13 May 2013

VP Rehn's blog: Reflections from Buckinghamshire

Rehn shares his thoughts on the meeting of the G7 Finance Ministers and Central Bank Governors in Buckinghamshire. "Gradual and differentiated fiscal consolidation has to continue in the EU, even if in many countries it can now happen at a smoother pace than a year or two ago."

Successful reforms will help our economies make the most of the forthcoming new trade agreements, which will be essential for stimulating global growth. I am thinking here in particular about our future negotiations for a free trade agreement with the US, which have the potential to create millions of new jobs on both sides of the Atlantic and beyond. Apart from economics, it has major potential to revitalise the EU-US strategic partnership even in a wider sense.

In the field of monetary policies, central banks have employed a broad and diverse range of tools to support demand. They have taken action of both conventional and unconventional nature to support the recovery while maintaining price stability. These actions have been important in safeguarding financial stability and supporting economic recovery. They have been and will remain orientated towards meeting domestic objectives using domestic instruments without targeting exchange rates. As such, speculation about “currency wars” is unfounded. 

But a strong recovery will only come if we take further measures to ensure that credit can flow appropriately to support the economy. A healthy banking sector with adequately capitalised banks’ balance sheets is therefore a prerequisite for growth. That is why I believe our work on establishing a banking union will be the most important single undertaking at European level over the coming months and years for creating foundations for growth and jobs.

The proposed Directive on Bank Recovery and Resolution will be a key building block of the banking union. It will establish a harmonised framework for bank resolution in the EU. It will ensure that common rules, tools and power are applied to all banks in the same manner. In short, it will establish clear rules of the game.

But the construction will not be complete without a Single Resolution Mechanism for applying the common rules. The Commission will make a proposal for such a mechanism by this summer.

However, since the financial market is increasingly global, we will need to ensure a level playing field and joint principles for bank recovery and resolution also at the global level. I believe the G7, with countries comprising the bulk of the global financial system, will be a central forum for achieving that goal.

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