On
June 26, 2013,
- Jörg Asmussen (Member of the Executive Board, European Central Bank),
- Dr. Enrico Tommaso Cucchiani ([Ex] Managing Director and Chief Executive Officer of Intesa Sanpaolo),
- Jens Henriksson (President, NASDAQ OMX Stockholm),
- Dr. Gerard Lyons (Chief Economic Advisor to the Mayor of London), and
- Xavier Musca (Deputy Chief Executive Officer, Crédit Agricole)
discussed
the future of Europe at the IIF spring meeting in Paris.
Recovery
from the financial crisis
 |
| Jens Henriksson |
Jens
Henriksson traces back the European crisis after the asset bubble
burst in the 2008 financial crisis:
- 1st phase: European authorities had to deal with failing banks through guarantees, equity injections, and nationalizations.
- 2nd phase: To combat recession following the banking crisis, European member states used fiscal and monetary policies to stimulate demand, weaken the Euro, and lower interest rates.
- 3rd phase: As phase 2 triggered budget deficits, member states now deal with budget consolidation, as consistent and coherent as possible.
In
this situation, the panel wonders how Europe can regain
competitiveness. Two key concepts come back again and again – the
European banking union and the need for structural reforms.
European
banking union
 |
| Jörg Asmussen |
The
European banking union is of vital importance to increase the
confidence in the European banking sector, reintegrate financial
markets, and improve the transmission of ECB's monetary policy. This
is the opinion of Jörg Asmussen
who says that “this
project [the European Banking Union] is of key importance to us [the
ECB]”.
The
European banking union project comprises two key elements, i.e. the
single supervisory mechanism (SSM) and the single resolution
mechanism (SRM). In the future, it might also include a common
deposit guarantee insurance scheme.
The
SSM provides for a joint supervisory model in Europe. The idea is to
introduce a common supervisory scheme which reviews the quality of
banks’ assets, assesses their balance sheets, and carries out
stress tests. The SSM will rely primarily on the ECB. National
regulators, external advisors, and the European Banking Authority
will also intervene.
The
SRM will create a European resolution authority, backed by a single
resolution fund. This is necessary to deal with future crisis
situations affecting large cross-border banks, in particular to avoid
political imponderables between governments. The primary SRM tool
will be the bail-in which will allow a recapitalization of banks in
times of crisis.
A
common deposit guarantee scheme is currently not discussed in Europe
and Jörg Asmussen doesn’t expect this discussion to become
relevant in the medium term. As a matter of fact, a
common resolution scheme will lessen the need for a common deposit
guarantee scheme: Because banks will have to maintain a minimum
amount of liabilities eligible for their resolution, there is not
need for a common deposit insurance.
Quotes
Jörg
Asmussen
“Our
objective at the ECB is to start supervision with a clean slate and
to restore credibility in the European banking sector.”
“It
is clear that the results of the asset quality review and stress
tests may require capitalization or other means of support for weak
banks.”
“The
credibility of the SSM requires more transparency on the banks'
balance sheet. Markets also need to be confident that, in the future,
the supervisor can pull the plug on banks that are failing or likely
to fail.”
“The
resources for this fund [the single resolution fund] should not come
from the taxpayer. It should be financed by ex ante risk-based levies
on the banking sector.”
“The
financial sector itself should pay for the cost of financial crisis.”
“Global
investors need certainty about the rules of the game in Europe.”
“Only
in extreme cases, deposit guarantee schemes will have to pay out.”
“We
said a number of times in Europe that we need a banking union to
break the links between banks and sovereigns.”
Quotes
 | |
| Xavier Musca |
“The
whole story of this crisis [in Europe] is about the delicate balance
between solidarity and responsibility and the research for a new
equilibrium of powers.”
“People
have realized that structural reforms are key.”
Structural
reforms
Dr.
Enrico Tommaso Cucchiani reports that Europe is loosing economic
ground vs. the rest of
the world. He criticizes today’s debate about [economic]
integration in Europe and says that the continent should focus on
regaining competitive advantage instead. Focusing on external (as
opposed to internal) benchmarks, Europe should improve- competitiveness,
- economic freedom,
- containment of the role of the state,
- investment in education and R&D,
- quality of infrastructures, and
- early and mandatory adoption of English as a second language which is a fundamental prerequisite for labor mobility.
Jens
Henriksson underlines the human aspect when putting structural
reforms into practice: Any fundamental change process requires the
following subsequent steps:
- Show empathy with people
- Analyze the problem
- Make a value judgment (“This is unfair and needs to be changed.”)
- Plan for the measures to implement change
As
people must be convinced of the necessity of structural reforms and
be helped to adapt to new
circumstances, it is actually not possible to skip the first three
steps, as is nevertheless often the case in politics.
Quotes
Dr.
Enrico Tommaso Cucchiani
“Until
2010, the Euro has been a very good thing for Euroland.”
“Europe's
growth differential of 4 % vs. the world average and 3 % vs. the US
is not sustainable.”
“It
is clear that we have to get Europe back – back on the competitive
track.”
“The
notion of integration is losing momentum: The Nordics are afraid to
pay the bill for the lazy members of the MED club and the Euro
periphery feels suffocated by the rigor imposed by the North. In this
environment, centrifugal forces are clearly gaining ground.”
“To
sum it up: Less emphasis on integration, more emphasis on alignment!
Less focus on internal benchmarking, more focus on competing with the
rest of the world! Less emphasis on who gains or looses sovereignty,
more on how to win back growth and full employment!”
“If
we don't align to the global reality, the EU can implode. If the EU
implodes, individual countries are too small to succeed.”
“If
we align, we can both get back into the race and turn the dream of
true integration into reality.”
Quotes
Jens
Henriksson
“[In
ten years], we will make funny jokes about how we used to call Europe
“the sick man of the world”.”
“When
everybody complains [about higher taxes and government spending
cuts], it is ok. The point is to have full
burden sharing.”
“The
key lesson to be successful with budget consolidation is to be
consistent and coherent.”
“Politics
is not about being loved, it's about being respected. If you are
looking for love – well – go into show business.”
“Protect
people, not jobs!”
Quotes
 |
| Gerard Lyons |
“When
we look globally, I think it's important to stress that the world
economy is continuing to grow and Europe is loosing out.”
“Europe
is very good at talking a good story, very good at talking a regional
story. But then, everyone goes off and acts in a national
perspective.”
“Demand
side and supply side problems need demand side and supply side
solutions.”
“We
need basically Germany to align almost fully, I would argue, with
what Britain wants, which is to make the single market work.”
“I
don't think the Euro and the EU debate are the same.”
“I
still see London remain the financial center of Europe, whether
Britain is in the EU or outside the EU.”
Quotes
Xavier
Musca
“We
need a clear and convincing commitment from the European Union that
the same will be ready to intervene in order to fix the situation
when the need arises.” [Talking about the importance of the
European banking union]
What is my
takeaway from this discussion? Europe will be better off if it
implements the European banking union and structural reforms. We seem
to make progress on the first point but much less so on the second
point.
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