To understand what is happening in Europe, one has to fully grasp the
historical ambition of the Europeans. Sixty-four years ago, when Robert
Schuman, inspired by Jean Monnet, called for the formation of the
European Coal and Steel Community, work began on creating a voluntary
union between sovereign states that wanted peace, stability and
prosperity on the Continent. Such a union had never been attempted
before in peacetime.
Seen from inside Europe, it is only
natural that we pursued this extraordinary and bold endeavor. The idea
has deep historical roots, going back to the Roman Empire. And, after
four devastating wars on the Continent over the last two centuries, we
have reinforced the will to ensure peace and friendship between former
enemies.
Seen from outside -- from Asia or the U.S., for
instance -- the Europeans are often perceived as incredibly audacious.
Since there is no historical precedent for such undertakings as the
European Union and the single currency, it is understandable if
outsiders consider these projects extremely fragile.
Indeed,
when the global financial crisis hit advanced economies, many external
observers predicted that the euro would be terminated and the euro area
would be dismantled. These observers were subsequently astonished to see
that the euro and the eurozone proved remarkably resilient.
The currency has maintained its credibility and creditworthiness
despite the difficult circumstances. Paradoxically, even at a time when
many predicted the end of the euro, its value against the U.S. dollar
remained constantly higher than $1.17 -- the level at its inception in
1999. The main complaint in the euro area was that it was too strong!
Predictions of the end of the eurozone proved equally wrong. Not
only did the 15 states that were members before the crisis, including
Greece, remain so, but three new countries later joined: Slovakia,
Estonia and Latvia. We will have the 19th member, with the entry of
Lithuania, next January.
I called for progress in European integration by enhancing European
institutions in a speech on June 2, 2011 at the ceremony to receive
Charlemagne Prize in Aachen. (Fondation of the Carlemagne Prize) ©
Karlspreisstuftung-Andreas Herrmann
In 2011, I was awarded the Charlemagne Prize, an honor that
recognizes and encourages contributions to European unity. All the
members of the Governing Council and the entire staff of the European
Central Bank were rewarded for their collective action in the crisis.
Receiving this honor is as impressive as it is demanding, in terms of
expectations for your future actions. Essentially, you are getting into
the "hall of fame" of European personalities.
The award is
European, but the foundation is German. I was particularly moved because
the foundation recognized that the ECB had been an anchor of stability
for Europe. This was at a time when there was a public debate in Germany
over the legitimacy of some ECB decisions, including the purchase of
government bonds.
In my acceptance speech, given June 2 in the western German city of Aachen, I took the opportunity to make two proposals.
First, I floated the idea that we should strengthen the executive
body of the euro area by establishing a European ministry of finance and
a European finance minister with important responsibilities. Second, I
proposed that when the economic and financial stability of the area is
at stake due to conditions in a particular state, European institutions
should be able to make decisions that would apply directly to that
country.
Parliamentary democracy
Since then, along
that line of thought, I have suggested that in totally exceptional
cases, the European Parliament would be the ultimate arbitrator when an
individual state challenges the economic and fiscal recommendations of
the European Commission and the decisions of the Council. This would be
effective and democratic. I call this concept "activation of an economic
and fiscal federation by exception."
This is one idea on top
of several very good proposals put forth by the presidents of four
institutions -- the European Council, the European Commission, the ECB
and the Eurogroup -- in a report presented by Herman Van Rompuy, titled
"Towards a genuine Economic and Monetary Union." I strongly believe that
to convincingly reinforce economic, fiscal and financial governance --
which is necessary to make the euro area a full success in terms of
growth and jobs -- we must make it more democratically legitimate. The
European Parliament is irreplaceable in this regard.
In the
European Parliament elections this past May, traditional parties, both
right and left, had relatively mediocre results in many countries.
Nevertheless, the main pro-European parties retained prominent
positions. The European People's Party won 29% of seats, the Alliance of
Socialists and Democrats took 25%, the Alliance of Liberals and
Democrats for Europe garnered 9% and the Greens/European Free Alliance
won 7%. This means around 70% of the assembly is occupied by political
parties in favor of European integration. Even though the predictably
poor showing by the governing parties led to a significant rise of
anti-European parties on the right and left, I have no doubt that the
new parliament will remain a solid anchor for European integration.
To my mind, it is essential that the pro-European governing parties
do their utmost to ensure that the integration project proceeds. I think
that the regionwide democratic legitimacy rests with the European
Parliament. A good example is that, in appointing former Luxembourg
Prime Minister Jean-Claude Juncker as president of the
European Commission, the will of the European Parliament overrode that
of a number of individual governments and of the European Council
itself. I consider this a very significant and symbolic start of
effective parliamentary democracy at the pan-European level.
European integration, as a historical construction, is not yet
complete. Europe will have to go further, not only in the direction of
economic, fiscal and financial integration but also toward closer
coordination in security, defense and foreign policy. The European Union
has shown a very mediocre diplomatic capacity when confronted with the
problems in Ukraine, the Middle East and Africa. This is abnormal.
Rectifying it will require further efforts toward unity and revisions to
the EU treaty. Some may argue that the time is not ripe for such
significant moves, but I am convinced they are necessary.
Activating economies
The
debt crisis totally upended the situation in the region. Germany was
called the "sick man of Europe" during the first half of my eight years
as ECB president! The present success of the German economy is
remarkable when you consider that it had enormous difficulties at the
inception of the euro 15 years ago. The country restored its
competitiveness thanks to the structural reforms decided by the
government of Chancellor Gerhard Schroeder and pursued by Angela Merkel,
along with the general moderation in wages and costs since the start of
the euro.
German Chancellor Merkel is charming in bilateral
talks. Her advanced scientific education helps her immediately
understand complex situations. She is a seasoned politician, capable of
staying calm and composed in any circumstance while being very firm. My
relationship with her was positive as well as complex, because I often
urged her to make decisions faster than her political constraints would
permit.
As for the current situation, I think that market
forces should and will activate more domestic demand -- consumption and
investment -- in a highly competitive economy that has abundant savings,
ample private capital and the lowest interest rates in Europe. This is
the case in Germany; it also applies to other European economies that
have significant current-account surpluses. This activation would also
benefit the euro area as a whole, as it would help to foster growth and
job creation, narrow imbalances in competitiveness between states and
contribute to increasing, in the medium term, the average level of
inflation, to put it closer to our definition of price stability.
Some European countries are still in the process of recovering after
necessary but difficult adjustments. Still, the five troubled countries
for which the ECB intervened to buy government bonds -- Greece,
Ireland, Portugal, Spain and Italy -- have all significantly improved
their overall performance. Their consolidated current-account balance,
for instance, moved from a huge deficit of between 8% and 9% of their
gross domestic product in 2008 and 2009 to a slight surplus today.
France was more competitive than Germany when the euro was launched.
Today, she has three major problems. First, the economy's structural
rigidities are still excessive in goods, services and labor markets.
Second, it has abnormally high public spending and budget deficits as a
proportion of GDP. And third, its unit labor costs are too high.
The main political parties in France now accept this diagnosis.
Previously, they were in denial. This new consensus is not enough, but
it is a necessary condition to proceed. My advice is to speed up
structural reforms, particularly in the labor market, to accelerate the
reduction in public spending and to embark on a long-term strategy of
"competitive stability" to moderate the labor costs. That strategy
should be bipartisan, like the "competitive disinflation" strategy
pursued in the 1980s.
Jean-Claude Trichet is former president of the European Central Bank.
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