European troika

SPEECH

European economic governance: early lessons from the crisis

Keynote speech by Yves Mersch, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, at the Conference “The Werner Report, 50 Years on”, organised by the Luxembourg Centre for Contemporary and Digital History in cooperation with EUI Florence

Virtual, 8 October 2020

Introduction

In my remarks today, I will focus on three elements which I believe could outlast the EU crisis response – and could perhaps form Pierre Werner’s legacy.

A substantial crisis response at European and national level with a threefold legacy

• Europes historic response to todays unprecedented crisis not only coincides with the 50th anniversary of the Werner Report.
• In Werners view, monetary integration had to be accompanied by a partial Europeanisation of fiscal policy.
• The policy responses to the pandemic respect these principles and hold important lessons for the future.
• Although these measures have yet to be implemented, they have had a crucial impact on the markets.
• In line with the EUs institutional framework, national governments have done most of the initial heavy lifting.
• Euro area governments have so far adopted measures worth about 4.5% of GDP and loan guarantees equivalent to another 20% of GDP.

Ad hoc fiscal reinsurance

• For the first time in its history, the EU is taking on common debt to help finance a recovery.
• Some might see this as establishing a precedent enabling the EU to issue debt in potential future crises.
• While demonstrating European solidarity, it is an ad hoc fiscal reinsurance supporting national governments in their crisis response.
• It signals that fiscal policy remains largely national and subject to control by national parliaments, reflecting that budgetary policy is their key prerogative, in other words, their Knigsrecht.

New space carved out for EU policies

• My second observation is that the crisis response has carved out potential new space for EU policies, an effect that is, of course, not unique to this crisis.
• The response to the coronavirus (COVID-19) crisis has underlined the importance of a common approach to common problems.
• This arrangement could lay the groundwork for common EU policies in areas of collective interest which are underpinned by direct EU spending.
• Against this background, I would welcome a serious discussion about EU public goods so as to identify where the case for them is strongest and how they may be in part financed through the EU budget.

Opportunity for a clearer delineation of responsibilities

• First, a clearer delineation of responsibility could lead to better economic outcomes, as policies that have been designated as a national competence can then be better tailored to local circumstances.
• Differences in economic circumstances and institutional settings, as well as national preferences, can be taken into account.
• To be fair and to produce welfare-enhancing outcomes, competition needs to be subject to common rules.
• And our framework even goes one step further: it is underpinned by supranational institutions such as the European Court of Justice.
• It guarantees a level playing field for all Member States, big and small, so that the best policies can succeed.
• Third, a clearer understanding of the delineation of responsibilities between the national and EU levels would improve political accountability and legitimacy all round.
• But it also leaves a grey area of blurred responsibilities between the national and EU level.
• Moreover, a Treaty change could allow for a review of which responsibilities are national and which are European.
• The envisaged Conference on the Future of Europe offers a chance to obtain peoples views and input on these issues.

Conclusion

• Werner was aware that some Europeanisation of fiscal policy was an important element for the currency union.
• In response to the COVID-19 crisis, such Europeanisation has reached its peak in common debt issuance.
• What we can and should take beyond the crisis are our common principles that have served us well, such as a common approach to common problems.

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