Brussels, 4 September 2024
Good afternoon,
I would like to start by thanking Jeromin Zettelmeyer for the invitation to address you today. Over many years my ministerial colleagues in the Eurogroup and ECOFIN have benefited from Bruegel’s contributions, so it is a great honour to speak at your annual meeting.
Bruegel’s mission to ‘improve the quality of economic policy with open and fact-based research, analysis and debate‘ is not only laudable, it is essential. Independent, evidence-based challenge is necessary for sound economic policy development and implementation. When thinking about policy however, while research, analysis and debate are critical, you cannot forget politics.
Some view economics and politics quite separately. But theorists like Ricardo, Mill, Say, List or Adam Smith couldn’t have imagined a world where economics and politics were separate.
I am a politician, a proud public servant and a proud European. My work, as a Minister in my national government with an economic portfolio and my role as President of the Eurogroup for the last four years, has given me an insight into both the politics and economics in Europe in recent years.
The painter Pieter Bruegel the elder (from whom this think tank takes its name) pioneered what would become known as ‘genre painting’ – painting scenes depicting everyday life and activity. So to support your mission (and indeed provoke some debate of my own) in my remarks today I thought I would try and paint the scene of how I see politics affecting economic policy and indeed how I see economics shaping our politics in Europe today. I will sketch the work programme we have ahead of us as Finance Ministers in the Eurogroup and explain some of my thinking on priority issues.
The politics of economic policy in Europe
The economics of Europe in terms of size and clout on a global stage and critically the Single Market are evident. Yes, it is essential for supporting investment and innovation, and necessary for economic stability and growth. But why should we care about the politics of economic policy.
The response to that question is delivered at the ballot box – and we are bearing witness to a time of political tectonic shifts that have implications for party structures and manifestos across the world. This is particularly pertinent for the collective governance of the Economic and Monetary Union and the euro – a ‘currency without a state’.
I believe we must always make the political case for Europe and the political case for multilateralism. This, for me, is the essence of the politics of economic policy.
The Union is all of our futures. And Europe is a Union of possibility and of opportunity. But neither economics nor raw power will in and of themselves, in the long run, drive deeper integration and greater prosperity for Europe’s citizens.
The European ideal is rooted in the sharing of sovereignty. Sharing sovereignty, I believe, needs a couple of key ingredients: consent, cooperation, and compromise. Our strength and our power is in our togetherness. And we can only advance where we have commonality.
Turning first to consent, this is the ‘year of elections’ and a year of institutional renewal for governments in many Member States, for the European institutions, and around the world.
Yes, this can lead to turbulence and some institutional upheaval, but it is the most powerful expression of consent to govern that we have. It is always worth remembering that we operate economies inside democracies. Not the other way around.
In addition to consent, elections most clearly offer the opportunity for politicians to outline how politics can respond to the many challenges we face today and the needs of citizens. But for politics to respond effectively, particularly in Europe, we need our second ingredient – cooperation.
Let me explain.
From where I sit, some of the major economic challenges; including climate, digital and regrettably defence, are enormous.
And the politics of this are complex and at times diffuse.
But collective action and cooperation are the solution to such market failures, threats, transitions, and externalities. Our strength and our power to tackle these major challenges is in our togetherness.
We saw the impact of coordinated economic policy when Russia’s war on Ukraine exacerbated a painful post-pandemic cost of living crisis. And here people turned to Europe, for more cooperation more coordination and more sharing of sovereignty.
This invasion of Ukraine shattered the illusion that a major war would never return to the European continent. Again, we must turn to more Europe.
Some say at EU level there is a ‘democratic deficit’ and excessive institutional complexity. The EU is by no means perfect, but European politics does lead to our final ingredient – compromise – and in turn, centrism.
Looking at the future of democracy, Moisés Naím concentrates on the three ‘P’s—populism, polarisation, and post-truths, which, combined together, he argues has infected politics to undermine democratic life.1 In addition to civic engagement, believe compromise and centrism are the antidote.
As politics increasingly shapes economics, we must resist the tendency to turn inwards, we must resist the pull of protectionism, and we must reject narrow-mindedness, apathy and indifference.
I was at a fantastic Coldplay gig in Dublin last week. To paraphrase one of their songs and borrow the metaphor:
‘Am I part of the cure, Or am I part of the disease?’2
I, for one, will always make the case for openness and tolerance, always make the case for institutions and multilateralism and always make the case for compromise and centrism. This is why the politics of economic policy is important to me. With consent of our citizens, with cooperation across countries, and with compromise and centrism, I believe together we can find a pathway through any problem.
The economics of politics in Europe today
Just as politics shapes economics, economic imperatives also shape our politics today. And here I want to touch on four key themes driving the work of finance Ministers in the Eurogroup. Again with more ‘C’s’. These are coordination of economic policy, competitiveness of the euro area economy, developing deeper and more liquid capital markets, and finally the next steps for our currency.
Effective coordination of economic policy is necessary to build a Europe of stability and growth. Here I am not talking about the plethora of acronyms for the SGP, EDP or EGR. While these policies are critical to our success, you will thank me for leaving this alphabet soup to our Eurogroup and ECOFIN meetings. But on substance, a major priority of the Eurogroup is economic and budgetary coordination. It is our job to deliver a coherent policy mix which ensures stability and growth across the euro area.
Why? Not that I need to remind this audience, but the economist J.K. Galbraith does make a convincing case for what he called the ‘extreme brevity of financial memory’.3 We saw during the sovereign debt crisis what happened to people’s lives. So we must not only ensure sound and sustainable public finances. We must also ensure the economy continues to meet our citizens’ needs, delivering sustainable, inclusive and resilient economic growth.
This is not easy. There are many competing political pressures to manage, but we are making progress. At our last Eurogroup meeting in July we agreed, that after an extensive period of fiscal support, a contractionary fiscal stance for next year for the euro area was necessary. This means gradual and sustained fiscal consolidation. In December, we will return to review draft budgetary plans and the euro area fiscal stance.
The second priority for the Eurogroup I want to mention is making our Economic and Monetary Union deeper and more competitive. The Eurogroup has been actively engaged in a number of policy discussions on European competitiveness over the past year, including a focus on Europe’s innovation performance and productivity in a global context. From my perspective, I have heard several key messages that merit reflection.
First, it is clear that we are increasingly looking through a ‘geoeconomic’ lens when interrogating the performance of the European economy. This implies taking account of a broader range of factors, such as the nominal size of the economy; its innovative output; availability of venture capital; trade practices; dependence on energy imports; and demographic trends.
Second, I heard a strong framing of competitiveness around the themes of the twin transitions. For Europe to remain competitive on the global stage while pursuing decarbonisation and preparing the economy for the opportunities and challenges of Artificial Intelligence, there is a clear need to contemplate how Europe secures its competitiveness at the same time.
Third, as a key priority, I heard a strong call for the EU to finally reach our agreed target of investing a total of 3 percent of gross domestic product in R&D. From a financing perspective, the importance of boosting both private and public sources of R&D investment is an area in which the Eurogroup has been particularly active.
A closely related priority to the coordination of economic policy and the competitiveness of the economy, is developing deeper and more liquid capital markets. The political and economic imperative to make progress on a truly integrated capital markets is only growing. Governments are now operating with limited budgetary space and higher borrowing costs, while at the same time facing multiple and ever-increasing demands on public finances. Europe faces an investment gap that could conservatively be placed at €1 trillion. With an ageing population and an enlarged European Union, these numbers will only get bigger. It is clear that we will not be able to fund Europe’s future through the ‘public purse’ alone.
We have organised our work for capital markets around the rubrics of ‘A’ (architecture), ‘B’ (business) and ‘C’ (consumer) aimed at renewing and enhancing private sector investment, unlocking funding for common challenges, and allowing the EU to demonstrate leadership on green and digital transitions. We have agreed a work programme and we will continue to push implementation in the months ahead. This is where the political consensus is and it will have to be kept evergreen.
The development of globally competitive, deep and liquid capital markets is necessary to allocate capital efficiently and allow for cross-border private risk-sharing. Together with a well-functioning Banking Union, these constitute a key element for the resilience of our economy, and in turn society. In this context the finalisation of the ESM Treaty reform is a key element of our common safety net, and we continue to push for a conclusion in this regard.
The global economy is facing several headwinds with protracted geopolitical tensions already affecting trade and investment. Non-market policies are leading to global spillovers, market distortions and overcapacity in a range of sectors.
Our work to ensure sound and sustainable public finances, inclusive economic growth, a more globally competitive economy, and deeper and more liquid capital markets all point to one word– resilience. Resilience in the face of these headwinds. And this leads to the final priority in our work programme I want to mention today, the digital euro.
Currency has always been a symbol of sovereignty. The euro is a powerful symbol of our shared sovereignty, a powerful symbol of Europe in people’s pockets, and soon to be their ‘digital’ wallets. As Ministers we want the euro to be a symbol of our resilience. And that is why we are fully supportive of the work to develop a digital euro, and be that necessary political anchor for the project. I spoke briefly earlier about the digital transition of our economy. As the world goes digital, so must our currency.
Conclusion
So we have a big work programme ahead of us. Politics will continue to shape our economic policy, and economic priorities our politics.
To summarise my key points, I believe with the consent of our citizens, with cooperation across countries, and with compromise and centrism, we will be able to ensure effective coordination of budgetary policy and inclusive economic growth, a more globally competitive economy, develop deeper and more liquid capital markets and introduce a digital currency.
It is through our everyday achievements that the ‘art of the possible’ becomes a reality. So whether you’re a painter like Bruegel, musicians like Coldplay, economists or researchers, policymakers or politicians, let’s embrace our togetherness, and embrace the everyday.
Thank you.
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1 See Naím, Moisés. The revenge of power: how autocrats are reinventing politics for the 21st Century. St. Martin’s Press, 2022.
2 See Coldplay, ‘Clocks’ from the album ‘A Rush of Blood to the Head’, 2002.
3 See Galbraith, John Kenneth. A short history of financial euphoria. Penguin, 1994.
Source – Eurogroup