01 December 2012

ECB/Cœuré: Restoring trust in Economic and Monetary Union

How should the ECB be held accountable?

Accountability... is essential to secure and reaffirm trust in the central bank... Especially in times of crisis, when policies become less conventional and more complex, it is all the more important to carefully explain our decisions. We do this, but – I also realise – we could do better: we have to steadily adapt our communication channels and satisfy the increased demand for clear and timely information in the unconventional times we are passing through. It is also clear to us that any additional task entrusted to the ECB (such as banking supervision, currently under discussion) must be matched by additional reporting and accountability channels.

Looking ahead: completing the architecture of EMU

The euro deserves trust – and trust in the euro as a currency depends on trust in the euro as a project. The ECB, with the legitimacy provided by the fulfilment of its mandate, will do everything within this mandate to ensure price stability in the euro area and therefore trust in the euro as a currency. But trust in the euro as a project relies on a more complex framework and structures.

In a recent article, the German philosopher Jürgen Habermas and his co-authors argue that a rallying cry of the American War of Independence – “No taxation without representation” – has a new and unexpected resonance in today’s Europe. Once we create scope in the euro area for policies that result in redistributive effects across national boundaries – they write – European legislators who represent the people must be able to decide and vote on these policies. I tend to sympathise with this view.

European leaders have a great opportunity to rectify the now apparent failings of EMU’s institutional structures. In particular, the financial market architecture must be at the centre of our discussions on the future of EMU.

The intellectual foundation of the monetary union is Robert Mundell’s insight that exchange rate stability, financial integration and national monetary policies are incompatible objectives: a concept that has been called “Mundell’s trilemma”, or the “impossible trinity”. We now find ourselves bound by a concept that Dirk Schoenmaker has called the “financial trilemma”: namely, that pursuing simultaneously financial stability, financial integration and national financial policies is unfeasible. Any two of the three assignments can be combined, but not all three. In this crisis, financial integration in the euro area but national responsibility for financial policies has resulted in financial instability. We can solve this trilemma either by going back to financial markets delimited by national borders or by passing financial and crisis management policies to the euro area level. The latter is the only viable solution. It is the most conducive to economic growth, as it will help European companies and households reap the benefits of a single financial market based on a deep pool of savings.

Some institutional reforms have already been undertaken. They represent a great step forward. We have made national fiscal policies more responsible under the Fiscal Compact, and subject to stronger surveillance. We have created a permanent solidarity framework – the European Stability Mechanism. It can provide financial assistance to Member States in difficulty, thereby reducing threats to financial stability in the euro area as a whole.

But we need continuous efforts, particularly in the area of financial policies. The “Four Presidents” of the EU were mandated to provide a vision for Europe. In the context of our discussion today, I would say that they were tasked with identifying and outlining the minimum conditions to ensure the full viability of the euro area – which are the same as the minimum conditions to ensure continued trust in the euro.

Let me say a word on political union. I think that the general issue here is to clarify who does what, to establish a network of responsibilities. The notion that the euro is a currency without a state is in my view misguided. The euro is a currency with a state – but it’s a state whose branches of government are not yet clearly defined. The ECB is part of the construction of Economic and Monetary Union, with a very clear but very limited mandate. The other parts – I am thinking in particular of the delineation between the Commission and the Council – still require clarification. The proposal put forward by Jean-Claude Trichet of a “euro area Treasury” would be an important step in that direction. The ECB is independent and fully accountable, but it needs clearly identifiable and fully empowered interlocutors.

We all have in mind Robert Schumann’s prediction that “Europe will be built through concrete achievements which first create a de facto solidarity”. Now that the euro area crisis has created de facto solidarity, there is a need for concrete achievements to complete EMU. This, together with the individual commitment of each government to restore balanced growth and employment, is a necessary condition for lasting stability.

Full speech

© ECB - European Central Bank