closing remarks - oesterreichische nationalbank …74b2f639-cf5d-4880-a69f...closing remarks...

Closing remarks Workshop

Toward a genuine Economic and Monetary Union

September 11, 2015

Andreas Breitenfellner

Foreign Research Dicvision www.oenb.at

www.oenb.at oenb.info@oenb.at

Construction site EMU

Mo

net

ary

Un

ion

www.oenb.at oenb.info@oenb.at - 3 -

The vision of the Five President’s Report

Genuine

EMU

Mo

net

ary

Un

ion

Eco

no

mic

Un

ion

Fin

anci

al U

nio

n

Fisc

al

Un

ion

Po

litic

al U

nio

n

www.oenb.at oenb.info@oenb.at - 4 -

Emerging consensus but still open issues

The glass is half full

Some further integration indispensable

• What kind of reform-mix? (complements vs. substitutes)

• Detailed design? (pooling sovereignty, risk sharing)

• Timing and Sequencing? (How to deal with skepticism?)

www.oenb.at oenb.info@oenb.at - 5 -

Are there easy ways out of impasse?

www.oenb.at oenb.info@oenb.at - 6 -

The debate continues

If the euro fails, Europe will fail.

(A. Merkel)

Europe will be

forged in crises.

(J. Monnet)

L’Europe se

fera par la

monnaie, ou ne

se fera pas.

(J. Rueff)

EMU will not

survive unless it

also brings

prosperity to its

members.

(S. Fischer)

Within our mandate, the

ECB is ready to do

whatever it takes to

preserve the euro.

(M. Draghi)

www.oenb.at oenb.info@oenb.at - 7 -

The way forward

• Publication:

Homepage

• Journal EMPIRICA – special issue end-2016?

• Meanwhile workshop proceedings?

• Follow-up events?

• Networking

• Continue research and public debate

• Support decision makers

• EMU is a priority of the Juncker Commission.

www.oenb.at oenb.info@oenb.at - 8 -

Thank you!

• Contributors

• Participants

• Euro50 Group

• Organizing team

• OeNB staff

Bon week-end and a save trip home!

Auf Wiedersehen!

Appendix

www.oenb.at oenb.info@oenb.at

The rationale for a monetary union?

Benefits:

• Exchange rate stability

• Low interest rates

• Low transaction costs

• Price transparency,

competition

• Completion of the common

market

• Europe’s increasing role in the

international financial system

• Political integration, European

‟identity”

Costs:

• No national monetary and

exchange rate policy in case of

asymmetric shocks

• Divergence creates tensions

• Without a genuine Economic

and Monetary Union (EMU),

central bank may overstretch

its mandate

www.oenb.at oenb.info@oenb.at - 11 -

The euro is part of the European peace project

• End: political unity

• Means: economic unity

• Common market requires common currency

• But where to start with?

Compromise:

Convergence criteria

Coronation Theory:

first harmonize economic structures and policies

(held by DE and NL)

Locomotive Theory:

common currency drives economic harmonization

(held by FR, BE, LUX)

www.oenb.at oenb.info@oenb.at - 12 -

Optimal currency area theory

R. Mundell (1961), McKinnon (1963), Kenen (1969):

1. Countries benefit from a common currency

• the opener they are,

• the closer their trade relations,

• the more synchronized their business cycles,

• the more flexible their economy (wages and process),

• the more mobile economic factors are (labor and capital).

2. Politics can help “optimize”

• fiscal discipline (Stability and Growth Pact – SGP)

• economic policy coordination (e.g. investment plan)

• common institutions (e.g. ESM, Banking Union)

www.oenb.at oenb.info@oenb.at

(Currency) integration convergence or

divergence?

Optimists

(European Commission, 1998):

• Trade in the EU (intra-industry)

• Demand shocks hit all

countries at once

• Integration leads to similar

economic structure

Pessimists (Paul Krugman):

• Free trade economies of

scale and concentration of

production

• Demand shocks hit individual

countries (and products)

• Integration leads to asymmetric

shocks

www.oenb.at oenb.info@oenb.at - 14 -

EU response to the crisis (until now) Emergency measures Financial markets

European Systemic Risk Board (ESRB) macroprudential supervision

European System of Financial Supervision (EFSF)

• Banking authority (EBA)

• Security authority (ESMA)

• Insurance authority (EOIPA)

microprudential supervision

Financial market regulation (Basel III, mutual funds, rating agencies)

Ad-hoc assistance

Fiscal policy Structural policy

Excessive Imbalance Procedures (EIP)

• “Scoreboard” macro economic indicators

• Preventive and corrective arm

Stability and Growth Pact 3.0 • Expenditure rules • Debt criteria

“Fiscal pact” (TSGE)

European Semester

More duty to inform

European

Commission

(six-pack & two-pack) EU 2020 Growth strategy

ESM (European Stability Mechanism)

Investment plan

+ Capital Markets Union

Banking Union • Single supervision (ECB) • Single resolution • Harmonized deposit

guarantees

OMT(ECB announces unlimited purchase program option)

www.oenb.at oenb.info@oenb.at

The five pillars of the Five Presidents’ Report

• Economic Union –

convergence, prosperity and

social cohesion

• Financial Union – integrated

finance for the economy

• Fiscal Union – integrated

framework for sound fiscal

policies

• Political Union – democratic

accountability, legitimacy and

institutional strengthening

Genuine

EMU

Mo

net

ary

Un

ion

Eco

no

mic

Un

ion

Fin

anci

al U

nio

n

Fisc

al

Un

ion

Po

litic

al U

nio

n

www.oenb.at oenb.info@oenb.at - 16 -

Stage 1: immediate steps until mid-2017

• Economic Union

• Competitiveness authorities (wages ≤ productivity)

• Re-enforce Macroeconomic Imbalance Procedure

• Focus on employment and social performance

• Revamp European Semester (policy coordination)

• Financial Union

• ƒƒComplete Banking Union (e.g. common deposit insurance scheme)

• Launch of Capital Markets Union

• Fiscal Union

• New advisory European Fiscal Board

• Political Union

• European Parliament in control of European Semester

• Interaction between European Commission, the European Parliament and national

parliaments

• Reinforce the Eurogroup

• Consolidate external representation of the euro area (IMF, etc.)

• Integrate Intergovernmental devices into EU law (fiscal compact, Euro Plus Pact,

Single Resolution Fund)

www.oenb.at oenb.info@oenb.at - 17 -

Stage 2: complete EMU architecture by 2025

• Economic Union

• Formalize binding convergence process

• Fiscal Union

• Set up macroeconomic stabilization function for the euro area

• Convergence toward resilient economic structures (= condition for

access to stabilization function)

• Political Union

• Integrate ESM into the EU legal framework

• Euro area treasury