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We know what has worked in the euro area: an allocation of tasks based on the primacy of price stability. And we know what has not worked: a lack of stability orientation in other policy areas. The ability of the central bank to deliver price stability ultimately depends on other policies being oriented towards stability as well. Also, the ECB needs stable banks to be able to implement its monetary policy successfully. Banking Union will not be achieved by mutualising risks. On the contrary, Banking Union reduces risks for taxpayers.
The benefits of having a single market and a single currency have been proven. Value chains have also extended across Europe – we can talk about goods being “Made in Europe” – with the German Mittelstand standing at the centre of those supply chains. This economic deepening means that it makes less and less sense to think of competitiveness in terms of countries – or of countries being better off alone. Each EU country, even Germany, is too small to get along in a globalised world. Our single currency, the euro, has been vital in reaping the gains of the single market. And it has put an end to competitive devaluations and trade wars between our countries.
A key condition supporting this process of economic integration has been price stability. The ECB has delivered price stability continuously since 1999. And we will do so in the future. To summarise the current stance of our monetary policy: we are ensuring euro area inflation at below but close to 2 per cent over the medium-term using the instruments conferred on us. This is our responsibility in the Treaty; it is what the people of Europe expect from us; and it is our best contribution to economic policy for the euro area.
Yet we know that the central bank does not operate in a vacuum. The ability of the central bank to deliver price stability ultimately depends on other policies being oriented towards stability as well. The task facing Europe today is therefore to secure what we have achieved so far – to ensure that monetary stability is matched by economic and financial stability. This does not require a quantum leap in integration. Rather, it requires that we finish what we started in 1999 and put the right framework in place to support EMU. This will not be achieved by mutualising risks. On the contrary, a Banking Union reduces risks for taxpayers. Having a European supervisor ensures that all banks in the euro area will be kept in check by the same rules and under reciprocal oversight. Moreover, having a European resolution mechanism will ensure that bank shareholders and bondholders will be first in line to absorb losses when a bank fails.
Beyond financial stability, the euro area also needs economic stability. The ECB’s monetary policy is a necessary condition for economic stability, but it is not sufficient. Governments also need to practice the right economic policies. An ongoing question is how much responsibility for economic policies should be elevated to the European level. For banking supervision and resolution there is a strong case for centralisation. Clearly, the euro area also needs solidarity mechanisms for extreme events that are out of reach of national policies – that is the role of the European Stability Mechanism. And I see scope for common projects with a common funding if they enhance the resilience of the single currency area and come with appropriate democratic control. But beyond that, I do not see a strong case today for further fiscal centralisation. Achieving lasting economic stability must involve finding a new balance of discipline and flexibility in our economies. This would go a long way towards securing a strong EMU based on price stability – and to do so without exceeding the democratic mandate given by the citizens of Europe.