A Banking Union Must Be A Pillar Of Europe

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The following piece is excerpted from Prime Minister Pedro Passos Coelho's remarks at the "Project Europe" meeting of the Berggruen Institute's Council on the Future of Europe on Feb. 28 in Madrid.

MADRID -- Together we stand for the deepening of economic, monetary and political integration. But we also stand for the deepening of European citizenship. The former is not workable without the latter. But we have to be concrete about the meaning of both. To be sure, we all agree that bringing growth, creating more and better jobs -- especially for the young and for the long-term unemployed -- giving solid foundations to our social market economies and reducing our debt levels are general objectives that to a certain extent go beyond partisan lines. But the real question is how to achieve those goals.

You all know that I have been since the beginning a strong supporter of a full Banking Union. Some progress has been made in the last few months. But we have to be more ambitious than that. Let me be very clear. A full Banking Union means centralized European supervision, a common resolution fund with a European backstop, and a common deposit insurance fund. This would be the biggest institutional reform in Europe since the introduction of the euro. Why is this so important?

Countries in southern Europe have suffered from financial fragmentation. This has been one of the bad consequences of the recent financial crisis. It is a drag on our economic recovery. But it compromises one of the great European achievements: the single market. We must recall that the basic idea of the single market was to create a common space of economic participation and competition which would eradicate geographical discrimination of economic agents. The single market has to be an open European market, and not a collection of 28 national markets. But due to financial fragmentation, an implicit discrimination based on geography was generated. Steep differences in access to credit, and in the cost of credit, have put companies at a competitive disadvantage with their European counterparts just because they happen to be on the wrong side of the border. This is unacceptable for us Europeans.

Furthermore, the effects of financial fragmentation have doubled the burden of families and businesses, which, we should not forget, were already called upon to make great sacrifices. They came to the rescue of our public finances by paying higher taxes and receiving fewer benefits. They should not be made to pay an even higher price due to distortions created by the lack of a proper European institutional framework.

No deeper political integration, no greater solidarity, in a word, no common European project is even conceivable if we allow the single market to fall to pieces. The single market is the cornerstone of our unity. It is also the single most important engine for the convergence of our economies and standards of living. If we allow the single market to break, we will be denying the necessary conditions for any other remaining goals. It would be the denial of Europe.

Asymmetries and inequalities between countries have risen in the last few years, especially in the eurozone. And there will not be a harmonious Union if the center of Europe keeps growing at the same time that the periphery stagnates or even languishes. Or rather, what threatens Europe is not the economic strength of some compared to the economic weakness of others. But what does threaten Europe is the absence of a reasonable and credible expectation that the weaker will get stronger -- sustainably stronger.

No one should resent the economic success of others. On the contrary. But in the same way that we stand for the ideal of equality of opportunity between individuals within our societies, we also need to deliver that equality of opportunity for every country within our great European society. If we fail, then we will see ever increasing forces for division and conflict. If we fail, we will be failing the future of the European ideal.

Today we have to acknowledge that we are very far from that equality of opportunity between countries. In part this was the result of past irresponsibility at the national level. That is unquestionable. And my idea of greater responsibility derives from this a lesson that everyone has to learn. But Europe in the past, either by distraction or neglect, also consented to that irresponsibility. In this regard, Europe should also learn from past mistakes. And we welcome the changes that were introduced during the European crisis at the level of economic governance and coordination. But we delude ourselves if we think that they are enough.

"Interdependence between all European states has reached a point which obliges us to rule out a

non-cooperative way to proceed. "

All the new mechanisms which were created aimed to solve systemic, European-wide problems. National responsibility for dealing with national structural challenges remains. That should not be seen as a setback or as a disappointment. But if structural reforms at the national level and healthy public finances generate positive spillovers to all partners, we should not generate negative spillovers that come from a European standstill. When I say that we form a society together, that means that we are all in this together -- and quite literally so. Interdependence between all European states has reached a point which obliges us to rule out a non-cooperative way to proceed.

Let me be as straightforward as I can be: the fact that Portugal will soon end successfully the Adjustment Program and that it has made wide-ranging structural reforms is good both for Portugal and Europe. On the one hand, Europe needs a successful adjustment on the part of southern countries. Europe is unthinkable in permanent stress, with perpetual imbalances in its midst. On the other hand, we need Europe to successfully accomplish the necessary adjustment of our countries. We need common, clear rules, functional institutions, rational and timely decision-making. And we need to act quickly in order to correct the imbalances that threaten our Union. It should be a European priority for the years ahead.

A full Banking Union would make our financial system more resilient and better equipped to serve the productive sector of the economy. It would break the unfair and dangerous negative feedback loops between sovereign debt crises and financial instability. It is the proper way to bring about a mutualization of risks and make the European economy more prone to absorb asymmetric shocks. In word, it is a good and necessary reform for everyone.

The Banking Union is the pillar the eurozone needs to ensure its stabilization and to prevent crises such as we had in the last four years. That is why it is so important. And our ambition in this regard should not be restrained.

The Banking Union would be a reform for stabilization but also for growth.

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