11 October 2012

Speech by Council President Herman Van Rompuy at the annual "State of Europe" event

Van Rompuy singled out two new ideas he said still needed to be explored: the embryonic idea of a so-called fiscal capacity, and potentially the promotion of structural reforms through arrangements of a contractual nature.

In the longer term, as the experience of other currency unions shows, strengthening discipline alone is not sufficient, and we may want to look at other options to complement it.

Here I just want to single out two new ideas that still need to be explored. First, the idea of a so-called fiscal capacity. This fiscal capacity could perform stabilisation functions specific to the eurozone, for instance help countries absorb asymmetric shocks over economic cycles so that we limit the adjustment cost in terms of growth and employment. This would also make the euro area as a whole more resilient.

I want to clear out any confusion: this must not to be mixed up with the European Union's multiannual budget. As I said, the aim would be for this capacity to perform new separate functions, specific to the euro area. Ways to develop this capacity within the framework of the EU institutions will have to be examined. Obviously, this idea has to be explored in more details in the run-up to the December European Council and it is in any case a longer-term project. Since we decide on the Multiannual Financial Framework in November, it is important that we don't start mixing that discussion up with this embryonic idea of a fiscal capacity.

The second new idea is to potentially promote structural reforms through arrangements of a contractual nature. Eurozone Member States could engage in such arrangements with European institutions on the structural reforms they commit to. These reforms aim at increasing growth and jobs, and they could be supported by temporary and targeted financial incentives. It is too early to take decisions on either of these two avenues. For next week, it is rather a matter of a mandate to explore these ideas further, between now and December.

This brings me to the last point. Many of the ideas and proposals in the three frameworks I mentioned [financial affairs, budgetary matters and economic policies] might come to affect the current balance of decision-making power between national and European authorities. Naturally, this would require strengthening the current framework for democratic legitimacy and accountability. To take one example, clearly a new single banking supervision system will imply designing suitable accountability procedures to go with it.

As a general principle, democratic control should occur at the level where decisions are taken. So the European Parliament and national parliaments should be kept closely involved, as appropriate. Here we should not mix up the goal and the means. The goal is not to build a political union for its own sake or to completely overhaul our Union…No, the goal is to make the euro stable -- financially and economically, but also politically solid. That we must do. We must not let ourselves be distracted, but instead remain focused on the real goal. While progress must be swift, all the steps have to be carefully thought through and properly discussed. There can be no shortcuts.

And there is no more effective way to guarantee this than well-informed public debate. It is my hope that the ideas on the table will be prodded, scrutinised, and debated, and that constructive suggestions will emerge. This can only make for stronger decisions -- a robust basis for our common future.

Full speech

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