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Vejen mod en økonomisk union Netværkskonference 2012 , Odense Jakob Wegener Friis. DG ECFIN, European Commission. From a financial crisis …. 2011-2012 – A systemic crisis of the euro?. Assistance programmes + EA financial backstop. Stimulus packages + automatic stabilizers. - PowerPoint PPT Presentation
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DG ECFIN
Vejen mod en økonomisk union
Netværkskonference 2012, Odense
Jakob Wegener Friis
DG ECFIN, European Commission
DG ECFIN
2
Stimulus packages + automatic stabilizers
From a financial crisis ….
2
2011-2012 – A systemic crisis of the euro?
Assistance programmes +EA financial backstop
Bank recapitalizations + guarantees
DG ECFIN
3
……. to an unprecedented economic crisis
DG ECFIN
4
Heartbeat of the crisis
DG ECFINLegacy 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
DG ECFIN The crisis as an eye opener
1. External shock: the crisis has exposed
shortcomings in EMU‘s 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
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
DG ECFINLearning the lesson: the EMU of tomorrow
1. Growing again: The pre-crisis need for structural reform is reinforced. Releasing Europe’s 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.
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
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.
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
DG ECFINKey elements of the Banking Union
22/04/23 12
Single RulebookSingle Rulebook
Single Supervisory Mechanism
Single Resolution Mechanism
Deposit Guarantees
DG ECFIN
Single RulebookSingle Rulebook
Single Supervisory Mechanism
National central banks /
supervisors of non-participating
Member Statescentral banks / supervisors of participating Member States
ECB send preparation and
Board Members execution of tasks
Single Supervisory Mechanism
DG ECFIN
A Euro area SSM open to other MS
22/04/23 14
• 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.
DG ECFIN
15
Discipline(Austerity) Solidarity
(Growth)
Common growth and stabilization instrumentsFiscal backstopsFinancial transactions taxEurobondsSocial 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
DG ECFIN
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Europe’s Prosperity Triangle"Social market economy"
FAIRNESS - participation - generational
- territorial
GROWTH - single market
- catching-up and convergence - investment and innovation
STABILITY-monetary/financial
-fiscal-environmental
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?
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
DG ECFIN Questions?