Blog Post

Speech by Pierre Moscovici at Bruegel 10th anniversary event in Berlin

Keynote speech at Bruegel event on "Promoting growth and stability in the EU", held at the Federal Ministry for Economic Affairs and Energy, on 28 September 2015.

By: Date: September 30, 2015 Topic: Uncategorized


Dear M. Wolff [Guntram Wolff, Director, Bruegel]
Ladies and gentlemen,
Distinguished guests,

It is my great pleasure to join you today for this discussion, and I would like to extend my warmest thanks to Bruegel for inviting me to this conference.

Growth and stability: both are crucial, both are actively pursued, and both have been somewhat elusive this year. The good news is: revitalizing them is within our reach.

To do so, we must view the two major crises that hit Europe in 2015 not merely as crises, but as opportunities. The Greek crisis is an opportunity to remedy the blatant shortcomings in our economic and monetary governance. The refugee crisis is an opportunity to raise potential growth and promote much-needed structural reforms.


We have learnt from the Greek crisis that we need to fix the governance of the Economic and Monetary Union (EMU).

Let’s go back in time for a moment. What did it take to reach an agreement on Greece in the Eurogroup? Almost twenty acrimonious and inconclusive meetings over the course of 10 months; one national referendum; several votes in national parliaments; and one big massive drama of a European Council in the summer.

How did we end up in such a dire situation? Well, to paraphrase Clinton’s famous tagline, “it’s the institutions, stupid !”.

There is a clear understanding today that the Greek crisis revealed serious failures in our governance; more importantly, this understanding is now shared. It is shared across the political spectrum; and it is shared by Heads of State and Government. We have been experiencing these failures for years now; but it took the Greek crisis for our leaders to come to the realisation that change was needed. And I am not talking about cosmetic change, or change in ten years’ time.

This shared understanding has provided fresh political impetus to the reform of the governance of the EMU:

  • A report prepared by the 5 presidents of the EU institutions was released in June – I hope we will have a chance to discuss some of its recommendations in a few minutes;
  • Several governments came up before the summer with their own set of proposals, including the German and French governments. Obviously they did not go unnoticed;
  • The European Parliament is also weighing in, if only because it was utterly frustrated by its marginal role in the run-up to the agreement with the Greek government.
  • These are all useful contributions we can draw from to fix the EMU governance. But what exactly needs to be fixed?

In my opinion, our governance failed on three fronts:

  • Third, existing arrangements do not cater for the expression of the European general interest. Let me expand on this a little bit. From January to August, the Eurogroup operated as a platform for head-on confrontation between opposite sources of legitimacy:
  • Second, lack of personification. Do we need a “euro-area tsar” just like we have an external relations tsar? Let’s put it this way: personification is a prerequisite for accountability. And vice versa: no personification leads to dilution of responsibilities. In other words: personification would be a useful first step toward empowering MEPs to give the boot to someone directly accountable to them.
  • First, democratic oversight. It is a subject that is dear to the hearts of German citizens; it is to mine, too. As it happens, no role has been foreseen for the European Parliament in the European Stability Mechanism. We will partly remedy this shortcoming in the implementation stage, but the Parliament feels that the Eurogroup too often works as a “black box” and that this body takes major decisions without proper involvement of European representatives.

o It was a given for all governments around the table that Greece should respect the commitments made by Athens under previous leaderships. But Mr Tspiras’ government objected to this premise because Syriza’s campaign platform departed significantly from those very commitments. Therefore, institutional legitimacy was pitted directly against political legitimacy.

o In addition, the legitimacy of the Greek government and of the Greeks’ vote in the referendum organised in July, was pitted directly against the legitimacy of other European governments. Yes, the Greek government is accountable to its people. But so are the other 18 governments in the euro area.

We, Europeans, failed to solve this conflict of legitimacies in a timely and orderly fashion, because we do not have the right governance to allow for the expression of the European general interest. As Habermas pointed out, “European governments are unable to act in the interest of a joint European community because they think mainly of their national electorate. We are stuck in a political trap.” In other words, the sum total of conflicting national interests does not add up to the European general interest. I would even say: we need to define the euro area interest. The Commission attends the meetings of the Eurogroup, but is not firmly part of the decision-making process, contrary to the ECOFIN or the Environment or Justice Council.

This is not a sound basis to handle future crises of a similar nature. It is not a sound basis for the European project: if the euro-area, which is the very core of the European Union, is struggling so much, how could it possibly create political momentum and act as a driving force for the rest of the Member States? And it is certainly not a sound basis to foster growth and stability.

My personal take is that a very far-reaching reform of the EMU governance is needed, and it is needed sooner rather than later. This reform should remedy the three shortcomings I just mentioned.

I believe that the executive role of the European Commission should be dramatically enhanced in the Eurogroup, and that the Commission should be represented by a Eurozone Finance Minister. The Eurozone Finance Minister would be in the front line to handle crises on behalf of the euro area community, and he or she should be able in due time to draw on financial resources available for the euro area. This will not come as a surprise or as a shock to many of you: I am a long-time supporter of this governance shift, and my experience with the Greek crisis has only reinforced my personal conviction on the matter.

However a Eurozone Finance Minister will only be able to speak on behalf of the euro area if he or she is backed by democratic legitimacy. It would be up to the European Parliament to consider this issue and decide for itself how it may best organise its proceedings and internal arrangements to confer legitimacy upon the Minister, and to exercise democratic control over him in the future.
Make no mistake: I measure very well how challenging it is for Germany –including on a constitutional level – to envisage shifting control over any executive powers to another body than the Bundestag. And I measure that the European Parliament, as it stands now, is not a good candidate for such a shift. As you know any German Member of Parliament is elected by 200 to 300 000 German citizens. In the European Parliament, the bracket is more than three times larger: it takes from 70 to 700 000 European citizens to elect an MEP.
So we have to be very lucid on the challenge: on some very specific issues, we will need more executive powers at the center, and more democratic control of better quality.

* * *
Turning now to the other crisis that could also morph into an opportunity to foster growth and stability: the refugee crisis.

At first glance, the refugee crisis may be seen as a risk; this perception should not obliterate the economic benefits that may be reaped from a sudden inflow of population.

Europe is an ageing continent. Rapid population aging has adverse effects on labour supply and potential growth. Germany, the largest economy in Europe, is an ageing country. What do ageing countries do? They worry about their shrinking workforce, which they rightly see as a risk for the financial sustainability of their pension systems. This is perfectly natural. So they prepare for the future. They run current account surpluses. They implement extra-careful fiscal policies. They accumulate large amounts of private savings. These forces are deflationary in nature; any alleviating factor is good for growth, good for convergence.

It would be short-sighted in this context to consider refugees, and migrants in general, exclusively as a burden to be borne, and not as a resource. Up to a certain point, ageing countries can implement measures to bring more nationals to the job market, such as spurring female labour force participation by stepping up the provision of high-quality child care services. But there is only so much a country can do to boost its employment rate. A large inflow of migrants can actually prove useful to alleviate some of that pressure. Migrants are also, or can be if they are allowed to, a highly mobile form of labour. In a European job market that is still largely divided along national lines, they will seek to settle where they have the best prospects – hence Germany’s strong appeal. We are currently trying to deepen the monetary union, inter alia to put in place stabilization mechanisms in the face of asymmetric shocks: the capital market union, the finalising of the banking union are such mechanisms. A fiscal capacity of one sort or another could also serve that goal. But enhanced labour mobility is also such a mechanism.

That is not to say that Member States should wait passively to reap the economic benefits of the refugee crisis. These benefits are within reach, but not unconditionally. The key is to view integration policies targeted at refugees as an investment.

What can we expect in terms of impact on growth? To put it in the broadest possible terms:

  • In the short run, processing a vast amount of asylum seekers will of course have a budgetary impact, which will vary greatly from one Member State to another. As you may know, some Member States have asked the European Commission to examine whether the refugee crisis could be considered, from a budgetary point of view, as falling under the exceptional circumstances provisions of our fiscal rules. This important issue is being considered, in accordance with the rules of the Stability and Growth Pact. No decision has been taken yet.
  • In the mid to long run, positive economic effects may be expected, subject to rapid access to the job market. To the extent that work permits are handed out, immigration leads to an expansion of the workforce, and this additional labour supply will increase potential GDP growth.

This is not a far-fetched objective. Let’s take the example of Germany. Asylum seekers are asked on a voluntary basis about their education and occupational skills during the application procedure. A recent study highlighted that recent Syrian refugees were on average better educated than other asylum seekers: 21% of the Syrian asylum seekers who came to Germany between the beginning of 2013 and September 2014 said that they had attended university (against an average of 15%) .

Again, let me reiterate my point: early intervention is crucial. Studies from the OECD point out that “early and intensive efforts are required to provide language training, assess individual skills, provide school access, address health and social problems, and work with employers to help boost refugees’ chances of employment”. In the past, it took as much as fifteen years to reach a 70% employment rate for refugees and to converge towards the socio-economic conditions of the native population. The earlier refugees access the local labour market, the better their prospects for integration in the long run, and the higher the economic benefits to be reaped by the host country.

  • One aspect should be carefully examined by policy-makers: the impact on wages as well as the distributional impact on indigenous workers. This impact will depend on the extent to which migrants’ skills compete with or complement the skills of indigenous workers. The economic literature describes positive distributional effects on workers whose skills are complemented by the immigrant workforce. By contrast, the direct distributional impact on workers who have the same skills as the immigrants may be negative. From a public policy standpoint, this means that upskilling and reskilling of indigenous workers must also be part of the picture from the onset.

The refugee crisis may also act as a catalyst for much-needed reforms on the market of goods and services. Let’s imagine a Syrian Doctor settling in one of the countries in the Euro Area. He will most probably have to take active steps for the recognition of his credentials – which he may or may not get. If he does not get it – which would be a missed economic opportunity for the host country – he may seek to take a job as, say, a taxi driver. Here he may be faced with yet another difficulty, which is that taxis are a regulated position in a number of countries.

You see where I am going with this: the refugee crisis is going to cast a sharp light on remaining cross-border barriers. And it might just provide us with the perfect opportunity to tackle these barriers, should they be unwarranted, and to promote growth-enhancing structural reforms.

* * *
Ladies and gentlemen, distinguished guests,

I am not delusional. I am perfectly aware that many European citizens have no time for sophisticated considerations on EMU governance, and no appetite for integration policies targeted at refugees in a context of high unemployment. Yet as unappealing as these discussions may be, they are crucial to underpin growth and stability, in particular in the euro area. What is needed now is a large measure of political will – not to say political courage – to bring the matter to the European public space. Thank you.

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