Allow me to start from a theme very important to me – where the euro stands at the moment, and the project that now awaits us – to use the euro to support Europe in a world that is becoming more volatile and more uncertain.
As I look at the changes taking place in the world – Russia’s war of aggression against Ukraine, changes in the transatlantic relationship, the level of change that we’ve seen happen in our economies in recent years – these are just some of the issues weighing heavily on our minds and dominating our discussions.
Today, I want to talk about how we can navigate that uncertainty, and I want to make the case for optimism in our ability to deal with it.
In the Eurogroup, the group I am privileged to chair and meet with every month, we spend all of our time as a community of finance ministers dealing with these issues. And I want to give an insight into our thinking about how we can progress our economies during this moment of global change.
I am very aware, as I speak to you in this distinguished university, that Goethe himself took over the role of chancellor of the Exchequer of the Duchy of Sachsen-Weimar in 1782. He worked on many political and economic matters. Given my privilege of being here with you today, I want to make some reference to his insights in my address.
The current juncture
Where are we now? We are at a moment of such significant change. Europe is being challenged by political forces from both outside and within. Trade tensions have soared, we’ve seen uncertainty grow, and we have seen rising concern about the future of the global trading system.
This shock is only the latest in a series of shocks that have confronted societies in recent years. There is now an entire generation of European citizens whose experience is dominated by the global financial crisis, the Covid-19 pandemic, Russia’s war of aggression against Ukraine, the ensuing energy shock and now a trade shock.
While they have grappled with those serious shocks, the background to their lives are the transformative changes that were already in place – those of digitisation, those of democracy, and, of course, climate. All of which are reshaping the economic and political landscape, and creating both challenges and opportunities.
We can see the very powerful political pull of protectionism, of polarisation and of populism. We can see how economic anxiety, cultural fears and political distrust are now being mobilised. Populist, radical right-wing parties, for example, now rank among the top three most powerful political forces in one third of European countries. No less than 60 populist parties across 26 EU member states gained representation in last year’s European Parliament elections, winning some 36% of seats.
The conundrum
At the same time, for all the challenges we face, the economic outlook remains positive and is far better than we could have hoped for given a pandemic, a war on our borders and the big changes in global trade. We have seen positive growth every year across the euro area since the sharp drop due to the pandemic.
The latest forecasts suggest GDP will grow this year and again next year.I Inflation is beginning to moderate back to our targets and is forecast to reach 2.1% in the euro area. Critically, labour markets remain healthy, with around 2 million new jobs expected to be created over the next two years. Public finances, thankfully, remain relative stable across the euro area. What does this mean for confidence in Europe and in our institutions?
I was particularly struck by the latest Eurobarometer survey of public opinion that came out last week. Today, 52% of European tend to trust the European Union, the highest since 2007, and 83% of the public within the euro area support a single currency – the euro. That is the highest level of support ever.
When I looked into this further, I saw that public support for the euro increased in a majority of member states of the euro area, reaching a historically high level in the middle of the pandemic.
We saw an increase in support of nearly 20 percentage points in countries like Italy, Greece, and Portugal, and between 9 and 15 percentage points in Lithuania and Belgium, Slovenia and Spain.
The question I pose today is that at a time of rising populism, rising polarisation and fragmentation, why is this that people increasingly trust the euro?
Importantly, what does that tell us about the future of the euro and what we need to do?
A possible explanation
Let me begin with a possible explanation.
First, while European elections are increasingly fought on European issues, national factors still play a critical role in European elections.
Second, we know through analysis of nearly a quarter of a century of polling data from European public opinion that the performance of an economy is a good predictor of support for the European Union. In particular, a person’s position in the labour market and national levels of employment are very important.
While they can get very easily lost in the noise, the message of economic resilience is still emerging strongly – not just in how our economies have performed, but in terms of how member states have collectively addressed many of the challenges in recent years, and, in particular, how our institutions here in Europe have operated.
I think this goes some way to explaining rising support for the euro at a time of rising populism, but not all the way. So, what could the other factors be?
Convenience, coordination, and confidence
I believe there are three main reasons for this support. The first is convenience.
People feel the euro every day in their wallets. We see it when we pay for shopping, when we go out for a meal, when we buy a coffee. It has really practical and really tangible benefits for people in ways that sometimes other policies of the European Union might not. And in academic literature from universities such as this one, this kind of support is known as output legitimacy. It’s the extent to which citizens recognise, in a practical way, policies that further their own interests.
The second reason for further support, I think, has to do with coordination. In particular, I’m referring to coordinated action of budget policies at a national level, and a sense among citizens that our collective challenges and opportunities have been so big that no one country can respond adequately on their own. Even an economy as big as Germany’s.
Some analysis suggests that fiscal policy initiatives that were implemented at a European level were understood in terms of their collective impact, particularly during the decisions we took during the Covid-19 pandemic.
I will never forget the Eurogroup meetings that happened during that short and awful period. And I think there was an imprint left afterwards where citizens realised that by coming together, we created a framework to navigate our way through a moment of real strain and to protect the euro.
The third reason for this citizen support is confidence.
Currency has always been a symbol of sovereignty on a national level, and on a shared level. The euro is a powerful symbol of our shared sovereignty. A powerful symbol that you can feel in your wallet, see in your purse.
People have confidence in the euro because they know we will defend and support it. They know we will progress and develop it.
I also think citizen’s have grown in confidence about our ability to develop it.
Those are the three Cs – convenience, coordination and confidence. What are the messages I take from that as a politician, as somebody who makes the case for this work in Ireland and across Europe?
Well, firstly, there are real reasons for optimism about making the case for what the euro has done. And at the moment, those of us who hold public office should be making that case. And second, public support for our currency should give us confidence about how to develop it and make the case for us.
We shouldn’t step back from the shouting voices. Rather, we should and we must step forward.
Progress is not necessarily linear
Why do I say this? Well, it’s because of the nature of progress within Europe. For over 70 years, I believe that our collective efforts have been a beacon for peace and for progress.
The political framework that we have created within the European Union has helped foster and maintain a spirit, a way of engaging with each other, that’s focused on cooperation. It’s not always easy. In fact, it’s rarely easy. But that way of working with each other, that economic and democratic strength has real value in a volatile world. We shouldn’t, and we couldn’t assume progress into the future without our efforts. And we should never assume the maintenance of the status quo.
It is Goethe that teaches us that “progress has not followed a straight ascending line, but a spiral with rhythms of progress and retrogression, of evolution and dissolution.”
We can neither take European integration for granted or delay reforms or key projects without consequence.
The European project is always in flux.
It’s the collective expression of our individual efforts, and progress isn’t always linear. The costs and benefits of action, or indeed inaction, are not symmetric. Inaction itself can be a decision and not a costless one. And at the moment, if we don’t step forward with our efforts, we risk slipping backwards. Standing still won’t be neutral, it could indeed be regressive.
Stepping forward
So how do we do that? I go back to the 3Cs that I referenced earlier. We should learn from the past. We should look at how those Cs, I believe, are recognized by those who use our currency. The euro is obviously convenient because people today use as in for example, cash. But we must ensure it continues to be convenient as the world becomes more digital.
We must ensure the euro continues to be convenient as the world becomes more digital. We must ensure the digital future of our currency through a project such as the digital euro.
In addition to ensuring convenience for our citizens, this opens the door to opportunities for innovation, for more efficient private financial systems. It will also strengthen our autonomy and strengthen our economic sovereignty.
The second C of coordination – we must maintain stable budget frameworks that our citizens have faith in. And in the Eurogroup, we spend a lot of time on this – evaluating budget developments, looking at how we can coordinate them, and in particular, examining what the euro area budget stance is, to ensure that we guide member states in their work on aligning their strategies with our common goals of promoting stability, promoting growth.
If we can do that right, it gives us a better chance of funding the longer-term investments that we need for European security and for the green and digital transitions. I underline the importance of security. Our DNA is built around a recognition that peace and prosperity are indivisible. That is why the credibility, the stability and the safety of our public finances go hand in hand in investing with our security.
The final C – confidence. Our euro area family became larger when Croatia joined our ranks. I hope that Bulgaria will be able to do so soon.
Changes like that increase our resilience, they strengthen the role of the euro.
There has indeed been much important focus on the role of the euro in recent weeks and months. This, I believe, reflects a growing confidence in our macroeconomic stability and trust in how we make decisions.
Our strong fundamentals, I believe, are increasingly understood and valued by international partners, by citizens, by businesses and financial markets. This matters when uncertainty grows.
I believe that whether we can deliver a larger international role for the euro will depend on our ability to deliver the commitments that we have made to ourselves. And we know in particular of one project we can do more on. And that is the need to develop more competitive, more resilient liquid capital markets to enhance the euro’s use at home here in Europe and also internationally.
A key part in contributing to that agenda is our work on the Savings and Investment Union. The Commission in March of this year, in response to work, in particular from the Eurogroup over the last 18 months, came forward with a comprehensive plan in this area. But we have so much follow-up we need to do ourselves at national level, for example, with regard to our pension systems, to improve in financial literacy and to develop common savings and invest in products and accounts for retail investors. So, are we capable of rising to this challenge?
Rising to the challenge
History tells us that we have been capable, and I have no doubt at all that we will be this time as well. How should we proceed? How do we deliver? Well, we need to continue to remember that the European Union matters so much economically, but it is inherently a political project. Rising to the challenge of the times for the European Union has always been a set of political decisions, and this time will be no different.
Allow me to reference Yair Zivan’s fantastic book ‘The centre must hold’, and here I come on to my final C. He writes the following: “populism goes hand in hand with political extremism, dividing us and preventing us from finding any common ground. Extremists want us to believe that compromise is never necessary, that it is a symbol of weakness and failure. They too always have a simple solution to all of the problems of society- total commitment to their ideology”.
Our decision making in Europe, on the other hand, is complex. At times, indeed, it’s burdensome. But –it does deliver dialogue, often continuous dialogue, and put a focus on the forging of compromise and consensus, that in turn, allows us to act with certainty and to react with unity.
Due to this, I believe we have shown a resilience in recent years that is frequently underestimated. I believe that our efforts again can support stability, predictability and the rule of law. And the solution to these political challenges, in my opinion, is that final C, the C of centrism.
It’s a project that’s frequently associated with the status quo, with standing still, and that indeed is its greatest risk. Looking back at the decade we’ve gone through, there is a sense that the centre is the establishment and an establishment that can’t change. Perceptions of inaction, have at times dissatisfied electorates, and created a mood for a different kind of change.
So, yes, the centre must hold, I believe, but the centre holding is not the same thing as staying the same. A centrist response to the issues we face isn’t about defending the status quo. Rather, it’s about evolution. It’s about moving forward. And I believe the euro and the euro area represents a great case study of that approach, and one we should be more ambitious about.
Today, while forces around the world are trying to reduce interdependence, are trying to pull back from integration, looking at where we are in Europe, the best choice we have is to act collectively because we can achieve more collectively than we can individually.
That is the contemporary rationale for the European Union today, which we overlay on top of its foundations as a peace project. And the euro is the economic manifestation of this. We have to keep on evolving the project and keep on making the case for us. I believe we have to continue to strengthen its democratic legitimacy through decisions we take together. We strengthen it through our policies by making the case for moving that project forward.
I will conclude with a final quote from Goethe, in his famous maxim he asks: «What, then, is your duty? What the day demands«.