Speech
Remarks by Paschal Donohoe, Minister for Finance and President of the Eurogroup, at the Hertie School of Governance
By: Minister for Finance; Paschal Donohoe
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By: Minister for Finance; Paschal Donohoe
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Last updated on
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Thank you, Professor Woll, Cornelia, for the kind introduction.
It is a pleasure to be back in Berlin, here at the Jacques Delors Centre and back in the Hertie School of Governance.
Hertie’s motto ‘understand today, shape tomorrow’ is both admirable and appropriate for our discussion.
Every day we see more signs of division.
So understanding today, right now, can seem challenging.
Let me quote to you a sentence I read recently when thinking about what I might say to you today: ‘Politics itself no longer seems to care about the old-world, left-right distributive battles, but is now fighting over the future of the nation-state itself’.
This perceptive quote was from Henrik Enderlein’s inaugural address in 2018.
Inspired by your motto, Henrik’s quote, and indeed Jacques Delors, in my remarks today I thought I would lay out how I am trying to ‘understand today’, and what Finance Ministers in the Eurogroup are doing to navigate the challenges ahead, and ‘shape tomorrow’.
First to politics.
The world is becoming more fragmented and more complex to navigate.
After years of economic openness, politics is increasingly shaping economics.
But politics has become much more short term.
And we are increasingly living in a political world of populism, of polarisation and of post-truth.
We are seeing a reappraisal of transatlantic relations and the global order as we know it.
These developments will have major implications for trade, for stability, and for growth.
And this is before we consider the multiple short- and long-term spending and investment demands which face us, including the green and digital transitions, defence, security and ageing.
The invasion of Ukraine shattered the illusion that a major war would never return to the European continent.
We are seeing the rearmament of Europe.
Things we previously may have taken for granted seem precarious, and need defending.
Democracy needs defending.
Diversity needs defending.
Values need defending.
And here I want to acknowledge the importance of the outcome of the German election.
Stability in Germany is stability in Europe.
The centre has held in Germany.
We need Germany to be not just a European leader, but a global leader.
And we are already seeing this leadership with recently announced policies on defence and public investment.
We are also seeing this leadership from President Von der Leyen who recently announced a set of proposals, labelled “REARM Europe”.
These actions show that we in Europe are not afraid to take bold decisions when necessary.
The centre held in recent Irish elections too and we put together a stable and centrist coalition to govern for the next five years.
Turning from politics to economics, increasing uncertainty is putting downward pressure on growth.
There is:
However, while we are not immune, we are resilient.
Recovery, though slow and modest, is projected to continue.
The labour market remains strong, disinflation is ongoing, and the financial sector is stable.
We have demonstrated many times in the past that we can successfully face significant challenges when we act together.
We benefit from steady, stability-oriented policies based on transparent frameworks, which provide much-needed certainty in an uncertain world.
So a key questions for me, and for Finance Ministers around the Eurogroup is: what does our assessment of ‘today’ mean for us?
And in particular:
Before jumping into our work programme, a key question I ask myself is - how should we think about how to respond to these developments?
First, I think we need to look to our values.
The European Union was founded on the values of human dignity, of freedom, of democracy, of equality, of the rule of law, and of human rights.
These are under threat around the world, but they are our guiding light to navigate our pathway through the challenges ahead.
Second, I believe in many ways our response is the same response that Jacques Delors championed during his Presidency of the Commission.
Simply put, we are stronger together than we are apart.
Delors’ conceptualisation of the four freedoms underpinning the Single Market – free movement of goods, capital, services, and people – was instrumental in strengthening the European Project, and laid the groundwork for the European Union as we know it today.
We can use this same guide today.
The transatlantic relationship was fundamental in the post-war reset on the European continent.
We can reflect, again, on Jacques Delors, whose Presidency ran concurrently to the Reagan administration in the United States.
As the United States made a departure from its previous economic policy, Delors chose a different path, focussing instead on the need for greater European integration.
These divergences in policy happen – it is how we react that is key.
In a time when the White House seems to be pushing for a more transactional trade policy, it is vital that we stand firmly by the established rule-based order, state clearly our values and keep open our channels of multilateral cooperation.
So, what are we, Finance Ministers of the euro area, doing to ‘shape tomorrow’?
I will briefly mention our work on competitiveness, on Capital Markets Union (CMU), on Fiscal Policy, on the Digital Euro and on enlargement.
While we are necessarily reactive to (the sometimes very) short term issues, we are not losing necessary focus on the medium to longer term.
A competitive European economy is essential to addressing tomorrow’s challenges.
The Draghi and Letta reports were important inputs into our thinking and framing the issue and solutions.
In November we concluded a series of discussions on the competitiveness challenges culminating in a statement covering key areas including:
Following up on this work, we endorsed a three-pronged strategy for improving the competitiveness, resilience, and macro-economic and financial stability.
Separately but relatedly, well-functioning capital markets can be a strong driver of competitiveness and they are very much needed for financing our medium and longer term policy objectives, not least in the area of defence, but also the green and digital transitions, and ageing.
At the origin has been the recent work by the Eurogroup, the body that I am privileged to Chair, done at the request of EU leaders.
Following extensive engagement with industry we agreed on a set of proposals on the future of European Capital Markets last March.
This delivered a clear set of actions for the Commission and Member States.
We are now at a crucial moment in the political cycle, it’s the moment to advance.
If anything, CMU is even more critical than it was a year ago.
This isn’t easy, it is important to acknowledge that to create a competitive European capital market will require difficult trade-offs, at a European level, equally importantly at individual Member State level.
We are working on a bottom-up exercise which will support the Commission’s Savings and Investment Union initiative.
Success will not come easily, as responsibilities sit across a wide number of stakeholders.
The cost of not moving forward will be detrimental to the future of our budgets and our businesses, our economic growth and long-term competitiveness.
Turning to fiscal policy, geopolitical challenges, particularly those related to defence and security, will place increased pressure on our budgets.
But importantly, the stability and fiscal sustainability of the euro area is necessary to ensure market confidence and trust while also ensuring the efficient use of funds for our policy priorities.
In this endeavour, we are supported by the recently reformed EU Fiscal Framework.
It focuses on debt sustainability, supports investment, and promotes policy transparency and predictability, while remaining flexible enough to account for extraordinary circumstances.
Fiscal stability must go hand in hand with security.
Finally, I want to mention our work on the digital euro.
The euro is the most tangible symbol of European integration for our citizens.
But the currency we share binds us together far beyond having the same coins in our pocket or notes in our wallet.
Sharing a currency means we depend much more on each other:
Our currency has achieved good standing and overall stability over its 25-year history.
It has served our citizens well, promoting trade and investment, and more fundamentally preserving price stability even in the face of very large shocks.
The euro has consolidated its role as a trusted means of payment in international trade.
But taking a step back we are seeing a dramatic transformation of the payments system.
We are seeing the weaponisation of financial linkages in response to geo-political developments.
And we are seeing the introduction of new forms of digital money, and cryptoassets gaining traction.
The ECB’s work to develop a digital euro is critical in this regard.
Through the Eurogroup we are leading the political discussions that are helping to shape the design of the digital euro and how best to communicate this with citizens and industry.
This political support will be crucial as we move to the next phase of the project.
So to ‘shape tomorrow’ we are working on a number of initiatives:
Speaking in 2003, Delors outlined the three common ambitions for the European Union; “To become an area of active peace, to maintain a framework for sustainable development and to celebrate in a particular way our cultural diversity”.
Now, more than ever, these ambitions can guide our policies and remain our end goal.
Thank you for your attention.
I look forward to answering your questions.