In an article published in Diário Económico Newspaper, the Governor of the Bank of Portugal links European development to the success of Portugal's adjustment.
The flaws in the architecture of the euro area and the lack of appropriate rules and institutions to promote the stability of the whole and its parts explain why the sovereign debt crisis was deeper and more protracted than initially expected. These flaws also explain why resolving this crisis and restoring sustainable and job-creating growth in Europe requires measures both at national and European level.
The strategy established in the Economic Adjustment Programme for Portugal – which relies on fiscal consolidation, financial stability and structural reforms – is crucial to eliminate the macro-economic imbalances and structural blockages that have led us to this crisis. In spite of the considerable challenges facing the Portuguese economy and society, the progress achieved with the implementation of this strategy is already clearly visible today, particularly in the correction of the external imbalance.
In the short term, the euro area needs to have instruments to respond quickly and effectively to financial stability problems. Important steps were taken in this regard with the creation of the European Financial Stability Facility and then the European Stability Mechanism. In addition, the process of coordination of economic policies at European level must be strengthened and improved. The main concern should be to ensure that national policies complement each other. In particular, it is important that the fiscal consolidation path of each Member State takes into account its room for manoeuvre in order to make the process more stable as a whole.
To move towards more integrated fiscal and economic policies we need to implement mechanisms ensuring democratic legitimacy and accountability in joint decision-making. If this political dimension is ignored, we will not be able to evolve towards greater financial, fiscal and economic integration, for lack of legitimacy and accountability. This political dimension of the integration process must reconcile two sources of concern: the need for a legitimate response vis-à-vis “the whole”; and the need to ensure that all parts, irrespective of their size, are represented and participate in the decision-making process.
In particular, the so-called “community method” must be revitalised, in tandem with restoring the European Commission’s central role, by strengthening its effectiveness and legitimacy. This subject requires separate attention. I have already tackled it in a number of public addresses, as for instance on the occasion of the European Courts of Auditors' meeting in Estoril this year.
It must be understood, however, that the political pillar, although going hand in hand with the pillars of greater financial, fiscal and economic integration, has its own different timeframe. The construction of the other pillars cannot be delayed for the launch of the work on the strengthening and reconstruction of the political pillar. The time criticality of the problems requires prompt responses to the Economic and Monetary Union’s flaws. These are likely to be a catalyst for responses of political organisation and legitimacy that are less grandiose, but certainly more efficient, as they are based on the resolution of actual problems (as may be expected from an evolutionary/gradualist model, such as has been the case in Europe, as opposed to the institutional/constitutional model, which is a federal integration-like model).
Determined domestic policy action is essential but not enough. The European context must validate the credibility of the adjustment in every euro area economy. The level of certainty, quality and vigour of the new euro area mechanisms and institutions are key to strengthening market confidence and are therefore an indispensable complement to national adjustment effects. This means that there is a virtuous relationship between the so-called frontloading of national adjustment processes and the frontloading of the European integration process. For this reason, the Governing Council of the ECB has repeatedly advocated that the response to the sovereign debt crisis should be the responsibility of the European Council and that the costs and depth of the crisis were inversely related to the celerity and forcefulness of the response. The Portuguese and the citizens of other Member States must understand this: the regulations and mechanisms under development in Europe are not the result of some external imposition, but are rather inherent to the integration stage representing a successful Economic and Monetary Union and are therefore essential for the prosperity of Europe and each of its Member States.
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