NEWS Release - Speech by Commissioner Moscovici at the Peterson Institute for International Economics, Washington DC: "Europe's pivotal year" - Washington, 20 April 2017
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.
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