Dear Adam,

Ladies and gentlemen and friends,

Thank you for inviting me once again here to the Peterson Institute. It’s always a pleasure to join you because I know how involved the Peterson is in the transatlantic relationship and also in the fight for a strong Europe and especially a strong eurozone. A year has passed since I last stood in this room and there have been one or two notable changes in the world since then, as we all know, and not least here in Washington.

The challenges that lie ahead for Europe now are mostly of a political nature. 2017 will be, in the political field, a pivotal year for us. On March 29, as you know, Theresa May triggered the so-called “Article 50” to begin Britain’s exit from the EU. And we must be quite clear: this exit will happen no matter what we hope, no matter what we expect, no matter what our feelings are, it will happen. Elections in large Member States – first in France, with the first round of the presidential election this Sunday, three days from now. Now the UK again in June, then Germany, and finally Italy most likely early next year, will shape the political landscape in Europe for half a decade. And some of the decisions made here in Washington will also drive Europe’s policy response in a number of areas – including defense, trade, taxation, or the fight against climate change. Finally, there is the other fact that Russia has decided to move once again into a directly or indirectly aggressive stance on the foreign stage.

I am confident that Europe can emerge stronger from the current and upcoming challenges – as long as we know where we are headed.

First, a few words about the economy. My message to you a year ago was simple: the European economy was continuing to recover, but at a pace that none of us could be satisfied with. The good news is that the recovery has been firming and broadening across sectors for the past year. The EU economy is now in its fifth year of recovery. EU GDP is expected to continue expanding at 1.8% this year and also next year. For the first time since the crisis, we forecast growth in all EU Member States across our three-year forecast horizon. Unemployment has fallen to an eight-year low. In the eurozone, the aggregate fiscal stance and the government debt-to-GDP ratios are expected to fall further in 2017 and 2018. In short, we are making progress. I remember coming here for the first time as finance minister five years ago. In those meetings, Europe was a problem. Now it is becoming part of the solution. And clearly there is stability there and it is a part of the world in which people can put their confidence.

But let’s be clear: while our economy is strengthening overall, the picture remains highly diverse from country to country, particularly within the eurozone. Several banks are still experiencing high levels of non-performing loans, which ultimately have a negative impact on bank lending to the economy. Investment is improving at last, also thanks to the so-called Juncker Plan, but it is still too low: we have an investment gap in Europe which is wide. Public debt levels remain very high in some countries, and with unemployment still at 9.5% in the eurozone there is really no room for complacency, especially when we think about the fate of the youngsters in some countries inside the eurozone.

These are issues that must be taken seriously even if the situation is clearly improving.

Now, let’s move to politics, or political economy. I am convinced that reversing socio-economic divergence in the eurozone is the prerequisite to ensuring the sustainability of our single currency – and to containing rising populism which is, as you know, a common challenge to all European countries. I would further argue – and this is perhaps a provocative statement – that the incomplete governance of the eurozone has produced or contributed to economic divergence rather than convergence between and within its members. And this divergence has in turn fuelled populism, which still has its roots in economic discontent. There is cultural discontent, but the cultural discontent comes from the economic discontent.

France, my home country, will go to the polls on Sunday in an election that has people biting their nails well beyond my country’s borders. And it is a paradox that while the vast majority of French citizens feel a strong attachment to the single currency, over 65%, polls indicate that candidates who think that France should or could leave the euro – Marine Le Pen on the far right and Jean-Luc Mélenchon on the far left – are supported by approximately 45% of the people answering these polls. This is indicative mostly of the climate of anger, discontent, dissatisfaction in my country but also the ambivalence felt by citizens about the single currency, which is of course not confined to France.

Let me be clear. European citizens and companies give credit to the single currency for simplifying their travels and cross-border business, and for stabilizing European economies during the crisis and fostering cross-border trade.

But citizens are at the same time disappointed that it has not given more of a boost to their own wellbeing. Because the euro is not only a monetary project – it is also supposed to be a political promise of prosperity and social fairness. And they are right, as evidenced by the fact that growth and employment have returned to their pre-crisis levels in the United States, while the eurozone is still struggling to regain its footing. In the words of former Commission President Jacques Delors, which I share, “the euro protects but it does not stimulate.” It was said more than 20 years ago and it is still very current.

A two-speed eurozone has emerged, with regional clusters of excellence (for example in southern Germany, Austria, Luxembourg, parts of the Netherlands, Flanders in Belgium, or northern Italy) and areas that are now clearly lagging behind. The legacy of the economic crisis – i.e. ballooning public debts, aging infrastructures, the erosion of public services, the degradation of human capital – is both pro-cyclical and unevenly distributed in the eurozone. If this situation persists, it is hard to be optimistic about the prospects for the euro over the next five-to-ten years. So my message this year is that we need to address it, quickly and decisively.

There are telltale signs that the overall dynamic in the eurozone is not sound. Italy’s public debt is twice that of Germany. Germany’s current account surplus is twice the eurozone average. German unemployment is half the eurozone average. And with this economic and thus social divergence, policy preferences are also becoming more and more polarized, both within and between Member States.

This seems to indicate that our economic governance is not producing the right policy mix – partly because we do not have the right policy tools.

During the crisis, eurozone governance was strengthened significantly as you know. We established the European Stability Mechanism which is a precious tool; we began to build the Banking Union, with already a single supervisor, a new framework for bank resolutions, and strengthened prudential regulations. And we also significantly strengthened the coordination of economic and budgetary policy – that is among my responsibilities as Commissioner.

These were and are important innovations, and the eurozone is stronger today as a result of them. But they have not proved sufficient to reverse divergence in the eurozone, which is what we need to do to deliver real economic dynamism. That requires, in my view, a deep reform of our Economic and Monetary Union. I’m convinced that we need a governance architecture and tools that we do not have at our disposal today, tools that actively foster convergence within the eurozone and allow us to act in the general interest of Europe and Europeans.

Concretely, I believe a more cohesive eurozone must rest on three pillars:

• First, a fully-fledged Banking Union which we do not have yet, to ensure that the banking sector in the eurozone is reliable and that non-viable banks are resolved without recourse to taxpayers’ money and with minimal impact on the real economy. Work is ongoing with Member States on further risk-reduction and risk-sharing measures to strengthen the Banking Union. It is slow and it is painful, I must say, because striking the right balance between responsibility and solidarity is a challenge, as always in the EU.
• The second pillar is stabilization and convergence tools. We cannot just sit and wait and pray for convergence to happen in the long run. If it is not happening, then let’s make it happen. And the sooner, the better! We all know what the answer is: clearly a fiscal capacity for the euro area. Work has also been ongoing for years to refine the concept. I remember I heard developments about that in 2013 as finance minister. The thinking today is much more mature than it was in the aftermath of the crisis. It is now a matter of political choice. But we are ready to make the right proposal.
• And the third pillar: we must enhance democratic accountability. Decisions affecting the wellbeing of millions of Europeans cannot be made behind closed doors, late at night, by a bunch of finance ministers. I represent the Commission in the Greek talks, and I have had dozens of those meetings which were secret and which would have really seemed strange to people if they had been inside the room. These decisions must be based on a still-to-be-created sense of general interest within the euro area. They should be subject to stronger democratic oversight and accountability mechanisms. The European Parliament – to make it clear, I was twice a member of this parliament – cannot be an afterthought – it must be at the heart of efforts to strengthen the legitimacy of eurozone decision-making. And my strong belief is that we also need a minister – if the word ‘Minister’ creates some fear here and there, let’s call it a ‘High Representative’ – for Economy and Finance in the eurozone who could, as is the case for external policy, be at the same time a member of the Commission and chair of the Council, i.e. the Eurogroup. I advocate for a Commissioner who at the same time chairs the Eurogroup, and I think this is the right way to handle things.

How is this going to play out? The Commission will present a reflection paper on deepening the Economic and Monetary Union at the end of May. It will be built on the Five Presidents’ Report of 2015 and will contain ambitious ideas. It will be guided by the principle that greater risk-sharing and greater risk-reduction are not opposed but must advance in parallel – indeed, they are two sides of the same coin. The fact that this is an election year must be seen as opening new possibilities: there could be a window of opportunity later this year, after the French and German elections, to move forward decisively and I believe it is essential that we do so.

Delivering real economic dynamism via a deep reform of the economic governance of the Economic and Monetary Union , I’m conscious that I’ve been a politician for too long – just to rely on institutions will not be enough to contain populism, but it is part of the answer. In addition,Europe will have to deliver better results on at least two fronts:

• First, it must better protect its citizens. And by that I certainly do not mean economic protectionism. I mean that European citizens need to feel secure – and I am talking here about security in its most simple form. Europe cannot provide all the answers to the issues raised by terrorist attacks on our soil, or the refugee crisis, but obviously Europe can provide some of them. And just as importantly, we must ensure that the benefits of globalization flow to all parts of society. We have our Pennsylvania, Wisconsin, Michigan voters in the east of France, who used to be social democratic voters and now tend to choose the National Front. They feel they are the losers of globalization. They feel that they are ignored by politicians. This cannot last forever if we want to beat populism. Europeans feel vulnerable in a globalization process that does not distribute extra points of growth fairly.
• Second, the EU must become more accessible and democratic as a response to those who falsely urge voters to “take back control” – a motto for various populists. I have discussed democratic accountability in the context of the eurozone but this is a wider issue. Transparency, exemplarity, robust parliamentary oversight procedures must be developed, whether we are legislating on the single market or on agriculture.

Taken together, these elements may help fight the descent into populism in Europe, which is very much a political priority for the Commission as a whole, for the President of the Commission Jean-Claude Juncker, and for me personally. Last month Geert Wilders’ anti-Islam Freedom Party was defeated by Dutch voters, who drew a line in the sand over the spread of populism in the Netherlands. But in France Marine Le Pen – who I’m very confident won’t be the next President of France, I’m sure this cannot happen – continues to score highly in the pre-election polls, while populist governments in Hungary or Poland repeatedly deviate from European values. Populism is not the winner in Europe, but the game is not over. The pro-Europeans have not won the game. And we really need to not only win a battle, but fight a war. An ideological and political war.

Let me wrap up with a word on the US. The transatlantic relationship, as you mentioned Adam, must remain strong. Both the US and the EU must remain committed to the multilateral system, to open economies and free trade, to fighting climate change – and sticking to the international agreements in this field, the Paris agreement, is decisive. And finally to rejecting protectionism. That, too, should be part of our agenda for economic revitalization and fighting populism.

The new administration here in the US has yet to define precisely its policies in a post-campaign context. It’s already 100 days ago now since President Trump took office. We in Europe are watching closely, with the same objective as before: finding common ground and room for cooperation. We are attached to a number of key concepts – open societies in open economies, multilateralism, inclusiveness, the fight against protectionism and climate change – and this will guide us as we engage constructively with the new administration here in Washington and this is the message I will carry with me to Steven Mnuchin, Gary Cohn, or in the framework of the G20 meeting which will take place tonight here in the margins of the IMF meetings. I am confident that we will be able to find common ground, at least I really hope we will.

Thank you.

ESMA expects market-based finance to grow in the future driven by a strong potential for demand facilitated by a supportive policy environment and the limited ability of banks to finance the economy. The development of market financing as a complement to bank financing must be accompanied by an adequate and effective prudential framework because of the systemic nature of these activities.

In this article, the ESMA analyses how European legislation on securities markets already include a number of microprudential tools available to supervisors, which need to be taken into account when designing macroprudential tools for ensuring the stability of market-based finance.

ESMA expects market-based finance to grow in the future driven by a strong potential for demand facilitated by a supportive policy environment and the limited ability of banks to finance the economy. The development of market financing as a complement to bank financing must be accompanied by an adequate and effective prudential framework because of the systemic nature of these activities.

In this article, the ESMA analyses how European legislation on securities markets already include a number of microprudential tools available to supervisors, which need to be taken into account when designing macroprudential tools for ensuring the stability of market-based finance.

Antonio Tajani stressed the importance of a deal to safeguard people’s rights in the wake of Brexit during a meeting with UK Prime Minister Theresa May this morning. “The European Parliament’s message is clear: strongly defending their interests is our first priority,” he said. The Parliament President was in London to discuss the institution’s position on the Brexit negotiations, which was adopted in plenary on 6 April. He also invited May to address the Parliament.

In a press conference following the meeting, Tajani underlined the importance of an agreement on the rights of Europeans living in the UK and UK citizens living in the EU: The students, workers and families are valuable members of society and deserve some certainty regarding their future.”

In addition to meeting the Prime Minister, Tajani was also due to meet representatives from NGOs to discuss what people’s main concerns were regarding the Brexit negotiations.

Committee on Employment and Social Affairs – meeting 25/04/2017 (PM)

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