Why reform the eurozone?
At the Euro Summit on 29 June 2018, the EU leaders adopted a number of initial decisions on reforming the Economic and Monetary Union. Sylvie Goulard, deputy governor of the Banque de France, explains the main issues arising from this reform.
Reforming the eurozone? A degree of weariness could be forgiven. This exhortation has been repeated so often that even Europeans are beginning to question it. However, a solid Economic and Monetary Union (EMU) is essential to underpin growth and employment.
There are certain pitfalls that should be avoided when evaluating the situation
Foremost among these is to underestimate the attachment to the euro and the extent of the efforts made to support it.
It is undeniable that the eurozone emerged reinforced from the financial crisis that was its baptism of fire. From a disaster scenario, assistance tools were created to help countries in difficulty. The European Stability Mechanism (ESM) in particular, enabled loans to be made to Greece, Ireland and Portugal. New authorities were created, with the largest banks in the eurozone now coming under the supervision of Frankfurt, under the auspices of the European Central Bank (ECB). In general, finance (including the markets, insurance and credit rating agencies) has been better controlled.
At a national level, several member states have adopted significant measures to reduce their deficits and debts, and to inject dynamism into their economies. These include, for example, a reform of retirement and pensions in Italy, and measures to make the employment market more flexible in Spain and, more recently, France. Doubtful debts in the banks have also recently been reduced. Although a further reduction in youth unemployment still needs to be addressed, the economic and financial situation of the eurozone has substantially improved. The Eurosystem, made up of the ECB and the national central banks, has done its share, adopting exceptional “non-conventional” measures to prevent deflation, which have indirectly helped recovery and job creation.
During the crisis, all the governments proved their attachment to the single currency. Just as the upheaval was at its worst, new member states joined the eurozone, in particular the Baltic states. This summer, Greece will see the benefit of years of effort. According to the most recent of the regular Eurobarometer surveys (no. 89, Spring 2018), 83% of Germans, 70% of French and 61% of Italians feel an attachment to the euro. Despite the doubts and the criticisms, Europeans, including the Irish (84%), the Portuguese (80%) and the Greeks (69%) who have experienced some difficult years, do not want their currency – or their wallets – to be touched.
Despite these efforts, we should not rest on our laurels, however. The Monetary union has been more solidly established than the economic union. Without a new impetus, the eurozone could once again be vulnerable in a crash, regardless of the convergence of standards of living that contributes to the prosperity and stability of the EU.
The most recent Eurozone Summit of 29 June shows the extent of the hesitations. The Franco-German Meseberg Declaration set a milestone here. Discussions surrounding a budget for the eurozone have begun. They will be long, but all the more fruitful if they enable the underlying reasons (investment? relief funds? counter-cyclical capacity?) to be refined and the financing mechanisms to be clarified. European leaders have remained very cautious when it comes to a fund for guaranteeing bank deposits. On the other hand, they have made an important decision enabling the European Stability Mechanism (ESM) to be used in future to restructure a bank.
The eurozone at the crossroads
The EU risks being blinded on two symmetrical fronts: some people refuse to admit that membership of the Economic and Monetary Union (EMU) requires them to obey common rules. They have a tendency to deny the positive effects of the reforms when they do not reflect the illusion of a backward slide. Others would set all “risk sharing” (inherent in the creation of a common budget, for example) to a previous date, without making it clear at what moment they would consider the “reduction of risk” sufficient to move forward. To have a single currency is, however, to share an element of sovereignty, and a currency inevitably means taking joint risks. Linking our destinies – this underlying reason behind the euro was so important that Helmut Kohl quoted the death of his brother during the Second World War to justify it.
Times change, but the overarching imperative remains, because in these times of technological revolution and the current geopolitical upheavals, as well as the return of protectionist movements, the national interests of member states who share a currency are best served by closing ranks.
Deputy governor of the Banque de France
Former European deputy
Translated from the original text in French
The views expressed in europeinfos are those of the authors and do not necessarily represent the position of COMECE and the Jesuit European Social Centre.