Spring Meetings

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With a robust, broad-based economic recovery, the economic news from the euro area is very good. Yet, it was not long ago that a severe economic crisis raised existential questions about the viability of the monetary union. While much has been achieved, reforms are still needed to make the euro area resilient. Which reforms are key? How can the political support for these reforms be harnessed? Will the recovery provide the opportunity to complete the job or will it take the urgency out of the agenda? The panel will offer views from senior policy officials from inside and outside of Europe on the lessons learned from the crisis, challenges still facing the euro area, and the path forward.

Contributor: Veronika Sola, Secretary's Department

Moderator:

Christine Lagarde, Managing Director, IMF

Panelists:

Mário Centeno, President, Eurogroup

Jack Lew, Former U.S. Secretary of the Treasury

Pier Carlo Padoan, Minister of Economy and Finance, Italy

Olaf Scholz, Minister of Finance, Germany

Not long ago a severe economic crisis raised existential questions about the viability of the euro area. While much has been achieved, reforms are still needed to make the monetary union resilient. The panel offered views from senior policy officials from inside and outside of Europe on the lessons learned from the crisis, challenges still facing the euro area, and the path forward.

Key Points:

• Why is a strong euro area important? Lew highlighted the importance of the European project in providing peace and stability for the region and the world. Scholz noted that strengthening the euro area is crucial for bolstering the EU as a whole and emphasized the growing relevance of the region in the world economy, which can only be maintained through further integration.  Padoan added that with emergence of new global threats, that require supranational response, success in addressing them will send a strong message that integration rather than disintegration is the way forward.
  
  
• Lessons from the crisis and next steps. Lew noted that the crisis exposed inherent economic weaknesses in the euro area, which the institutional setup at the time was not ready to address effectively and in a timely manner.  Scholz noted that lot of progress has been made since, but now is time for next steps to strengthen our defenses against another crisis.  Centeno cautioned against obsessing about the next crisis, as anxiety in politics feeds populism. He agreed though, that much needs to be done in improving the European institutions and underscored the importance of maintaining the political momentum, emphasizing the role of trust in the process.
  
  
• Improving the institutional framework. Centeno, Lew, Scholz noted that the necessary decisions on completing the banking union need to be made as soon as possible to improve euro area resilience and boost growth and employment. Panelists also concurred on the need to continue addressing fiscal risks. Padoan noted that while at this point risks have certainly decreased, not much has been done about risk sharing and it remains an open question whether there is enough trust to go forward. Scholz hoped the ESM could eventually be developed into a European Monetary Fund.
  
  
• Comparison to the US. Commenting on the slow progress of reforming European institutions, Lew noted that establishing the US institutions also took many long years of trial and error. Scholz noted that there is a lot to learn from the US experience, but there are also major differences, for example the very different approaches to social welfare across countries, which will make it hard to design a unified infrastructure. Centeno highlighted that in terms of labor mobility Europe is starting to look similar to the US. However, the wage differences are much larger, providing considerable opportunities for growth once the institutional framework is enhanced.

Quotes:

“The euro is an institution, and it is almost by definition incomplete, because it is man-made. However, it has graduated very, very bravely from the crisis.” Mário Centeno

“We, as Europeans, need to do two things now. First, rebuild and strengthen trust among us and second, accept that there is a combination of sharing responsibilities and each country doing their homework.” Pier Carlo Padoan

“The world is a safer place, Europe is a safer place, and a more prosperous place because of the European project and it is worth the effort to make it better, not weaker.” Jack Lew

“We need to think about our ability to face the next crisis.” Olaf Scholz