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[...] Let me focus on three issues that will be fundamental for the future of our continent. The first concerns the geographical perimeter of “Europe”. The Commission considers the future of Europe to be the future of the EU27. Yet, it is obvious that the UK and many other countries that are not part of the “27” belong in Europe. The membership of the EU may change further in the next 10 years. In a world where external challenges, either from the new US administration or from the rising power of emerging economies, are bound to increase, it will be vital to establish productive relationships with the UK, a major European power, and other countries in the EU’s neighbourhood.
The second issue concerns the different speeds of integration within the EU. Advancing integration among some countries raise questions about the cohesion of the EU. These worries need to be managed. For example, a policy that would advance banking integration in the euro area could reduce the integrity of the single market in banking, driving a wedge between countries inside and outside of the euro area. The challenge here will be to avoid a situation in which policies of integration produce a hostile response among those not included in them. Political goodwill should be used to minimise frictions.
The third, and perhaps most important question, relates to the future of the euro area itself. It is easy to dream of scenarios with much deeper and more far-reaching integration, including major steps towards fiscal risk-sharing. Yet progress on fiscal integration has been slow in recent years and this has been no accident. There is deep scepticism in many parts of the European North about whether this would be the right step, given the large divergence in productivity and the diversity in social models between different countries.
The key question in any monetary union is how the relation between central monetary, central fiscal and national fiscal policy is designed. The most realistic option for the euro area, as a group of diverse countries with strong national histories and divergent interests, will be to increase national fiscal responsibility trough a credible no-bail-out clause. This means less intrusive fiscal surveillance, but it also means clearer budget constraints – imposed by the markets when necessary.
To make this scenario work, banking union will need to be credibly completed and more capital markets integration will be necessary. A few investment and social funds at euro area level would further enhance credibility. But even this scenario will require a great deal of political capital to be expended. Vested interests will have to be tackled. Overcoming these constraints will be vital. The more productivity growth can be lifted in the South of Europe, the easier it will be to create additional fiscal risk-sharing instruments. Both from an economic and political viewpoint, this scenario offers the greatest possibility to strengthen the EU and the Euro.