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DG ECFIN Vejen mod en økonomisk union Netværkskonference 2012, Odense Jakob Wegener Friis DG ECFIN, European Commission.

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Presentation on theme: "DG ECFIN Vejen mod en økonomisk union Netværkskonference 2012, Odense Jakob Wegener Friis DG ECFIN, European Commission."— Presentation transcript:

1 DG ECFIN Vejen mod en økonomisk union Netværkskonference 2012, Odense Jakob Wegener Friis DG ECFIN, European Commission

2 DG ECFIN Subprime crisis 2008 – Financial crisis 2009 – Economic crisis 2010 – Sovereign debt crises Stimulus packages + automatic stabilizers From a financial crisis … – A systemic crisis of the euro? Assistance programmes + EA financial backstop Bank recapitalizations + guarantees

3 DG ECFIN 3 ……. to an unprecedented economic crisis

4 DG ECFIN 4 Heartbeat of the crisis

5 DG ECFIN Legacy of the crisis: 4 key messages 1.A lasting impact on growth and job creation: more than ever a need for comprehensive policy action 2.Recovery in question: uneven and protracted, re- building confidence of paramount importance 3.Fiscal consolidation a necessary but not sufficient condition for sustainable public finances 4.The EU response has been comprehensive, albeit incremental. Stronger EMU governance and commitment to euro area cohesion essentiel

6 DG ECFIN The crisis as an eye opener 1.External shock: the crisis has exposed shortcomings in EMUs design and governance system 2.Gaps in original EMU design : monetary and fiscal discipline not enough, no crisis resolution mechanism foreseen 3.Prediction of closing structural reform gap did not materialise fully 4.Weaknesses in enforcement of existing rules

7 DG ECFIN 7 Sound fiscal policy Prevention and correction of macro imbalances Better enforcement: disincentives/ Sanctions National frameworks More effective preventive arm of SGP Focus on debt developments (corrective arm of SGP) Sound fiscal policy Balanced growth Structural reform strategy (Europe 2020) Macro-prudential supervision Regulation and supervision of financial systems Crisis resolution The broad geography of EMU reform

8 DG ECFIN Learning the lesson: the EMU of tomorrow 1.Growing again: The pre-crisis need for structural reform is reinforced. Releasing Europes growth potential is a pressing priority. A well-functioning EMU will help. 2.A choice to be made: the « safe harbour » of Maastricht or further fiscal integration. More intrusive surveillance and forceful enforcement paired with a credible last-resort financial backstop. 3.Beyond fiscal: Broader surveillance to prevent unsustainable imbalances build up. Strengthened financial regulation and supervision in support of the internal market. 4.Hanging together: Realisation of scope and depth of governance required to protect the benefits of common currency. EU rules interacting with increased attention of financial markets 5.Ever closer Union: Political challenge of wide-reaching financial solidarity and « pooling of powers » within the Community method.

9 DG ECFIN Completion of EMU's architecture Banking Union – closer integration in supervisory structures and practices, in cross-border crisis management/resolution and burden sharing Fiscal Union – Moving from coordination towards integration in the surveillance of economic and budgetary policies in the euro area Stability Bonds – Consider joint issuance of euro area debt, once crisis has abated 9

10 DG ECFIN Why do we need a Banking Union? Necessary for achieving a genuine EMU. Break the negative feedback loop between sovereigns and banks. Prevent bank runs and strengthen overall financial stability. Preserve the single market. Single supervision is the precondition for the introduction of potential direct recapitalisation of banks by ESM.

11 DG ECFIN Higher Government Bond Yields Deeper Recession Higher Government Debt- to-GDP Ratio More Banking / Financial Strains Bank solvency concerns Tighter financial conditions index Bailout costs Higher debt service Default worries Calls for fiscal tightening Lower tax receipts Lower nominal GDP Credit losses Lower corporate profits Reduced loan supply Negative wealth effect Source: Goldman Sachs, Global Economics Weekly 11/38, 30/11/2011 Banking crisis triggered dangerous feedback loops 11

12 DG ECFIN Key elements of the Banking Union 17/02/ Single Rulebook Single Supervisory Mechanism Single Resolution Mechanism Deposit Guarantees

13 DG ECFIN Single Rulebook Coordination by EBA Single Supervisory Mechanism National central banks / supervisors of non- participating Member States central banks / supervisors of participating Member States ECB send preparation and Board Members execution of tasks Single Supervisory Mechanism

14 DG ECFIN A Euro area SSM open to other MS 17/02/ All Euro-area Member States shall participate. Non-Euro area countries may join by establishing a close cooperation between their competent authorities and the ECB.

15 DG ECFIN 15 Discipline (Austerity) Solidarity (Growth) Common growth and stabilization instruments Fiscal backstops Financial transactions tax Eurobonds Social pillar 6-Pack 2-Pack Fiscal Compact Veto over national budgetary policy Executive tasks at EA- level (e.g. EA Treasury) New enforcement tools The debate about fiscal union ESM

16 DG ECFIN 16 Europes Prosperity Triangle "Social market economy" FAIRNESS - participation - generational - territorial GROWTH - single market - catching-up and convergence - investment and innovation STABILITY -monetary/financial -fiscal -environmental

17 DG ECFIN Political "musts" for long-term solutions Political will and leadership for a great leap forward Necessity of Treaty changes Unanimity Constitional questions in some MS Political and economic cohesion among countries EU27 vs. EU10? Rules vs. discretion: An accepted authority needed Building legitimacy of the EU-level executive - preferences of Member States and citizens Issues: Too little too late? Are we sure about EMU.2? Credible incentives and mutual trust?

18 DG ECFIN Four Presidents' Report Integrated frameworks for: Financial sector: –SSM, DGS, RRS, burden sharing? Budgetary policy: –EA fiscal capacity? Debt mutualisation? Economic policy: –more binding CSRs? Positive financial incentives for reform implementation? Partnership contracts? Ensuring democratic legitimacy and accountability: EA- level accountability structure? 18

19 DG ECFIN Questions?

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