21 January 2014

ECB/Cœuré: The "fourth stage" of EMU - Foundations for a sustained recovery

There are already indications that we are making significant progress in reintegrating financial markets. It is true that the improvement in financial conditions is not reflected to the same extent in all euro area economies. The ECB is committed to fighting financial fragmentation. But there are clear limits to what monetary policy alone can achieve. For banks to pass on to their clients the favourable financing conditions, trust needs to be re-established in the European banking sector and its capacity to finance the economy. Here, the Banking Union with its first two main pillars, single supervision and resolution, will play a key role.

Let me first say a few words on the institutional method chosen to set up the SRF. As a Union institution, the ECB supports, as a matter of principle, recourse to the Union method and thus to Union law. The recourse to an intergovernmental agreement should only be seen as a temporary solution.

As regards the main features of a functioning SRM, we need lean decision-making, particularly in emergency situations. Robust and common resolution financing arrangements are also required: in this regard, the period of 10 years for moving towards a genuinely common SRF is too long and should be shortened, possibly to five years. Also, adequate common backstop arrangements need to be established, both for the transition period and the steady state, to guarantee the credibility of the SRF and avoid a persistent or re-emergent sovereign-bank nexus. Finally, the assessment whether a bank is failing or likely to fail should solely be in the hands of the supervisor.

Further steps are indeed needed to create a favourable and stable environment for investment and job creation, notably structural reforms to make euro area economies fairer and more competitive, and stabilising public finances. These steps have both a national and a European dimension. They are of relevance for the Union as whole but particularly pressing for the euro area, where the fates of economies are even more closely interrelated.

I am aware that the work of the troika has met with criticism, in particular from the European Parliament. It is fully legitimate to have an open debate on the matter, not least given the huge implications for the everyday lives of citizens in programme countries. It is part of the learning process to assess the European crisis response and to identify what has worked and what could be improved in the future.

When doing this, one should bear in mind the immensely challenging situation which European institutions and national governments had to cope with. Of course, it is always possible to say that with the benefit of hindsight things could have been done better or differently, and this contributes to the learning process. But advice is provided in a given context, based on given information and under given constraints. Let us also not forget that the adjustment would have had to take place in any case, with or without the troika. The economic and social costs would have certainly been much higher without the emergency assistance.   

Looking ahead, we need to prevent any return to the complacency of the past. The European Parliament and national parliaments have a key role to play in this respect, in the context of the 2014 European Semester. Let me reassert here that the Excessive Deficit Procedure (EDP) and the Macro-economic Imbalance Procedure (MIP) are equally important and should be strictly enforced.

The crisis revealed that national policies need to be a matter of common concern. Therefore, national policies need to be discussed at the European level and the European dimension needs to be brought into national debates. At the ECB, we attach great importance to our accountability, as reflected in our close dialogue with the European Parliament and most recently in the Inter-institutional Agreement with the European Parliament on the accountability of the SSM.  At the same time, the European Parliament and national parliaments have a responsibility to engage with the public on the political and economic implications of Economic and Monetary Union. Above all, only in a truly European public space can common solutions emerge.

15 years ago the third stage of EMU started. It was believed to be the “final” stage. The crisis made clear that we needed to embark on what I would call the “fourth stage” of EMU, as described in particular in the Four Presidents’ report. In this process we should always ask ourselves: in 15 years from now, what will the people of Europe say when they look back at what we have done? Will they regard it as a decisive moment in paving the way for a stable European economy and sustainable growth?

I believe this long-term outlook should be our benchmark. And in this process, it is clear that further sharing of sovereignty has to go hand in hand with enhanced democratic legitimacy and accountability. I trust this year’s European elections will be the occasion for an important debate in this regard.

Full speech

© ECB - European Central Bank