17 July 2012

ECB/Asmussen: Building deeper economic union - What to do and what to avoid

On paper, significant progress has been achieved at EU level with the “six pack”, the Fiscal Compact and the 2012 European Semester. This package of reforms has the potential to fundamentally change the way we conduct mutual surveillance. Common oversight of national economic policies is broader and more intrusive. Take the Commission’s in-depth studies which revealed the existence of various degrees of imbalances in 12 countries. Or the new more automatic decision-making rules, in particular the “new comply or explain procedure” for the Commission’s country-specific recommendations. These were all premieres. This procedure puts a great responsibility on the Commission to present accurate recommendations. It also reinforces the collective responsibility of the Council.

Much has been written about the “excessive politeness” and the culture of non-intervention among Ministers. And indeed also on “preemptive obedience” on the part of the Commission when presenting its proposals and recommendations. But this lack of peer pressure among decision-makers has real costs – as we had to learn painfully during this crisis. And, it seems, the lesson still has not been learnt completely: deadlines for the correction of excessive deficits are being relaxed; the corrective tools that are available even under the new procedures, are simply not being used as the cases of Spain and Cyprus in the recently conducted macro-economic imbalance procedure illustrate. If mutual surveillance is meant to be effective, this needs to change.

Second, differentiation among countries is still largely a no-go area in economic surveillance. And this despite the fact that the crisis has amply demonstrated the detrimental effect of excessive divergence and heterogeneity. Countries are different. The severity of imbalances varies, and so does the urgency to address those vulnerabilities. They need to be treated differently under the governance procedures. It is self-defeating to treat all countries similarly, for sake of alleged consistency, equal treatment or avoidance of stigma effects.

The ECB stands ready to play a role of supervisor for the banks of the euro area as requested. But it is of utmost importance that this framework allows the ECB to act with effectiveness, independence and without risks to its reputation. We will need strict arrangements to safeguard the independence of the ECB’s monetary policy. Moreover, with the new tasks, higher standards of democratic accountability will have to be fulfilled. We are fully aware of that and stand ready to satisfy them.

Carrying out of the new supervisory task will be challenging. But its implementation will be greatly facilitated by the fact that the ECB can count on the central banks of the Eurosystem. Most of them are already responsible for banking supervision in their own countries and have a full wealth of expertise and knowledge.

Let me also stress that unified supervision is only the starting point of a financial market union. The latter should also provide for common mechanisms to resolve banks and to guarantee customer deposits. This is necessary to break the vicious circle between banks and sovereigns which is at the source of the fragility of the euro area financial system.

Full speech

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