What the euro needs is trust
Europes economy is living through a golden age. Unless we take steps to push through overdue reforms, its not likely to last.
The economy of the eurozone has expanded for over six consecutive years, creating 11 million new jobs. In large part, this was thanks to sound national strategies, greater pooling of risks, unconventional monetary policies and better coordination between national governments.
If we want to make sure the next chapter of our 70-year economic integration is just as rosy, we urgently have to put in place the measures needed to ensure the eurozone remains strong and resilient.
Weve already made significant progress in this direction. Last week, we achieved a hard-won agreement on measures to strengthen the euro: Ministers agreed to a treaty change to the European Stability Mechanism that will reinforce our capacity to manage and prevent future crises, be it from failing banks or through sovereign contagion.
We also agreed on the key features of a eurozone budgetary instrument for convergence and competitiveness that will allocate resources to priority reforms and investments and boost the euros credibility.
The vast amount of savings generated in the eurozone should be invested back into the area, to the benefit of its citizens.
Weve made the euro safer. But until we finally complete its institutions, it will remain needlessly vulnerable to shocks. As we begin a new political cycle in the European Union, now is the time for another push.
We are lagging behind in filling key gaps in our institutional setup. We have laid the foundation of the eurozones financial autonomy but we still have no consensus on a budget that can protect investments in times of crisis. Consensus is also needed on the steps to create a full-blown European deposit insurance — key to preventing bank runs, reducing the links between risks to bank and government debt and further integrating financial markets.
We can no longer use a lack of progress in reducing risk as an excuse not to create a mechanism whereby we work more closely together to share the burden of these risks.
The banking sector has improved markedly, decreasing leverage, building up loss-absorbing capacity and reducing bad loans. Every country in the euro area has contributed to the task. Public debt in the common currency area has been steadily falling since 2014, and the deficit has decreased since 2010, with crisis-hit countries making the greatest corrections.
Breaking the current deadlock will require strong leadership.
This trend has allowed us to rebuild confidence where it was lacking. But trust is a two-way street.
As we get closer to a level playing field among euro area countries, we now need greater risk-sharing, both in the private sector — by unlocking capital markets union — and on the public side, by overcoming fears of moral hazard.
If we fail to do that, national efforts to reduce legacy risks — however virtuous — may become politically unsustainable. The vast amount of savings generated in the eurozone should be invested back into the area, to the benefit of its citizens.
Excessive deficits have been eliminated and fiscal stances in the eurozone are more coordinated than ever but our fiscal rules became overly complex. A review later this year is an opportunity to simplify them and increase their credibility — not to give way to leniency.
There is still a way to go before we can build a full-blown financial union, but I am convinced thatRead More – Source