necessary for having the foundations of the Capital Markets Union in place before the European Parliament elections.

* * *

Even economies in good shape can suddenly run into problems. This brings me to my third point today, about strengthening the crisis-management tools of the Economic and Monetary Union.

While national budgets should stay the main instrument for economic adjustment, we should remember that shocks can sometimes drastically reduce the fiscal space to act. The last crisis showed this very clearly, even for euro Member States with sound public policies.

That is why we also proposed a European Investment Stabilisation Function as part of our proposal for the next Multiannual Financial Framework. This Function is designed to intervene early by providing subsidised loans to support public investment. Investment is often the first item that is cut in a crisis.

By providing fiscal support before a shock spirals into a crisis, the aim is to facilitate a rapid recovery and avoid deeper recessions. Use of the Function would be subject to strict criteria of sound macroeconomic and fiscal policies. We believe this proposal is a good basis for discussion in the ongoing EMU deepening debate.

* * *

Ladies and Gentlemen,

All these reforms will help us to make Europe's economy and our currency more resilient, and to stand strongly on our own feet in today's challenging global environment. Today more than ever, Europe must be and will be the champion of an open and integrated international system, based on multilateralism.

This is true whether you look at the global trading system, or at financial regulation and equivalence. This is part of the EU's DNA. And for Europe to successfully preserve and promote these values, a strong economy, an integrated financial system, and a credible currency is what it takes.

Thank you very much.