07 September 2012

Pierre Moscovici's speech at Bruegel Annual Meeting

France's Minister of Finance, Pierre Moscovici, gave a speech in which he outlined the challenges ahead for the eurozone and the French vision on European integration and banking union.

"We all share the same goal for the eurozone: turn it into a fully successful currency union. France believes that the solution Member States are coming up with to reach this objective should rest on two pillars – what we’ve called in my country “intégration solidaire”, i.e. the promotion of mechanisms for risk sharing among Member States, and greater integration of European economies... Our ambition must be clear: we should get more out of being in the eurozone than we would get if the eurozone did not exist. Getting more means resisting better to economic shocks, and being able to use European instruments to multiply the effects of growth-enhancing measures adopted at national level.

We will only get more out of being in the eurozone if we adopt a comprehensive approach to the economic challenges we’re facing, and if we are able to offer a promising perspective to the Member States and to their citizens... It is obvious to anyone that the patient has not correctly responded well to the austerity medicine. When pronouncing this word “austerity”, don’t get me wrong: I’m not saying that we should not meet our budgetary obligations, quite the contrary. As some of you may know, France has embarked on an ambitious path to return to budgetary balance by 2017, with two intermediary targets: a 4.5 per cent deficit in 2012, followed by a deficit limited to 3 per cent of the GDP next year. We’re on track to reach our objective this year, after Parliament passed a financial bill in July to make the necessary fiscal adjustments. And I’ll be finalising in a couple days now, with the other ministries, under the approval of the President and the government, next year’s Finance Act, with a view to meeting the 3 per cent deficit target."

"A fully-fledged banking union – i.e. a system to wind down or recapitalise troubled banks, combined with a Europe-wide bank-deposit insurance scheme – would go a long way towards breaking the feedback loop between weak banks and weak sovereigns. France sees the banking union as a key next step for eurozone integration, and feels strongly that it must be completed as soon as possible. When I say as soon as possible I mean in 2012.

It won’t be quite enough, though. We need to move forward at the same time on the bank recovery and resolution proposal the European Commission put on the table in June. Why? For the sake of internal consistency, for a start: it does not make sense to have a single supervisory mechanism in place if authorities are not equipped with the necessary tools to intervene in a troubled institution to address problems identified by supervisors.

But also because we all know here that the “too big to fail” approach… has failed. Spectacularly. Over the past few years, a number of large banks have been bailed out with public funds. It is clearly undesirable for public money to be used in this way at the expense of other public objectives. Believe me: as a Minister for the Economy and Finance, and a French socialist at that, I am to think of a million better options to allocate public funds. So can you even when you’re not a socialist.

While there is room for negotiation and flexibility on what exactly a comprehensive bank resolution regime should look like, the endgame is clear: banks must have credible resolution tools in place. All of them, big and small. Not just a number on one side since we cannot exactly define where the limits are in between the banks.

Resolution tools must obviously be complemented by stricter capital requirements and better corporate governance for banks and investment firms – bearing in mind that these requirements must be designed to prevent lending to small and medium-sized enterprises from being penalized. Again: we should stay on course to achieve the target timeline set by the Commission, making sure that the markets get the message loud and clear.

My personal conviction is that we should seek simultaneous improvements in five directions: stronger measures to support economic growth, an effective banking union, real political and budgetary coordination among Member States, enhanced fiscal coordination in the eurozone, and an ambitious social union to encourage workers’ mobility.

Beyond these five priority areas, my personal belief is that we should continue to reflect collectively on improving the governance of the eurozone: not only should it be more effective, it should also abide by accountability standards that are more alike to those that are found at national level. 

My view is that at some point, governments will have to find the political will, and secure the democratic legitimacy, to fix the euro's design flaws through greater fiscal union, maybe leading in time, to federalism. By greater fiscal union, I mean eurozone-specific funds, endowed with its own, dedicated fiscal resources, in order to finance a limited, common set of priority spending in the eurozone – I’m thinking about unemployment insurance, for instance. And, in time, this budget should allow the issuance of eurobonds.

I am aware that altering the current shape and objectives of the EU so fundamentally would probably not be possible within the restraints the current legal framework entails. There is much we can do with the current treaties. I believe the crisis has pushed European governments further down the road of economic integration. While I consider this to be a positive development, it also raises profound questions about sovereignty, accountability and democratic endorsement. Negotiating edits or adjuncts to existing Treaties is not an agenda item at the moment; it is difficult, risky and needs to make sense to the people but it’s a perspective I’m keeping in my peripheral vision, as a prerequisite for deep-reaching changes and, ultimately, the democratic renovation of the eurozone’s institutions I am convinced will be necessary more than ever, in due time."

Full speech

© Bruegel