22 June 2016

Speech by the President of the Eurogroup, Jeroen Dijsselbloem

Economic outlook eurozone

[...] Despite global headwinds, our economic growth is broad-based and increasing year by year, unemployment is slowly, but certainly going down, and deficits and debts are steadily declining. All as a result of the decisive measures we took.

I realise we are not there yet, and I don't blame those pointing out risks that are still around, but we need  to be realistic. We need to reset our expectations. Europe is an aging continent. and an ageing society means that potential growth will be lower. Average growth in the eurozone in 2015 was 1,7 per cent and if we pursue the right policies it can go up to 2% potentially but the growth levels some of us knew before the crisis will not return quickly.

It seems to me many of us are still in a post-traumatic stress mode. Any event that occurs is immediately framed as "the next crisis". A striking example was the elevated volatility in stock markets at the start of this year, which immediately made everybody gloomy again. [...] Also, today we witness increased volatility ahead of the referendum on Thursday. Let me say two things on that.

One, the volatility at the beginning of this year - certainly in the banking shares - was partly due to a healthy repricing of bank shares following the implementation of stricter rules for our Banking Union.

And two, volatility highlights the importance of having a clear message of where we are and where we are going. To have a steady hand. These two points combined strengthen my firm belief in the need to enforce what we have jointly set out to do in our fiscal measures and economic and financial governance framework. There should be no doubt about the EU's determination to follow its rule book. [...]

Finishing what we started

[...] We need to focus again on delivering what really matters, which is bringing security and prosperity to the people of Europe.

For that reasons, I don't believe that we should take next big steps in deepening or expanding the Union. In the eurozone some are pushing for a completion of the monetary union by creating a full political union, an Euro area economic government or even a euro budget, the fiscal capacity.

To me it is obvious; we need to strengthen what we have and finish it, but let's not build  more extensions to the European house whilst it is so unstable. Let's take a pragmatic and step-by-step approach whereby we first make sure the fundamentals are in place. Above all, this means proving that we will finish what we have started.

Next steps

First, we should complete our Banking Union as it enhances the resilience of our banking sector. European supervision and stricter prudential regulation address risks in bank's balance sheets and prevent the build-up of future risks. Bail-in limits the bank-sovereign nexus and helps getting the incentives of investors right. It avoids the use of taxpayers' money for troubled banks. But more work remains to be done. This means first of all dealing with the risks that are still there. Establishing a solid leverage ratio for example and reducing existing national options and discretions. On the other hand this also means putting in place a common backstop to the Single Resolution Fund and a European deposit insurance scheme (EDIS). Ultimately, an adequate treatment of sovereign exposures is needed. Last week we agreed on a roadmap for further work to complete the EU's Banking Union.

It sets out priorities and milestones for the coming years, in terms both of sharing risks and addressing outstanding risks and challenges. Risk reduction and risk sharing are both taken on, to put the incentives right.

Second, we need to establish a Capital Markets Union. Well-functioning capital markets will strengthen cross-border risk sharing through deeper integration of bond and equity markets. That will open up a wider range of funding sources for our economy, providing a shock absorber of a kind we currently lack. The proposal on securitization was agreed at record speed in the council. This month we reached an agreement on the Prospectus-directive, on the money market funds, and hopefully we can complete the trilogues with the European Parliament on all of these elements very soon.

Third, we should truly deepen the single market. A market that gives 500 million Europeans access to goods, services, jobs and business opportunities. Yet today many barriers still remain. Removing them would mean new opportunities to boost our economies. We should open up the enormous number of regulated professions that are still there. This would be difficult as it affects vested interests, but way more beneficial for our citizens today than pursuing "the ever closer union".

These key reforms, finishing the Banking Union, setting up a Capital Markets Union and the internal market can contribute to raising the current potential growth levels in our countries. And make our economies much more shockproof. [...]

Conclusion

Let me conclude by saying a few words about the UK referendum the day after tomorrow.

The UK is not alone in its scepticism and criticism towards the EU. This criticism is a phenomenon in all our countries. Populist parties - on the right and the left - are gaining ground. But that in itself is not a reason to leave. It is a reason to build a better EU, an EU that brings security and prosperity again. A EU that has focus, gets things done, and in which member states never shrug their own responsibility. So, If the UK votes to remain, I would urge the Brits to play a stronger role, take the lead again with us, and make sure we get it right.

We have to make the EU work. That does not mean we need a full political union. It means we need to strengthen what we have.

Full speech

© European Council