Completing Europe's Economic and Monetary Union

Article excerpt

Benot C ure is a Member of the Executive Board of the European Central Bank (ECB). Previously Dr. C ure served as head of the debt management office in the French finance ministry. He presented these thoughts on European Economic and Monetary Union at the Palestinian Public Finance Institute Ramallah, September 23, 2012.

It is a great honour for me to speak at the Palestinian Public finance Institute.1 The establishment of the Institute marks an important step in the development of the economic governance framework in the Palestinian Territories. I wish this project every success. It relies on the commitment of so many dedicated people in the Ministry of Finance and in Adetef. As Jean Monnet, one of the founding fathers of the European Union, once put it: "Nothing is possible without men; nothing is lasting without institutions." His words related to Europe but in fact they are relevant worldwide.

The Middle East and Europe have always had close ties. They are both part of the Mediterranean region, which is economically and financially interlinked. And currently, both are experiencing an institutional transformation. In this part of the world it has come to be called the Arab Spring'. In Europe, it is the consequence of an economic and financial crisis resulting from weaknesses in the architecture of Europe's Economic and Monetary Union (EMU).

Institution-building takes time. Even though European integration started over six decades ago, the building of those institutions remains a work in progress. But to understand the challenges that Europe is currently facing, we should take a step back and look briefly at the origins of the Europe's integration process. I will then share with you my thoughts on what I believe to be the main shortcomings in the current EMU framework. Finally, I will give you my views on the short- and longer-term measures that the euro area should take to overcome the crisis.

1. Building Europe after World War II: the path towards Economic and Monetary Union

In 1945, Europe emerged from the Second World War as a devastated continent, economically broken and politically divided. But even during the darkest days of the war, there were some Europeans who were convinced that Europe would eventually overcome its divisions and unite in peace.

One of them was Robert Schuman, a French statesman, who in 1950 made a declaration that became a rallying cry: he proposed that Europe should aim for closer economic and political cooperation. The declaration was well received, also by West Germany. This was a crucial point because Germany and France had been rivals in a century-long quest for dominance over the European continent. The Schuman Declaration paved the way for a new era of peaceful cooperation between the two nations, as well as with other countries.

A new type of Europe began to emerge from the wasteland of World War II. What was about to take shape was indeed "revolutionary" because the fathers of a united Europe moved beyond the concept of the nation-state with a jealously guarded sovereignty. They placed coal and steel production the two industries which were crucial to the war effort under a new supranational authority. Six European countries France, West Germany, Italy, the Netherlands, Belgium and Luxembourg took this first and important step towards closer cooperation in 1951. A process towards creating durable conditions for peace in Europe had been set in motion.

The six founding countries came to realise that there were substantial benefits in closer cooperation and agreed to deepen it further. In 1957, they signed the Treaty of Rome, which created a customs union and established the European Economic Community. Its overall aim was to promote harmonious economic development, raise living standards and develop a common market.

However, the founding fathers of Europe saw European integration as more than just an exercise in economic cooperation. …