23 November 2013

ECB/Cœuré: The political dimension of European economic integration

Cœuré discussed three pillars for a renewed European political project: a common European culture; European cohesion; and ensuring a high degree of democratic accountability at European level.

The benefits of European integration

European integration means peace in Europe. The euro is the most visible and most internationally known symbol of a united Europe. With the euro, we enjoy the benefits of price stability, which preserves the value of incomes and savings. It facilitates price comparisons and bank transfers, while eliminating currency risks in intra-euro area trade and investment. Above all, the interdependence and shared responsibility implied by the euro create a European solidarity imperative in the face of the crisis. This "de facto solidarity" is the greatest challenge that the European Union faces today, against the background of a greater disparity across countries.

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Reinstating the political dimension of the European project

Together, we Europeans have created and developed public goods that make us stronger, such as the euro. These are our shared res publicae. To be properly managed, they need a well-functioning and legitimate political system. In words which will be familiar to us, the res publica needs a republic. The European “republic”  in my view does not mean a European state, but rather a widely shared agreement on the scale and management of the goods we have in common, with a view to contributing to our ultimate goals: peace, democracy and shared prosperity. So what could be the pillars of a renewed political project for Europe?

First, a common culture.

Given the emphasis on social and economic policies in European integration, a shared European culture should include common economic and social understanding and values. In this respect, and limiting myself to the economic domain, if something can be learnt from the crisis, it is that we share responsibility for preserving financial stability in the light of spillover effects and interlinkages within Economic and Monetary Union. In addition, growth should not be pursued at all costs, and certainly not on the back of unsustainable policies leading to debt overhang and macro-economic imbalances, which inevitably lead to costly adjustments in terms of activity, employment and social protection. At the same time, risk-taking must be at the service of entrepreneurship, not of financial speculation.

Common values imply exemplary institutions. This is true in terms of ethics; in this respect, EU institutions in general and the ECB in particular have enacted strict codes of conduct for their staff members and senior executives. This is also true in terms of offering equal opportunities and promoting diversity. In the words of Jorge Semprun, “Europe cannot be based on the exclusion of diversity; it must be built on the essential unity of diversity”. The ECB has recently launched an initiative to promote gender diversity, including detailed targets at management level. These efforts would be significantly complemented if Member States were also to promote this diversity in the ECB’s top decision-making body, the Governing Council – which consists solely of men.

A second pillar should be European cohesion.

From the domestic perspective, cohesion entails having a common understanding of fairness and showing solidarity. Cohesion also – and notably – means clarifying the rights and responsibilities between member countries so that it is based on mutual trust. It also implies that Member States should submit to stronger fiscal, economic and financial governance. Once trust is established, the social contract between member countries – solidity with solidarity – can be expressed in a variety of ways.

One way is by having public and private mutual insurance against shocks: the European Stability Mechanism already provides a public safety net, while Europe-wide insurance mechanisms financed by banks would allow the costs arising from the resolution of banks to be covered (Single Resolution Fund) and, ultimately, depositors to be protected (European deposit guarantee fund).

Another way is to combine resources for the provision of public goods at European level. For instance, shared public investment in research and development (R&D) and network infrastructures help to “denationalise” industrial policy, thereby aiding the functioning of the Single Market.

Any steps beyond that would imply identifying common sources of funding, either in the form of common tax resources or of common issuance of public debt. Tax or financial techniques are, however, no substitute to politics. Such common sources of funding could only be envisaged after the establishment of a genuine fiscal union among euro area Member States that includes a sharing of fiscal sovereignty and proper accountability vis-à-vis the European Parliament and national parliaments. Without that framework, the fiscal union would not be democratic. This does not imply that it will never happen: for instance, it could start on a limited scale around common projects, jointly financed and aimed at enhancing long-term growth in the region in a way that benefits to all...

Europe, if it were to speak with one voice in international financial fora, would be in a stronger position to shape global policy outcomes. In this regard, creating a unified euro area representation in global economic fora would be consistent with the very high level of economic and financial integration in EMU. The two euro area countries that each have a permanent seat on the IMF Executive Board, France and Germany, could lead by example and merge their seats.

The third pillar would be the strengthening of democratic accountability at European level.

Trust in EU institutions rests on both input legitimacy (the legitimacy of their mandate) and output legitimacy (the achievement of the objectives set in the mandate they have received). Concretely, this means citizens must be confident that EU institutions are democratically accountable.

For the ECB, this means fulfilling its democratically assigned mandate of price stability. It also implies resisting the temptation to act in ways that are not compliant with this mandate. To give a few examples: it is within our mandate to provide liquidity to banks so that they can fund the economy, but it is not in our mandate to provide them with capital in place of their shareholders and investors. It is within our mandate to eliminate financial market distortions that hamper the effectiveness of our monetary policy, but it is not in our mandate to ensure the solvency of states or to aim at distributing wealth between countries in place of democratically elected governments...

Ensuring a high degree of democratic accountability is also key for European political institutions. This is particularly important given the increase during the crisis of the degree of European intrusion into national economic and fiscal policies, which have re-distributional consequences. For instance, concerns have been voiced that European support to countries under stress, and the conditions on which it is granted, are decided only by the Eurogroup, i.e. by governments of euro area countries, themselves subject to parliamentary controls of very different kinds.

Stronger involvement by the European Parliament could be a way to alleviate such concerns. It would be similarly important for European issues to feature more prominently in national parliamentary affairs and in national conversations so that citizens can allow their voices to be heard. But above all, only in a truly European public space can common solutions emerge. We can witness today a renationalisation of European politics, including when it comes to protest against European policies. This renationalisation carries with it the seeds of an erosion of our common values.

Full speech

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