20 March 2013

ECB/Asmussen: Is Europe on the right track?

In his speech, Asmussen presented his views on the choices Europe is facing. He looked at whether there are any alternatives to the current crisis strategy, and whether it would be possible to find new sources of growth.

As you know, one pillar of the crisis response in Europe has been to consolidate government budgets. Progress has so far been good: the European Commission estimates that, by the end of this year, the euro area as a whole will have a budget deficit below 3 per cent of GDP.

The consequence of stopping cutting deficits is to increase public debts. First, regardless of its merits, such a strategy would only work if private investors were willing to finance higher borrowing at reasonable rates. And that is certainly a big “if”, especially for countries whose debts are already very high and rising.

Second, it is an illusion to think that more debt is the answer to this debt crisis. Recent research has shown that high public debt levels in the euro area hamper growth, with a serious negative effect starting when debt exceeds 90 per cent of GDP. Average euro area public debt is already above that level – almost 95 per cent of GDP – so adding more debt will only put us further into the danger zone.

Third, a strategy of increasing debt simply pushes problems in to the future. Any benefits for the current generation come at the expense of future generations. Higher borrowing today means higher interest payments tomorrow – which have to be paid off with the taxes of tomorrow’s citizens.

The ECB’s Executive Board recently discussed enhancing gender diversity in our management and decided that, from now on, we will not only talk about diversity – we will act. All studies show that the commitment from the top is key to bringing about change. The commitment is there – we want new measures and the board has asked its Human Resources department to provide these to us. Other international financial institutions like the IMF and the EIB as well as the European Commission are more advanced and have introduced gender targets, which define specific quantitative – albeit non-binding – goals for employing women at various levels. We think that we can learn from the experience of these institutions and that their targets may serve as a benchmark for us.

This marks a significant change, especially in the generally rather conservative world of central banking. All change implies a challenge, especially for those at the top of the organisation. But leadership must be challenged to keep it relevant – which is another theme of this conference. The key issue is how, when challenged, it answers.

Full speech

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