NEWS Release - Unity in Diversity: The Case for EuropeBy Christine Lagarde Finance in Dialogue, Vienna
IMF COMMUNICATIONS DEPARTMENT
Public Affairs Media Relations
E-mail: publicaffairs@imf.org E-mail: media@imf.org
Fax: 202-623-6220 Phone: 202-623-7100
Ladies and gentlemen, good morning—Einen schönen guten Morgen!
Thank you, Minister Schelling, for your kind introduction and the invitation to participate in today’s dialogue. And to Governor Nowotny and the Austrian National Bank, which recently celebrated its 200th anniversary: Joyeux anniversaire!
It is a pleasure to be back in Vienna, the city of music! I do love the opera, and I am always reminded that the first performances of one of my favorites, the Magic Flute by Wolfgang Amadeus Mozart, took place here in this city more than two centuries ago.
On the face of it, the Magic Flute is a story of a handsome prince rescuing a damsel in distress. At a deeper level, it shows how mankind is progressing from nature to culture, from superstition to enlightenment, from the darkness of chaos to the dawn of a new peaceful era.
In many ways, this is the story of Europe. Europeans confronted their legacy of war and hatred; they embraced the ideal of Unity in Diversity; and they managed to secure peace and foster economic and cultural prosperity.
But progress is never linear. Right now, too many Europeans are worried about their cultural identity, their security, their jobs, incomes, and living standards. And too many of them are led to believe that things would be better if only Europe returned to closed borders and economic nationalism.
This is a serious challenge for the European project. It is high time to confront this negative vision with a new perspective for those citizens who feel left behind. Those who believe that only a united Europe can be prosperous and dynamic need to step forward and speak up. Certainly that is the case I intend to make today.
The Europe we see today was not born that way. In the 1950s, there was no libretto from which a sublime work of art was created. Instead, Europe has evolved over the years, encompassing more countries, cultures, and languages along the way.
The European project has always been a factory for new ideas—a place for people to reconcile different national interests toward a common future with shared objectives, driven by goodwill and perseverance.
This process has often been complicated and cumbersome. Minister Schelling knows what I am talking about – we both have attended many marathon sessions of the Eurogroup. But the results have been impressive:
The European Union represents the biggest innovation since the birth of the nation state in the Treaty of Westphalia in 1648. Institutions such as the European Parliament, the European Commission, or the European Court of Justice all show that Immanuel Kant was right in thinking that nations should be able to settle their differences through international law.1
The Single Market has become an economic powerhouse of more than 500 million people who generate about a quarter of global GDP. Trade within the single market doubled to about 22 percent of combined GDP over the past two decades, bringing greater choices for consumers and companies and creating millions of new jobs.2
The Single Currency has added a new dimension to the old mindset of “my flag, my anthem, my money”—and that is “one market, one money.” The euro has become a major reserve currency, and new institutions and mechanisms have evolved to underpin it.
And think of the transformative effect of EU expansion. New members from Central and Eastern Europe have been catching up rapidly to European income levels.3 Austria and other countries have benefited economically from their neighbors’ advancement as well.
1. Rising to Today’s Challenges
These gains are jeopardized today by the legacy of the Euro Area crisis, the record influx of refugees, and the referendum in the United Kingdom. Let me say a few words on each of those.
The legacy of the Euro Area crisis
It is often said that a united Europe only acts when it faces a crisis—and there is some truth in that. But the Euro Area crisis was certainly different—it was more complex than anything seen before, and it exposed the limits of European policymaking and institutions.
There is a playbook for responding to an economic and financial crisis, aimed at the root causes of the crisis. The first step is to provide liquidity and restore the health of the banking system. Fiscal imbalances have to be addressed in a determined and credible way; urgent structural reforms liberate productive resources; and macro policies are used to support households and companies as best as possible.
Individual countries have demonstrated how this can be done—think of Sweden in the 1990s, or the United States in 2009. Nation states have the advantage of centralized decision making. They also have the ability to support those who are most affected, funded by taxes on everybody else—an implicit mechanism of solidarity.
In the Euro Area, the crisis response was much slower and more difficult—because of an incomplete institutional structure and the lack of a political union. Instead of taking swift action, much time was spent reaching consensus. Most importantly, the crisis shattered the illusion that the nation state had already been overcome—reflected in disputes about burden sharing and leading to huge differences in country risk spreads.
However, even as the crisis response was wanting in many aspects, Euro Area members have shown solidarity through the creation of the European Stability Mechanism as a firewall against future crises. The European Central Bank provided substantial support and applied unconventional policies. And the new Single Supervisory Mechanism was a big step toward banking union.
All told, therefore, the crisis has been contained—but its legacy is still with us. We expect only a modest pickup in growth from 1.5 percent this year to 1.6 percent in 2017. Unemployment remains too high; many public and private balance sheets are weak; incomes are mostly stagnant; and there is a growing sense of inequality and fears that the next generation may be worse off.
IMF COMMUNICATIONS DEPARTMENT
Public Affairs Media Relations
E-mail: publicaffairs@imf.org E-mail: media@imf.org
Fax: 202-623-6220 Phone: 202-623-7100
page source http://www.imf.org/
