 So, good afternoon and welcome to this conversation on the future of EMU. I guess we are at the time in this conference where we can reflect on everything we've heard and learned over the last day and a half and pull the threads and weave the threads together and make it something useful for the future of EMU. We're here to discuss the future and we're not here to discuss the past. And it comes at a, I guess, at a topical moment where finance ministers last week and the prime ministers and leaders tomorrow will also reflect on the future of EMU. And it's also an opportunity for the panelists to comment on what has been achieved so far in terms of deepening EMU, but more importantly to discuss what more should be done to make the life of the ECB easier. So we have a fantastic lineup. You had all the names and functions and we know all speakers and we are very grateful that they could be here with us today. So without due delay, Gita, can you start it? Thank you. It's a real pleasure to be here and to participate in this. This is my first time in Cintra, so this is a very beautiful place. Okay, so to jump in very quickly on the discussion of the future of the European Monetary Union, I will center my remarks around three broad issues. The first is about heterogeneity that remains and how problems get amplified by it and what needs to be done. Second is about the reforms that are still required. And while many of us understand some of the broader issues over here, maybe I will narrow down on a few specific prescriptions. And this will require reforms not just at the union level, but also at the national level. And then I will finish up with a discussion of the international role of the Europe. So just as a flavor of where we're going, certainly there is heterogeneity and that heterogeneity remains. If you look at this chart here on the left is the Euro area. You look at the unemployment rate. You had this big increase in divergence in unemployment rates soon after the crisis. Some of that has come back down. And while the average level of the unemployment rate in the Euro area is back to record levels, the employment rate is high at this point. You still see significant divergence across some countries in the Euro area. And on the right you have the US and you see the dispersion on unemployment rates over there. And you see, similarly, there was an increase in dispersion following the crisis, but that dispersion has pretty much disappeared or narrowed, again, back to its original level in more recent time. So for me, there are two things to take away from this. One is, of course, the classic textbook understanding that when you're in monetary union and you have one policy to affect regions that are heterogeneous shocks, there's only that much you can do. And there are limits to solving all of the problems. But the second thing also is that monetary policy can solve all of this because there are structural issues over here. There are structural differences across countries in the labor markets, in their product markets. And in the absence of those reforms, the success of the monetary union will not be as good as one would like it to be. So I'd like to keep both of those in mind. And this is a picture that maybe some of you have seen before, but it also highlights the fact that alongside this heterogeneity and divergence, there's a low degree of risk sharing. And again, if you compare the risk sharing channels in the US and Canada relative to the Euro area, as US and Canada right after the crisis, so this is from around 2000 post-global financial crisis, you certainly saw more risk sharing that took place through capital markets and through a lesser extent through fiscal transfers in the US and in Canada as compared to the Euro area. So what that means is that if you live in a part of the Euro area where unemployment rates are high or and incomes are low, you are going to also be living with lower consumption. So there's very little risk sharing that is going on. Now, something that was less textbook about heterogeneity is that while, yes, we all know that one policy for diverse regions is difficult and constrained, I think what was less appreciated that even the transmission mechanism can become highly heterogeneous during a crisis. And so we saw that early on when you have the, when the ECB started cutting interest rates after the global financial crisis, but you see that if you look at the lending rates between different parts, you know, Germany, Spain, Italy, France, and if you compare those, you certainly see an opening up. Now, it is a high point of the ECB's work that solutions were founded to fix these problems. So the T-elitros certainly helped in narrowing those gaps earlier on. And you see that if you look at the column of the histogram on the right and you look at each of those countries, you'll get Italy. You see the kind of the blue portion relative to the white portion, which means basically Italy and Spain took up more of this particular channel of financing as compared to, say, France and Germany. Now, the red bars are the newest form of long-term refinancing operations. And that, of course, is trying to fix a different problem. It's trying to take care of the possibility of a liquidity, potential liquidity crisis that one might need to worry about going forward. So, of course, that moves very quickly to my third form of heterogeneity. And the fact, I think there was much less appreciated the start, again, of the EMU and more generally in our textbooks, was the importance of having a lender of last resort. And so, again, this is a classic figure. And it's, of course, was very tempting for me to put it out as President Draghi enters the Central Bankers Hall of Fame. I think this is a classic picture that we will do whatever it takes to save the euro. And that's a lesson to be learned that is clearly there's a need for a lender of last resort. It continues to be the case that debt levels are very heterogeneous in the European Monetary Union. Now, of course, there are sometimes problems with debt levels that have to do with fundamentals, in which case monetary policy should not play a role. But there is also circumstances under which there are problems with debt levels that have to do with liquidities, with runs in markets, with market failures. And in those situations, it is important for a central bank to step in. And so that has to be a lesson that continues going into the future. And things have been done about that. Okay, so that was a quick overview of the heterogeneity that we're seeing. And I'm going to jump in quickly into what needs to be done. So let's start with the one area where already work has happened. And that's in the banking union. So I'm not going to go into, everybody here knows obviously the details of what has been done so far. I'm not going to go into that. I'm just going to make a point that in the absence of having a common deposit insurance scheme, you know, I cannot see sufficient progress being made in the banking union. So it has to be that an important act, or next act will have to be coming up with a common deposit insurance scheme. There needs to be a credible backstop. And by credible backstop, it has to be credible in two ways. One, it has to have the money for it, it is sufficient. But two, it also should be deployable very quickly. So both of those features need to be there for it to be credible. And that's an important part of it. Second, on capital markets union, where there's lesser been done so far, but this is hugely important. We've done work at the fund on figuring out what are the main issues with having a common capital market in the euro area. And we highlight three features. One is insufficient transparency, which means that if you look at reporting standards in terms of how firms report, there is not enough uniformity in disclosures. So one could make an argument for having a common minimum disclosure requirement. Secondly is having a minimum standard for insolvency. There is a great deal of heterogeneity and insolvency regimes across the euro area. And again, one should argue for having a minimum standard for it. And third is a centralized supervisory power for non-bank financial institutions. Which again can generate some uniformity. Now this is of course very important for many reasons. There certainly needs to be a diversification away from firms relying very heavily on bank financing to other forms of capital financing. And secondly, we certainly could use to have more safe assets in the euro area. And this would be one way of creating triple A securities. Lastly, I suspect the piece that's the hardest to bring about, which is the central fiscal capacity, but it can't be emphasized enough, where we are living in a world where the outlook remains precarious. The possibility of a downturn is, while not imminent, certainly is not that far off either. And therefore it's very important to have a macro stabilization tool in the euro area to deal with that. To the extent that union-wide reforms remain a political challenge, I think in the meantime it's very important for countries to undertake reforms at the national level. You have to build resilience, so some new work that we came out with that we just put out a couple of days ago, points out that countries that did do labor market and product market reforms at home had greater resilience to the shock. So there is evidence that that works and it should be done. And once again, when you say labor market regulation reform, that doesn't mean just one size fits all deregulating the labor markets. It doesn't mean making it less friendly for workers. There are very many models for it. There are the Nordic models where you have a very strong unemployment insurance net, you have the great support for people to find jobs, but at the same time you have flexible labor markets which reallocate resources and that's very important. So lastly, I'm in negative time duration now. I'm just going to jump into the international role of the euro. So this is a figure that comes from the most recent analysis that was just put out by the ECB. Two things to point out is one is that there was clearly a period from around 2005-2006 onwards where you saw a decline in the international role of the euro. That seems, and there is an uptick now. I mean we'd have to wait and see whether this is signs of actually a reversal in trend because some of this is a reflection of central banks around the world using their dollar reserves to defend their currencies in 2018. So it's going to take a few more data points to see whether there's been a reversal. But I'm just going to end with my absolute last slide, which is the fact that... So this is work that I've done which tells you that if you want to internationalize a currency you really have to work on multiple fronts. A currency's role in trade, in finance and as a reserve asset complement each other. So this is a simple picture that shows you that countries that rely very heavily on dollar invoicing in their trade and this is... I'm looking now at countries that are not dollarized economies but countries that rely heavily on dollar invoicing in their trade are those that also have a greater share of their banking liabilities that are in foreign currency are in dollars. So you see dollarization of the banking sector. And once you have dollarization of the banking sector then of course that gives the central banks a very good reason to also be dollarized because if you had to pick one currency to defend your financial markets that would be the currency that's predominant in the banking sector. So these three things come together. So we would have to have a push for more euro contracting in trade that would then spill over into finance and into trade finance and that would then spill over into central bank reserves. And with that I will stop. Thank you. So we'll come back to the international world of the euro with Marcel later on so we'll have opportunities to dig deeper into this and meanwhile let me give the floor to Martin. Oh and by the way it may be time to disclose one thing which is a reason why you have so many jokes about time becoming negative that we have this big clock here which you don't see which is normally green and when it reaches zero it turns red and negative so that's why all speakers are making jokes and there is no zero lower bound but there has to be an effective lower bound I guess. Martin. Well thank you very much for the invitation. Future of EMU. There is a temptation to talk about the long run but there is this quote from Keynes about the long run and in fact one of the questions about EMU is whether it's going to reach the long run. And the risks to the existence of EMU I think have played too little of a role in the past two days. The rise of populism which is partly anti-EU and partly anti-euro must be a cause for a thong. And the underlying problem is that politics is local and national and the source of political legitimacy is again local and national. We heard about the first 20 years of the euro. One thing I find striking is that the first 10 years were a period of depolitization of monetary policy. One was talking about inflation targeting or tuppelers and things like that. And the second 10 years were a period of repolitization of monetary policy along nationalist lines. I will focus my remarks on issues involving banks. We like to talk about the need to eliminate, to cut the nexus between banks and sovereigns and pessimistic that this is ever going to come to a conclusion. The problem is this. Banks are essential to the monetary system. Banks are also an essential part of national political systems. From the perspective of the ECB, banking union was needed in order to get control over an essential part of the monetary system. That enabled to some degree the ending of the procrastination on how to deal with banks in trouble. In 2012, on the occasion of the long-term refinancing operation, I sometimes said weak banks are wonderful for national politicians because they provide an indirect avenue to the printing press, which of course creates an incentive to keep them that way without cleaning the system up. The SSM as a device to aid the cleaning up has been a remarkable success. Except bank resolution doesn't work. The single resolution mechanism is not viable and it isn't just the question of the fiscal backstop. It's also the simple problem of a need for liquidity during the resolution procedure. That's a need even if you don't wind the bank down while you're sorting out the alternatives. Banco Popular Español had to be resolved overnight through a sale to Santander because there was no liquidity. Now if we're talking about liquidity in the case of BNP Paribas or Deutsche Bank, we're talking about a quadruple digit billion number, which of course would be politically infeasible as say a task for the ESM. The backstop for final losses would be much lower, but we don't have any arrangements for these purposes at all that are rarely workable. I think reform in the area of resolution is really needed. Can we hope to break the nexus? Well in 2002 the Swiss municipality of Leukobat was insolvent, it didn't get any aid from the Canton or the Swiss Confederacy and the bank didn't want to provide more loans. Can we imagine the president of the French Republic to be placed vis-à-vis BNP Paribas in the position of the mayor of Leukobat vis-à-vis the banks? I simply cannot imagine that. And the same would be true even of many of the minister-president in the heads of the regional governments in Germany. Influence and power over banks has in tradition been regarded as a major element, in particular in Europe, as a major element of national sovereignty. And there are many more avenues to exercise that power than just supervision and resolution. And the sovereigns so far are the centres of political power and political legitimacy. From their perspective, banks are important and are political because they are a source of funding and money is a tool of power. The German Lundespunk can provide an example. It may be a wonderful field for fantasies about industrial policy. National champions think about the recent endeavors to have a merger of Deutsche Bank and Konradspunk initiated by the Berlin Finance Ministry think also about the French Bank merger some 20 years ago. It's important for voters. And in this context, we must mention the fact that the outcome of the Italian election a year ago was dramatically influenced by the experience of bail-in in the case of various Italian banks. Investors are voters. Sometimes the large investors may be even more important for voting power than the small people whom we think about for deposit insurance. And the power of investors is one of the things we need to keep in mind when we talk about the politics of banks. Thinking about EDIS I think focuses on really the smaller part of the problem. In Banco Popular Espanol, it was the municipalities with large deposits that ran. And I have a suspicion that the authorities in Madrid were not even unhappy about this because if Banco Popular Espanol had gone into such trouble that these municipalities had gotten losses, that would have been the real scandal. From the sovereign's perspective and from the populist voters' perspectives, BRRD, SSM, and state aid control are all intrusions on national territory. And we need to think about the politics of those intrusion. The problem is reinforced if the ECB uses the power that it has over the funding of banks, in particular in emergency situations, in order to exert further influence over national policies. Ireland and Greece provide instances of that. At some level all this means we have a need for a supranational source of political legitimacy, which basically means a stronger parliament and a stronger executive. A budget just by itself is not going to help, especially if the budget is just seen as a device for distributing money rather than a device for doing things. We have enough distributional conflicts already. Underneath all this is a really much deeper challenge. The past 10 years have taught us to think about these matters in terms of real estate bubbles inducing banking crises that overtask the sovereign or in terms of sovereign borrowing, leading into all sorts of problems. Sort of misbehavior that through suitable controls before one might actually get under control and eliminate. But going back to the discussion of this morning, if you ask what has happened in some of the instances, take the case of Northern Italy, the banks that were involved there, we're talking about changes in comparative advantage. Asymmetric shocks. This morning we heard about the role of competition from transition countries, competition from China. And that creates changes in economic activity in these areas. And the regional drought that's induced affects not just the real economy, but also the banks. And to the extent that the banks are regional banks, they're ill-diversified against such shocks. And the government. How to deal with all that? It's a task for supervision and resolution to clean up and regional policy and then also perhaps national and EU policy. In the US, the risk-sharing that Gita referred to has a lot to do with the fact that national spending is an important stabilizer. I actually once heard a talk by the Swiss Defense Minister about the problems of Swiss defense policy. And the entire lecture was on how they were using their spending to provide for fiscal equalization across cantons. That's in even that relatively small scale. In the US, also mobility provides a very important way out. West Virginia may be a problem and the Rust Belt may be a problem. And they vote for Mr. Trump. But there are lots of people leaving. The problem of radicalization in Rust Belts, including Northern England, Northern France, Saxony, and I suspect also parts of Northern Italy, is of course a major problem for our political systems right now. Underlying this is the problem of capitalism, how to deal with the vagaries of economic development in open economies, subject to technical changes, including those that occur elsewhere. To some extent, this is an old story. We've had this with coal and steel. We've had this with textiles before. But then there is a question of governance. Who is in charge of this and how does this relate to the financial sector and to monetary policy? Switzerland is an example where most of this is handled at the cantaloupe level in a very decentralized way. Germany has some of that as well. And I mean, the Neue Linde, the Excession Linde, are the example that proves the rule largely through fiscal federalism. But we need to find ways to come to terms with that. The legitimately crisis, which is induced by these vagaries of economic developments, is sometimes a crisis of Brussels. That's what many of the interested parties say. It's also a crisis in the very centralized states, such as the UK or France, of London and Paris, perhaps also Berlin and Rome. But the underlying issue is what governance do we develop in the EU context to deal with that kind of problem? And it's not a question of transient shocks, asymmetric transient shocks. It's a question of asymmetric structural shocks, which are there to stay, where some of the ability to adjust must be at the regional level. And the extent to which that works depends on incentives that we have even at the regional level. Thank you, Martin. So we've gone into the depth of negative time, but I guess that's because you were talking about Switzerland, so it's OK. Ellen, please. Thank you very much for having me. I'm going to talk briefly about three topics which have been alluded to in various times yesterday and today. First one has to do with external imbalances within the EUR area. The second with macroeconomic stabilization tools. And I will have brief thoughts on monetary sovereignty. So you've seen this graph before. It's about the EUR-area current account imbalances. And there are two clear phases. The first one between 2003 and the Great Financial Crisis and the EUR-area crisis, where we have divergence. So we have, in particular, in the lower negative territory. Here we have Spain. We would have Greece, Ireland. And then after the EUR-area crisis, we have a compression of domestic absorption in the periphery. And we have a set of very important current account surpluses in particular. So in the positive side, you have Germany and the Netherlands. Now, a reflection of these current account imbalances, of course, is the net international investment positions of EUR-area country. And so here I have single doubt in yellow countries with very negative international investment positions. You have Ireland south of 100% in terms of GDP. Greece, you have Spain. And Portugal, for example. And on the positive side, you have, again, Germany, Netherlands, for example. Now, I would argue that the first set of imbalances was already an existential threat for the EUR-area in the sense that what we have seen during the period 2003 to 2008 was a risk buildup with large inflows into the periphery, correlated with large asset valuations, real estate bubbles. And we all know the story crisis, risk premia going up, the doom loop in full play, and finally intervention of the ECB. But the second set of imbalances, so this second phase we are currently in and looking forward, it also causes an important threat for the EUR-area. And there, as mentioned by Olivier and by Ricardo, for example, the way to rebalance to get out of that has to be through a change in relative prices and real appreciation of Germany and the Netherlands. So that has to happen for an inflation differential. For example, inflation above 3% in Germany and the Netherlands for a while and below 2% in the periphery. This is exactly how the EUR-area is supposed to work. This is nothing special. From the transitory point of view, this is how the relative price have to adjust. And I guess this is how it should be also understood by citizens in various countries of the EUR-area. Now, why is it important to have rebalancing and to take a look at these excess current account surpluses? Because there's a number of negative externalities which come with these current account surpluses and the period of too-low inflation in the core that we are living through. So one set of negative externalities is purely to do with deflationary pressures in the periphery, depression of aggregate demand, negative effect on debt sustainability, given that we exit the crisis with high levels of nominal debt. So this matters. There's a slowdown of relative price adjustment because of a low level of inflation in aggregate, which makes the EUR-area more fragile to shocks. And excess savings put downward pressure on the real rate, knowing that the monetary policy is already close to the effective lower bound. I would add that we also could get some more random tweets correlated somehow with the size of bilateral surpluses, putting us more at risk of higher trade war. Now, in absence of additional tools, what needs to be happening is expansion of aggregate demand and inflation higher than 2% in core countries. It is often claimed, and we had a very good paper actually this morning discussing the virtue of having current account surpluses and JNI bigger than GDP in case of aging population. So it is often argued that in the case of aging population, it is prudent to save and therefore to have current account surpluses. However, what was missing, in a way, from the discussion this morning is that one could equally make the case that not investing is actually not prudent in a world in which we are living through climate change. And the prudent policy in such a world has to do with increasing public investment to realize energy transition now, as costs are rising quickly, and we are seeing cumulative processes. Otherwise, of course, the bill will be higher later when population is older. So in other words, what we have not talked about in the discussion this morning is that climate debt is actually building up if public investment is not increased right now to perform energy transition. On top of it, it is now the time to do it because we are living through a period of very low real rate. And here, I could have picked other countries, but here is the German gross public investment over time compared to the decreasing 10-year yield. And one can see that there is not much price elasticity here in this graph. Now, in terms of where we are of macroeconomic stabilization tools to help with the current situation and looking forward, there is an asymmetric game which is played between VECB, which has a Euro-wide objective, while fiscal policy is determined still by perceived national interests. So of course, in equilibrium, if countries with fiscal space actually do not expand enough, monetary policy has to do and will do the extra mile and is more likely to be at VELB. So excess burden is placed on VECB. Lose or monetary policy implies countries with fiscal space actually perceive even less of a need to expand. And therefore, as a result, we're in a situation where core countries have a wrong macro policy mix with monetary to lose, fiscal to tight. We do not have a euro area budget for stabilization purposes. We could have had one in the last days, but it just didn't happen. So we should at least have more transparent, less pro-cyclical fiscal rules compared to the ones we currently have. About that, I will refer you to the CEPR 7 and 7 report, which discusses this in great detail. But we should also, at least in the spirit of what I just said, have a sizeable investment budget for decarbonization, artificial intelligence, research financed by cyclical revenues, for example, share of corporate taxes, in order to decrease climate debt, et cetera. So looking forward, this would be the prudent thing to do, and this actually would be counter-cyclical. Now, another tool in the panoply that we have, looking forward, and that could be useful, is the macro-prudential policy that is deployed at the national level. And provided macro-prudential authorities put up their counter-cyclical buffer during economic upturns, gradually building it up with, as the literature tends to show now, a little effect on activity during the upturn, then the buffer can be actually released quickly if credit conditions tighten in a downturn, which is very welcome to reinforce the effect of monetary policy easing. So looking forward, in the EUR area, macro-prudential policies could actually turn out to be also an important tool to fight downturn and credit tightening conditions, further munitions. Finally, I would like to talk a little bit about sovereignty and drawing here on the speech that Mario Draghi gave in Bologna in 2019, where I said, no, true sovereignty is reflected not in the power of making laws, as a legal definition would have it, but in the ability to control outcomes and respond to the fundamental needs of the people. Now, if I think about that and apply it to monetary sovereignty, so we can see that, to some extent, monetary sovereignty is constrained by a number of factors. One is the global financial cycle, the Fed being a key driver. Another one being the current invoicing patterns in the international economy, where a pass-through from exchange rate to prices is determined by invoicing, and the dollar is very much a dominant currency in invoicing. Another one is the payment system, where we have extra-territoriality and issues with the US law there, being applied in various traditions. And the final one, very important one, being the fragmentation in the Uranrida with a doomed loop, which puts some constraints also on what monetary policy in certain states of the world can actually achieve. So I think if we think about the future of EMU again, part of it will have to be about increasing sovereignty and relaxing some of these constraints, starting maybe with the last one. So to conclude, I think it's nice to be here for the 20 years of the euro. We have got a long way since 1999. However, there are lots of important issues facing the EU right now, but we should not lose track that reforms of the EU area are really important and should really be in the agenda in the most pressing way. So we have to deal with these imbalances and this is linked to macro-stabilization. We have to think about this notion of what is prudent investment, particularly in a time of very low real rate. And in terms of monetary sovereignty, I mean, relaxing those constraints has to do with improving what Gita has mentioned in her discussion before. Improving banking union, actually doing capital market union, and the creation also of a safe asset for the euro area. Thank you, Ellen. And if you allow me a personal comment, I'm really glad that you brought back into the discussion the issue of fiscal rules, which seems to have totally vanished away from the European discussion, both in the academia and in Brussels, actually. And so we can very much on Nils Teegessen, who's here today to help us one day fix the European fiscal framework, which has so obviously failed. But Marcel, the floor is yours. Thank you very much for having me. I want to talk about the political economy of EMU and the euro and echo a little bit also what the others have said before and focus in particular on the question if monetary union is to succeed, if the euro succeed in the long term, it needs legitimacy, it needs credibility, it needs strong institutions. And we should not be taking that legitimacy and credibility for granted. And I want to talk in my few minutes of the comments about where I see the risks to that. And I want to argue that we need a different narrative for why it is important to complete monetary union, why it is important to do the different reforms, that we need a positive narrative and that strengthening the international role of the euro, actually really trying to develop the euro and having a truly global role, actually could provide such a positive, constructive narrative that could convince member states to do more to complete the monetary union. And I want to start with paying respect to Otma Easing, who was my first boss at the European Central Bank. And when I joined, I remember he was talking about an experience in Germany in the 1960s where politicians had attacked the Bundesbank for doing the wrong policy and they were basically slaughtered in public because the Bundesbank had such strong public support that basically the politicians committed political suicide. They had no career in the future because they dared to criticize the Bundesbank. And you probably remember the quote by Jacques Delois, who once said, not all Germans believe in God, but all believe in the Bundesbank. And I think that that kind of shows that having a high degree of credibility is incredibly important to deliver on the mandate what central banks are supposed to do. And that was one of the strength of the European Central Bank that allowed it also to be so effective in the last 10 years. Now, my three big worries concerning monetary union, but more broadly, also economic reforms in Europe what I would describe as three P's, populism, protectionism and paralysis, lack of reform. Martin Helbig talked a bit about populism. And in Europe, the big worry is that a lot of this populism is an anti-European populism. If something goes right, it's a national responsibility. If something goes wrong, it's Brussels, it's the single market, it's the common rules, it's the Euro, it's monetary policy. And that of course, so exactly the opposite what I said in this example of the 1960s, you have the feeling today if politicians want to gain credibility or votes, it's very easy to use or abuse Europe or the Euro as a scapegoat for national policy mistakes. I wouldn't underestimate this. And clear, this is not just an issue of a small group, but when I look at my own country, if you look at the discussion on target tomb balances, you see how far this discussion is going, even among economists, where you get the impression Germany or the Bundesbank has net claims of almost 1,000 billion euros. You have some would describe, say, look, this is 5,000 euros for a family of four and if something happens, that's what we will lose. So there's this really strong emotionality and strong negative sentiment to say this is a problem and so I see these three P's in particular this populism as a major threat to monetary union in the long run and again, I don't think we should underestimate that. So far, the narrative for saying, look, we need important reforms at the European side. The others talked about it on Capital Market Union, Banking Union was a lot negative narrative. In particular in Berlin, the perception is they want to force the German government to agree to fundamental reforms against their own will. There's a feeling that there's an attempt to create a transfer union. So there's a very strong asymmetry who has to burden or has to carry the burden of adjustment of paying for those reforms who's taking the risks, example of target two. And so in some sense, it's not surprising that there's a very large reluctance of governments to actually agree, in particular in Berlin because the feeling is, look, we don't want to be forced or pushed into doing reforms where we are not convinced. And therefore, the illusion that I see in particular in Berlin is this view, time is on our side. If all other national governments would just reform and do the right reforms, everything would be fine and we don't need fundamental reforms in Europe. And I think this is a very dangerous illusion and shifting to a positive narrative. I think we need to, first of all, again, have more of a global perspective. I think we have been engaging in too much naval gazing in Europe. We have forgotten that there is a global competition with Asia, with China, with the United States who are becoming increasingly affirmative and nationalistic and that includes also the monetary system. The US has been using the US dollar very aggressively and also now the recent discussions on Iran on the payment system, you see how strong also that can be as a policy tool. China has pushed the renminbi, the international role of the renminbi very aggressively with some success, clearly since 2015, that was a bit of a weakness. But if you look at the role of the renminbi within Asia, you see that many of the Asian countries actually manage their currencies against the renminbi just as much vis-a-vis the US dollar. So in terms of managing the currencies, the renminbi already has a regional role. So I think the big choice that Europe will have to make is whether in the future this will be a truly tripolar monetary system, global monetary system with the US dollar, the renminbi and the Euro, or whether the Euro will lose. And Gita showed the chart on the international role of the Euro that comes from the international role of the Euro report by the ECB, which is a very informative, very detailed and excellent report. And you see this decline in the international role of the Euro actually not just since the global financial crisis or the European crisis, but actually before, since the mid-2000s. And I think looking at that, trying to understand what actually is driving that declining role of the international role of the Euro is important. Clearly it has something to do with the relative economic weakness of the Euro area at the moment. It also, of course, has to do something with political decision-making in Europe, but in particular it has to do with the fact that monetary union is not completed or not complete as it should be to really give the international role of the Euro a bigger role, a truly global status. And Helen, Martin and Gita talked about some of the elements in our report of the 14 economists, the French and German economists last year, and we had a short update this year, underlined that and said, look, to complete monetary union, we don't need this big, big change, we don't need political union. We need a set of really, what we believe, fairly realistic reforms on capital market union, on banking union, creating a common safe asset and we can go into detail how specifically that should look like. But clearly it is important to have a common safe asset on fiscal policy, not just to have fiscal rules that make sense that are more counter-cyclical and give governments more space, but also we need both on the macroeconomic stabilization, a better buffer against asymmetric shocks and also more of a common fiscal policy stance in Europe to help convergence, to help integration and make financial markets deeper. So I think these are some of the more important reforms to push ahead and my key argument is we should really think more of a positive narrative to convince governments in Berlin and Paris elsewhere to say, why is it actually so important to complete monetary union? And it's not just that you need to do it because otherwise you'll be sorry later on, but there is substantial potential for the Europe. The big economic benefits through much better financing conditions, deeper capital markets, more stability in particular when a crisis hits. So the economic benefits from having a strong global currency are very clear. Again, in a increasingly polarized world, I think it's very important to have a stronger international role of the Euro to transform it into a truly tripolar global currency system. So to prevail in that monetary system and I think that also would go a long way in strengthening the legitimacy of the Euro, giving the ECB more, again, full, de facto monetary independence to act and it would kind of take also the pressure of the European Central Bank to do what, to stabilize where it's clear national governments need to do more, both on the fiscal side on macro-potential policies to stabilize the Euro. Thank you. Thank you. Thank you, Marcel. Thank you for advertising the ECB report on the international role of the Euro, which you can download on the ECB website. We have 25 minutes or so for a discussion, which is ample enough. And before opening the discussion to the audience, I would like to ask the panelists if they have one to come back on any issue or comment on each other before we open more broadly. So it's just an option I'm giving. Martin? I want to make a remark on public investment. I haven't talked about that. I've fully shared the view yesterday in response to sort of in seeing the picture that Markus had on the Franco-German divide with the rhyme in between and there was a bridge. My comment was a lack of public investment or paucity of public investment in Germany is making the bridges across the Rhine fall apart. And that's actually true literally. The bridge on the Audubon, the highway that crosses the Rhine north of Cologne, which is the major highway from northern France and Belgium into the core of Germany, is no longer passable for trucks. And they haven't just prevented the passing, they have introduced traps to make sure that the trucks don't cross it because there is a fear that it'll fall apart. To the south of Cologne, they've just put up signs, trucks no longer allowed. I think the phrase catches the problem. I also think, and this was very much at the back of my mind when I said, I don't just want to have a European budget which distributes money. I think we should think in very concrete terms about joint ventures that induce public spending at the EU level with a fiscal capacity at the EU level. And that can deal with, well, both useful purposes and to some extent, fiscal equalization without any newspaper ever noticing it. If I think, for instance, about something like protection of the borders, it's clear that this is something that we need. It's also clear that this is something where a lot of the spending of the money would be spent in the Mediterranean countries. For very simple reasons, I much prefer moving in such concrete terms where you talk about what is it that we need rather than grand principles of risk sharing and stabilization because those grand principles can easily give rise to too much controversy. Those were the two points I have in response. Thank you very much. Ellen? Can I just reinforce that? So indeed, this is a wonderful metaphor that bridge falling down in between and Germany. And when I was applying the public good example, collective investment in terms of climate change, evidently, so if we think about the cost are rising if we wait and if we want to meet our target, which is a pretty much also a survival issue we have to get going now, that's clearly prudent policy. But to some extent, investment in infrastructure shares some of these features as well. If you let things fall down, it's a lot more costly to rebuild later when your population is aging or when you have less resources. And we can think of a number of collective goods. Indeed, where if we had a fiscal investment capacity, we could put money indeed to good use and that would have some stabilization effect, which is also the point that I was trying to make when I was discussing that in the context of climate change. Thank you. Just one sentence. Sure. The problem is, of course, political economy with an aging population. Together with a prohibition on debt finance, meaning finance by those who will end up benefiting who are not involved in today's decision processes. I think that plays a major role. So let me open the floor now. We'll take, I'll take questions by three by three to try to not over burden the speaker. So let me start with Sylvester. Yes, thank you, Benoit. As I'm one of the few Dutchmen left, Klaas Klot has left. And so I feel very alone, but I think I have to not justify but explain the Dutch position. You know, general, the goal once said, to le betaf sonde calvinist. Let me translate so all the Dutchmen are calvinist, even in the South, where they're Catholic. And that's true. That's true. Dutchmen try to see surpluses, current account surpluses now in the Netherlands is 10% and increasing, increasing. Yeah, well, I don't say that is justified. I try to explain the position of the Dutch and especially the minister of finance. He gave a lecture at the Humboldt University beginning of May, and he tried to explain his position. And the position was that our rights and duties. It's a very normative approach to European integration. I agree. And what he, I would say the Dutch government, I should speak about the Dutch government, has a perspective is that, of course, there are current account surpluses of Germany and the Netherlands. And there is no public investment, like Martin said, not in the physical infrastructure, not in the human infrastructure, digitization, artificial intelligence and all that stuff. And actually, I plead it for that many years already. But the idea is that the Dutch government and maybe also the German government see that as a kind of bargaining chip for the other countries, Italy, maybe France, to exchange structural reforms. It's a kind of, well, power play or tit for tat or how you want to call it, that they are, I think, prepared to invest. But they want to, for in exchange, also structural reforms. And maybe, maybe it would be possible, this is a coordination problem. This is really a coordination power on a macroeconomic, on a European level. Maybe we could have, for the next European Commission and the new, that we can go to the next level, that we can solve this problem in the interest of European integration. Thank you. Thank you, Jean-Claude. Here. Thank you very much indeed. I would say that the exposition were wonderful and the list of reform is impressive. I would personally underwrite absolutely all what you have said. Let me only mention that we had also done a lot of reforms in the most recent period in the second two years. I'm speaking under the control of Mario, the setting up by a treaty of the ESM with an enormous amount of callable capital, more than 700 billion euros. We have the macroeconomic imbalance procedure starting from scratch. We have the banking union that Mario mentioned as one of the most important reform. We have the fiscal compact. All this has been done recently, so I would draw our attention to the fact that it's a historic project, that it takes a little time nevertheless. And when I look at the US, the Coenage Act dated 1792, it matured a lot until there was the Federal Reserve Act in 1913, so 120 years. And since 1913, of course, we have also 106 years. So I would draw our attention to the fact that it's a historic process which takes necessarily a little time. A lot has to be done, a lot have been done in the most recent years. And on the international currency, I will again underline what has been already said, the absence of capital market union, the absence of real banking union is terrible. It was said also by Mario and by all of you, because we do not have the market that would be deep and liquid as is required. So we have a very good performance in terms of global payment currency. These figures are not known, but they are in the report you mentioned, Benoit, with 40% for the US and 35% for the euro. So we are very close. Where we are desperately behind is when markets are concerned and then very low level of forex proportion for the euro, in comparison with the dollar, one third of forex and one third in international debt denomination. So there is a big difference between the potential and the reality. Thank you so much, Sajan Claude, for being positive. I somehow fear that the conference will end with the image of a crumbling bridge between France and Germany, which would have been pretty depressive, but there are solid bridges between France and Germany and other countries, so thank you, Sajan Claude. Sajan Valais, and then we'll go back to the panel. Thank you. I had a question about the fiscal framework, which was somehow the common thread between many of the presentations. Elaine talked about safe asset without saying who was going to issue the safe asset. Martin talked about the fact that we don't really have a resolution authority, in part because we don't have anybody to deliver liquidity and solvency in instruments and Gopina mentioned the central fiscal authority. We seem to be in a framework where we don't have a euro area budget and we're maybe not going to have one anytime soon. We don't have the second best, which would be the coordination of national fiscal policies because we don't have an effective coordination framework. And so we're left in the third best, which is fiscal rules that we are not following and a form of chaos where every member state does as much as it can to deliver some level of stabilization. And so I was curious to ask the panelists, what do you think would be an ideal form of euro area budget? Yesterday, Mario Draghi mentioned that even if we didn't have one immediately, the commitment of European governments to have something at some stage would be enormously powerful. Do you believe that the agreement we had last week in the Eurogroup amounts to that commitment? And if not, what do we need to change to have that sort of medium term commitment? Thank you, Shayna. Back to the panelists. And then we'll have other rounds of questions, so don't worry about that, be patient. Gita, do you want to start? So on the fiscal rules and how much success there was from the Eurogroup meeting week ago, I think it's fair to say that there was probably great intent and some progress, but a lot to be done. And this is both in terms, there wasn't a clear agreement about the size of the budget, what that would be. The emphasis continues to be on support for competitiveness in structural reforms, which is a good thing, but there's also a need for macro stabilization and that has to be done. So this will be on the wish list and of course it always seems very ambitious in questions whether that will ever come about, but more narrowly in terms of just the fiscal rules for now, I would say that maybe what could be done and I can't see why it shouldn't be is the simplification of the fiscal rules and making it transparent, more clear what the escape clauses are. It's fairly complicated at this time and I would put that out as something that can be done. Thank you, Martin. Two responses, first one to Jean-Claude Trichet. I didn't say that nothing has been done. I fully appreciate that a lot has been done. The one reservation I have about the process is that quite often there's been too much belief in the power of labels and too little analysis. In the case of resolution, this phrase never again will taxpayers be involved, dominated the political discussion and anyone who understands the subject knows it's not true. One moved away, well, one consciously and I know this because I talked to people involved in the negotiations and said you must do this, deal with this. One consciously avoided the problem of liquidity because it would have been politically unpalatable. I think the willingness to engage in compromise in order to get somewhere, well, that's fine. But then to say we've solved the problem if you know the major part of the problem has not been solved, that's dishonest. And then to move on to capital market union as though it was the natural complement to banking union. When banking union was something that was needed to solve problems in an existing sector that was essential for monetary policy and capital market union is intended to solve the problem that a certain sector isn't really there. With no concern about the heterogeneity of the underlying legal infrastructures in the different member states. Think about German code determination and stock market law. Takeover law, I mean there are lots of things affecting capital markets that would have to be addressed but of course capital, this wonderful label never was meant that way. And I'm concerned about the facts that even in the progress of the negotiations we've had too much of that kind of hiding things for basically the purpose of media success. On the question of the fiscal authority that really raises the problem of political legitimacy. The sort of narrow avenue that I could see would be that for some of the purposes that we've introduced one creates specialized agencies. Gives these specialized agencies funding from a formal procedure that's well established well that needs to be well codified and let them proceed on that basis. There are many examples of that in different countries. The moment you go to an institution that gets the power to raise money and gets this question over what it's going to do with it. You need parliamentary involvement and that of course, which I think is extremely desirable requires a major way, a major change in the way the EU operates. Marcel? Maybe to point on the first question on investment. Yes, of course there's a focus on public investment which is right, we have too low public investment but we shouldn't forget that private investment is a lot more important public investment. 90% of all investment is private and we have equally as for the public sector we have really a deficient private sector investment. Companies investing too little. Clearly there's a complementarity between public investment and private investment but all I'm trying to say is if you talk about private investment and how to push that we need to think of completing the single market for services, having common standards, deregulating, having more competition if you look at Germany, the big reason for the huge current account surplus comes from the services sectors, comes from having too little investment in that sector, therefore too little imports and therefore a very high current account surplus. So really focusing on private investment I would add is very important and the second point on public investment, it's a lot more complicated than saying look the government needs to spend more. If you take Germany, Germany has a federalist structure more than half of all public investment is done at the municipal level, at the local level and we have 30% of local municipalities that are over-ended that don't have the ability to spend so thinking about the federalism, federalist structure both within countries but also within Europe, I would say is very important that brings me to the issue of the budget and we have the European, the EU budget, 40% of which are structural funds, 40% roughly is the cap, the common agriculture policy and there's a lot of scope. We're talking about 150 billion over seven years so it's not a huge amount but still there is a budget and I think we should also think about how to use that money more sensibly for instance issues of public investment and also to help trigger convergence. Thank you Marcel, Elen, yeah. So briefly I just wanted to- Briefly, yeah. Yeah, very briefly. So on the safe side, so true that on the payment side there has been a rise, now if we want to go further and think about the reserve currency, et cetera, so clearly there what happens during global crisis time is very important and so we have this weakness of a doom loop within the euro area that we really should fix because precisely when there is a big shock and that you need the safe asset to be resilient is the time where it's just not working in the euro area so for the sake of financial stability and also for the sake of international role of the euro that should be number one on the agenda. Thank you, let me allow for another round of questions and so there will be many of you who won't have an opportunity to ask your questions and I take the entire blame, that's exactly my job. So let me give the floor exactly in chronological order so starting with Yanis Stornas. Thank you, it was an excellent discussion. I'd like to pose a question regarding the relationship between banking union, particularly the European deposit insurance scheme and capital markets union. I have seen certain arguments recently that if we achieve a perfect capital market union then we don't need a European deposit insurance scheme. In my view this is wrong, we need both. We cannot have a substitute in the form of a capital market union for European deposit insurance scheme but I'd like to have the views of the panel on that, thank you. Thank you Yanis, hi Joe Huang. I want to provide a quick comment on RMB internationalization and then propose a suggestion for the panel to consider on how to enlarge the safe asset. I think that everyone, Elaine and also Martin can talk about that. RMB internationalization has not gone very far. As you can tell I'm the only representative from China. That's a, I think that there is a long way to go. China is sitting on three trillion US dollar reserves. The market estimate of that is about 70% in US dollar. I think China would be more than happy to invest one trillion in euro but of course that is related to Elaine's question. Euro, I think that the safe asset, there is a shortage of that in euro, in big amount in liquidity and also that I think that it needs to generate a higher return, nominal return. Say it's German bound zero return or negative, I think that for PPOC to hold a trillion of that sitting negative return doesn't look very good. So I think that in a way that to massively increase safe return with a possible nominal interest rate that's vitally important. So here's my proposal for the panelists to consider. Of course that both Martin and Elaine and other talk about the lack of public investment. How about you basically that ask EIB or EBRD to issue massive amount of bond and the ECB to provide some credit enhancement and the PPOC can buy one trillion US dollars right after that. So that's one suggestion. The second suggestion of course I think that the ECB will also need to be prepared for a bigger crisis not in your area, in global I think. When the next big crisis coming out, I'm not sure whether the Fed is ready. So maybe we need another version of do whatever we take internationally whether ECB is ready for that. I think that the RMB is not ready for that yet. If China and the PPOC and ECB can collaborate on that I think that would probably help save the world. And hopefully the Fed will come along. Thank you. Thank you for your question. I mean note that we do have a swap line between the ECB and PPOC which can be the start of that discussion. Yes, please in the back. Yes. Christian from Barclays. A very straightforward question. This is a panel about the future of the European Monetary Union. And I just wonder whether there's still ambition to actually grow it. You know, there's still a lot of EU countries that are presumed I assume at some point to join. And obviously this process has come to a hold. And you know, in financial markets that was all the talk before the crisis about which country would be next to join and the kind of convergence that would take place. And I wonder whether you believe given the problems that we have right now it's better to wait and keep countries maybe waiting for longer and deal with all the issues that we defined already or whether one should continue to press on and invite more countries and encourage new countries to join. Thank you. Let me take two more questions and that will be it given the time constraints. So that's Christine Forbes and Michael Borda. Christine Forbes from MIT. So many of the reforms that have come up again on this panel as well as the last day and a half have been things like fiscal policy, migration, things that central bankers can't do too much about. Given that this is a room dominated by central bankers especially in Europe, are there any specific reforms you'd mentioned for them that the people in this room can do more about? One example in the US there's a big discussion now on changing the mandate of the Fed. Should those types of issues or anything else be on the table? Given the audience here. Michael Borda, Humboldt University. I have a related question. Given that Europe as a whole can't coordinate fiscal policy wouldn't it be a good idea to do something like Helmut Schmidt, Gisconde de Stang meeting and deciding to do something bilaterally and asking other European countries if they wanna join in? I'm thinking of two things. I'm thinking of fixing all those bridges across the Rhine. That would cost several billion. And then the second thing would be to get rid of the second parliament in Strasbourg and turn it into a European Institute of Technology in the sense of MIT. Why couldn't Europe do that? I mean there are enough smart French people and a lot of smart German people who could get together and take over this capital stock in Strasbourg and make it into a serious university which Europe has been looking for for a long time. So I won't step in that minefield but I'm happy to listen to the answer so please. Yeah, well if you want to. Not into that minefield but on some of the other questions that came up. So clearly the Bank of the Union and Capital Marketing these are not substitutes. They absolutely don't substitute for each other. You can have a very good Capital Markets Union. The US is an example of that but at the same time you need a Banking Union. The Capital Marketing Union is not going to ensure you against runs on banks or against liquidity crisis in the banking sector and so not having a common deposit insurance scheme would be a mistake. Two questions about why we're talking about everything that's not monetary policy. I think the way I would say it is that we're trying to make the job of monetary policy makers easier a little bit by saying that it would be really helpful if these other mechanisms were in place. I think there's been a lot of innovation on monetary policies that have happened over the last decade and while there certainly has been more progress also in other fronts I think that the most important ones are where countries can have greater resilience to shocks that don't necessarily rely entirely on monetary policy tools. And I'll stop there. On this issue of our Banking Union and Capital Union substitutes or not. I have the following wrinkle. In 2015 there were substitutes because when the new commission came in and said we've dealt with Banking Union now let's talk about Capital Union, Capital Markets Union. That meant that for a few years Banking Union was off the agenda. In terms of political energy that can be devoted to subjects there is a budget constraint. And there I thought that the displacement of endeavors to think about Banking Union by concerns about Capital Market Union which to some extent had to do with promoting interests of the city trying to make EU attractive for the UK and things like that. That was a mistake. In particular since if you look at the actual measures that were being talked about it was piecemeal a little bit here, a little bit there. But nothing that would get at the fundamental reasons for why we don't have wonderful Capital Markets. On the safe asset real safety I think would require fiscal capacity and would require the discretion to adapt taxation to if necessary the need to pay one step. And we're far removed from that. The various proposals for safe assets such as SBIs are devices to get around them but they all have sort of little pieces of lack of safety that are problematic and ultimately their functioning will depend on the ECB's willingness to buy the stuff which brings me to the observation that at some level the arrangement we have under QE already has some version of SBIs namely the different national banks by in fixed proportion in the proportion of the paid and capital share of the different national central banks. Having said that I would like to draw attention to the fact that in introducing QE there's been a step back from the sort of communism in terms of income, income accounting by having each national bank by its own government step under a rule that allows it to keep the interest on that debt to bear the risk associated with that debt so that the extent to which that debt is treated as part of the common income of the central banks in the system is very much reduced. Now that's a form of SB which in terms of thinking of the ECB or rather the Euro system as a supranational institution which is one whole is actually a step backward and I remember Peter making a critical comment about this when it was to me in conversation when it was introduced. On the other hand and this illustrates the conflict where we are having this rule means that potential exit incentives are unaffected by QE because if you think about the real incentives for exit a government that wants to leave, what do they have to gain? What do they have to lose? They lose their share in Euro system profits and they gain the assets that they withdraw from the Euro system. Now the difference between those two is neutral to QE under the procedure that has been followed. And I've been discussing this with a number of people. Is this a good thing or a bad thing? I see pros and cons but very definitely the splitting up and treating these acquisitions as if they were each national central bank's own business except for the fact that it's under the control of the Euro system is a step back. Thank you Martin. You know QE is a monetary instrument, right? So whether it's a good thing or a bad thing from a fiscal standpoint, he's not really the point. Marcel? Just two comments also one way. I think I wouldn't agree that QE has an element of SBs but I want to answer two questions. One is by Michael Burd and the other one, Christy Forbes. You know when we started this group of 14 economists French and German our thought was exactly the same thing. They're different views and you know, in a way they're compatible, they're not contradictions but they're two sides of the same coin. Now thinking back, I think it's very important to be more inclusive. I think it's actually not a good idea to have it to narrow it down to two countries. And there are actually a lot of proposals on European universities, excellence universities by President Macron. So there are some proposals out there and I agree with what we could do moving that direction. On Christy's question on the mandate or on the reforms, I do think we need to have that discussion about the mandate, what central banks should be doing. I think the result would be not so different from what central banks do today but I think again for the issue of legitimacy to say look, we are looking at that issue. It is important, we need to really think very hard about changing global environment, financial stability having become a lot more important for central banks than it was 10, 15, 20 years ago. For me the question is what's the right timing? And you probably want to do that discussion and those reforms when they're smooth sailing. So when things are relatively calm. And if I may, one comment to Olivier Blanchard on Monday evening, I actually would think that it's actually very dangerous in times when you still have zero interest rates, when it's difficult to achieve price stability to move up the inflation targets. So talking about credibility, I think you really want to do this reforms about manage or discussion about the mandate of central banks in good times, when things are well and not rock the boat, when it's difficult. Elaine, you have the last words. Just wanted to briefly add to the answer to Hi Joe. So the safe asset proposals come in many different flavors. So we discussed SBs, which are about, you know, putting together national debt and then somehow tranching. But there's also some alternative views which could be that the ESM, the body you didn't actually cite could also issue debt. But of course, the devil is in the details. And then you have to think about a lot of issues about implementation, seniority, et cetera. But definitely this all should be in the agenda. Thank you, Elaine. I've been instructed to catch up on the later start of this session, which I'm doing diligently. So I guess it's time to hand the floor back to Christine Geif and to the president. Thank you very much to all speakers and thank you for your questions.