Committee on Economic and Monetary Affairs Ordinary meeting
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ECON European Parliament
Follow its sittingsSpeaker 2
It is a very significant expansion of the liquidity lines of the ECB, but I don't think it's enough. I think the ECB should also consider expanding its FX swap lines, including expanding FX swap lines for the purpose of expanding the role of the euro in trade invoicing. And let me give you an example. The EU has just signed a free trade agreement with India. You could have very well imagined that as part of this free trade agreement with India, the ECB would have signed a bilateral FX swap line with the Reserve Bank of India for the purpose of expanding trade invoicing between the EU and India.
And the ECB decided not to do that, which I think is a mistake. So the ECB has a very narrow and somewhat conservative view on the role of FX swap lines, and I think that role should be extended. The second issue I see with this new Europe framework is that it treats all international central banks in the same way, when you could imagine that some central banks should be treated differently, either because we have greater financial or trade ties with them or because we have stronger political ties. For instance, I find it hard to reconcile that the National Bank of Poland or the National Bank of Hungary would be treated exactly in the same way as the South African Reserve Bank or the Central Bank of Turkey. I think the Europe framework should make it clear that EU countries should have a different treatment.
And then within EU countries, it's not very clear to me why the Central Bank of Denmark or the RICS banks of Sweden have a swap line, when others only have a liquidity line. So I think there is a problem of consistency in applying the framework of DCB, which requires further reform. I think DCB should accept that swap lines are political in nature, and therefore accept what comes with this. I would add that FX swap lines can play a very critical role in moments of crisis. There was, for instance, a discussion with Ukraine as to whether the ECB should extend a bilateral FX swap line to Ukraine.
I am of the view that this should have been considered more thoroughly. And instead of doing that, the ECB has decided to extend a liquidity line to the National Bank of Poland as a substitute. So I think that requires further consideration. Second, you've mentioned, Miss Madonna President, the role of stablecoins. I want to start with the view that stablecoins are not going to play a major role in internationalizing the euro.
Stablecoins issued in euros are not going to add massively to the demand for a European safe asset. And I don't think we should view stablecoins in Europe as the venue, as a critical platform for internationalizing the euro. Stablecoin issued in Europe in dollars are in fact going to do the opposite. And so I very much stick with the view of this house, I believe, that MICR framework, and in particular, the multi-issuer problem remains one to be resolved. And I stand with the ECB quite firmly and with the SRB in believing that what has been allowed in France for now, the multi issuer of the dollar stablecoin, is a key stability and financial stability issue for Europe.
And I hope that the European Commission and its forthcoming legal opinion will clarify that. I understand those who advocate for stablecoin as a payment innovation device, but I think the payment innovation benefits do not outweigh the financial stability risks and costs that are associated with that. The last second to last point I want to make is about payment. As I've exposed earlier, China has built a fully sovereign public payment system outside the reach of US sanctions. I think this is a critical feature of a strong international currency, and one where the EU should invest a lot more than it does.
The digital euro is a very strong step in that direction, but the digital euro in its current form is probably too modest to play the role of payment guardrails it could play. And specifically, I mean that holding limits as they are today may undermine the role of the digital euro as a strong payment platform. That being said, there are other initiatives linked to the digital euro that are significant, but I think investing a lot in creating a fully sovereign and fully public payment infrastructure to me is critical to the international role of the euro. Finally, I want to say a word on safe asset. In fact, Europe, in a broad sense, issues quite a lot of safe assets, not enough in my view, but quite a lot still.
The problem is that this supply of safe assets is very fragmented among several issuers. You have on this chart the EU debt of the European Commission, which is still fragmented between different programs, safe, sure, NGU, macro financial assistance facility, balance of payment assistance facility. And I think that should be fully unified under one issuer. We also still have outstanding EFSF debt. We still have outstanding ESM debt, and we have quite a large pool of European Investment Bank debt.
I think there is a strong case for unifying all of these issuances under one interest rate curve and under one issuer. And by that, I mean, essentially, either swapping the existing debt for EU debt, but also potentially considering bringing the ESM under community law. As you remember, there was a commitment to bring the ESM under community law in the past, and this was not fulfilled. I think that is a promise that now is necessary. There is indeed a significant cost to having multiple issuers, and I think that cost could be reduced tremendously and the liquidity could be expanded. And so I'll end with one word.
I think there's a real need for a European strategy, and I truly hope that your forthcoming resolution could be the venue for providing that strategy. But I think, formally, the best way to have the strategy would be to have a joint paper by the European Commission, the Eurogroup, and the ECB, and that this strategy would be held accountable by this committee. Thank you.
Thorsten BECK
Thank you very much, Madam Chair. Monsieur Raphateaux, dear ladies and gentlemen, I'm very happy to be here as the vice chair of the advisory scientific committee. And let me also say that this topic is, of course, of high interest to my colleagues and me because of the implications of the global financial architecture also for global financial stability and, of course, for the financial stability of the European financial system, which is, of course, at the core of the mandate of the ESRB. Now since its inception in '99, the euro was expected to emerge as a strong global reserve currency capable of rivaling the US dollar, but that transition hasn't really materialized. While there was an increase in the international role of the euro in the early years of the century, it has declined significantly since the global financial crisis.
Currently, composite indices show a role of less than 20%. So it's a second strong second, but it's far away from the first, which is still the US dollar. And even though there has been a decline in the role of the US dollar as reserve currency, the shift out of dollars, according to estimates, has been a quarter into the Chinese renminbi, as also kind of pointed to by Mister Wallet, three quarters into other currencies of smaller countries, while the euro hasn't really benefited from it. Now I'm gonna focus really on the long term, not on the short-term fluctuations. And to really understand the euro's potential, we should first define what the global role entails.
And there are basically two, three roles: reserve currency for central banks, funding currency, both for private, public sector debt and equity, and invoicing currency. And, of course, these three roles go hand in hand. Now, why is the US dollar so dominant? Well, first, if you look at US financial markets, they are more liquid, deeper than European markets. And the US Treasury, in spite of volatility, is still regarded as the global safe asset.
There is an institutional strength and legitimacy in the US. The US has historically offered a strong, robust institutional framework characterized by strong property rights, rule of law, reliable contract enforcement, and government efficiency. Political and constitutional checks and balances have fostered global confidence in US monetary, fiscal, and trade policy. Second, the geopolitical alignment. There is a rather famous paper by Barry Eichengreen and Coursers on Mercury versus Mars, where they basically show that countries allied with the US through military alliances tend to hold a higher share in reserves in US dollar.
And the role of the US as the global hegemon over the past 80 years has strengthened the role of the US dollar also as a global reserve currency. And then finally, there is the network effect, which I alluded to already earlier. The three roles of the US dollar as a global currency give it an incumbency advantage and kind of reinforce itself. So being more of a reserve currency mixed also more for funding and of an invoicing currency, and so on. Now if you compare the US with the euro area, you can clearly see a shortfall.
Number one, European capital markets are much less developed, and they're also more fragmented than in the US. There is not really a safe asset, a unified safe asset like in, like in The US. I think it's only the German bunds who can currently truly be viewed as truly safe and sufficiently liquid. And supply is limited. 2,000,000,000,000 German bunds versus 30,000,000,000,000 US dollar treasuries.
So, significance of fifteen times. Institutional Europe also faces fragmentation. There's, of course, as we all know, the divergence in legal frameworks, government efficiency, and then, of course, there is the issue that the common law systems of the US, of the UK are often perceived as more flexible and reliable for international finance than the varying civil law frameworks within the EU. Finally, while the EU is an economic powerhouse, it has yet to project equivalent geopolitical weight in the absence of a common foreign policy. Until recently, the EU has completely avoided any military role, leaving this to NATO, of which 23 EU member states are also members, and a very limited role as a geopolitical player.
So in sum, when it comes to capital markets, institutional strength, and geopolitical role, the EU just falls short, I have to say, compared to the US. Now, of course, a lot has happened over the past 12 months and also over the past years, especially in the US. And I would say that, yes, The US is trying to maintain its role of the dollar as a global reserve currency, but there are also several actions that have undermined the dollar's hegemony. Number one, the institutional erosion, domestic political volatility, political interference in judicial processes, and a perceived or real slight towards authoritarianism reduced international trust in the US and, therefore, also the US dollar. Military alliances are being questioned, so the incentives for allies to hold US dollar reserves may also diminish.
At the same time, the decoupling in international trade and capital flows between rival geopolitical blocs and attempts at building alternative global payment systems, and mister Wallet has already referred to this, of course, might further undermine the role of the US dollar as global currency. Finally, there is the fear, and rightly so, I would say, that the US may weaponize capital flow just as it has already done for international trade, including towards countries like us that until recently were considered allies. There is the issue of fiscal instability, number three, rising deficits and debt levels, although we haven't really seen anything in terms of an adverse reaction by investors. And finally, there is the issue of undermining regulatory independence. Threats to the independence of the Federal Reserve, but also more so other regulatory and supervisory authorities might undermine the foundations of the US financial system and also raise questions, and that's very important, about international cooperation between banks and central banks and regulatory supervisory authority, which is urgently needed during systemic distress situations as we have seen, for example, in 2008, but also in 2020.
Now given the situation, shortfall of the EU versus the US, but the current change in situations, what is to be done in Europe? What would be a path to European strategic autonomy? And I'm not talking about making the euro a replacement or substitute, which I think, as Mister Wale said, I think would be, in my own words now, a bit naive, I would argue. But, we have noticed a strong heavy Europe's heavy dependence on US financial infrastructure and system, from the payment rails, Visa, Mastercard, central counterparties, CSPs, to the reliance of European banks on US dollar funding. So reducing this dependency is not just an economic goal, but it is actually, I would really say, a prerequisite for strategic autonomy for a sovereign entity.
So also related, strengthening the global role of the euro is really linked to the project of a savings and investments union, which is kind of the other side of the coin, internal market on the one hand, stronger global role of the euro on the other hand. So let me close with some very specific recommendations that I would put, and I'm happy to talk about more of them in the questions. Number one, create a unified safe asset with sufficient volume, variety, antennas, and frequent issuances, which I think is important. It's not just about the stock, it is about the flow. It's a necessary, though not sufficient, condition.
Number two, of course, savings and investments union deepen the capital markets, diversify the bank the financial system beyond banks, which includes also a more investor friendly legal framework, including potentially a 28 regime and financing models for innovative projects and start ups. Three, maintain high standards, preserve independence of central banks and regulatory and supervisory authority, and, like mister Wallet said, holding a consistent line on standards for crypto assets, including stablecoins. And here, I'm completely in line with him. Number three and here number four, and I'm a bit more positive than maybe Mister Vale, innovation and payments, I think, is critical. So the development of the digital euro on the retail level, but I would say even more so Pontes and Appia in the long term on the wholesale level, is really critical to support, to kind of also have a stronger role for the euro internally, being able to avoid the US financial system as if necessary, and strengthen the role of the euro inside, but also outside the euro area and the EU.
At the same time, supporting private initiatives such that do not rely on US payment rail systems such as Vero, or establishing interoperability between domestic payment systems, I think, can be very helpful. I would agree with mister Wally, expanding the liquidity networks and having more swap lines, liquidity swap lines for moments of crisis, to thus reduce reliance on The US. Sixth, I think Europe should remain a champion of multilateralism, continuing to work with other international partners, including the UK, I would stress, even in instances where the US is not a partner. And this can, by the way, also include initiatives to interlink the European Euro Area payment system with other fast payment systems globally as being undertaken by the ECB. And finally, and this is, of course, beyond the brief of this committee and certainly beyond my own area of academic expertise, I think the EU must project a stronger geopolitical role if the euro has to have a stronger geopolitical role.
In conclusion, as the hegemony economy of the US dollar as a global reserve currency is being questioned, it's not finished, but questioned, I think it's unlikely there will be a smooth transition to a new equilibrium. I think, therefore, the euro area and the EU are really at a crossroads with challenges and opportunities. It's important to address internal fragmentation, build a robust, independent financial infrastructure, and that actually can strengthen the role of the euro internally and externally. It's not just about competition. It is really about ensuring Europe's resilience in a very, and increasingly volatile, world.
Thank you.
Marie Sophie LAPP
Thank you, madam chair, honorable members of the committee. First of all, thank you for the invitation to speak here today. I would like to start with a bit more of a broader scene setting. I mean, we've already heard a lot of this today. But let me just reiterate a little the background.
So we have major global currencies that can play several functions in the international financial system. They are held as reserve currency by central banks, which we've heard quite a lot about today, are used in international financial transactions such as debt issuance, and serve as a means of payment. So these are kind of the main three functions. And in each of these functions, the US dollar has historically been dominant. More recently, as we've also already heard today, there has been a decline in trust in the dollar.
So, of course, while the US dollar is not about to be replaced just because it is so dominant, given its centrality in the global financial system, demand for an alternative is also real and growing, which we've seen in market reporting and others. The EU can leverage this demand shift into more monetary sovereignty and resilience by strengthening the role of its currency. Today, I want to discuss some of the more structural conditions that the EU needs to be able to fulfill this stronger role. I refer here to the current state of research as well on what history tells us the conditions are for a country or a currency union to have a strong international currency. The good thing is your area or the EU in general already meets two key requisite prerequisites in a way.
It's a large economy, and it's backed by a large economy, and it has free capital flows. So these are kind of the points where we are good to go. However, there's, of course, still other conditions that need to be fulfilled in order to potentially gain some market share from, potentially, the US dollar. So let me start with three additional conditions where the EU has made progress in recent years, but still also needs to take further action. So the first point we've, which has also been already alluded to today, is that public authorities need to be willing to take on international responsibilities.
So while the EU has, of course, been a global actor in many domains, it has only more recently started to proactively discuss the euro as an international currency. Most notably, the ECB has shifted its stance from a more neutral stance on the euro's global role to a more proactive communication. Having said that, and this is what we've also already heard today, the EU still lacks a coherent strategy to promote the euro internationally, unlike the US and China already do. As a second condition, a dominant currency needs to be anchored in a stable domestic environment. This goes across multiple dimensions, monetary, fiscal, financial, but also institutional, judicial, political dimensions.
I won't focus on the latter few, but would like to focus a bit more on the other aspects such as financial stability, where the euro area has progressed a lot. But, of course, there's also still more to do, most perhaps as an example. These are things like progressing on issues such as market integration in general, the banking union, common supervisors. And then, in addition, also, so I mentioned this financial stability, also fiscal stability. Of course, there has been a reform of the fiscal rules, which will also hopefully contribute to further stabilizing the fiscal space in the EU.
As a third point in terms of conditions that the US make progress through, this is just also historically determined, is geopolitical and military power in a way that have been historical determinants of a currency's international statute. Europe's sense here has shifted as well, given geopolitical realities. We all know this, but this goes a little bit beyond what the actions have been here, so I won't focus on this today. But let me now focus on the last two critical conditions that I think a stronger global role of the euro really requires, kind of a baseline. There's, of course, stuff that needs to come on top, but these are really the two things where I think it won't work without.
And that is, first of all, the progressions of the savings and investment union, and then the supply of a pool of safe assets. We've heard these arguments today as well. Let me reiterate a little on these. So on the SIU, drug and letter reports have sparked various proposals that could lead to progress towards more developed capital markets. Efforts on creating a divestment domestic investment culture, whether it be through pension reform or the promotion of financial literacy, these all play an important role.
But also more integrated capital markets, for example, through the establishment of a single supervisor and the progression towards the banking union, will further foster capital market development and thus make euro-denominated assets more attractive globally as well. And then lastly, what I think is politically also the most consequential gap is the lack of common safe assets, and also the lack of progress in that sense. So as we all know, a safe asset is a financial instrument that retains its value and remains liquid in times of stress, and in the Euro area case would be euro denominated. This is the foundation of reserve currency status. Without a large and credible supply of them, global investors and central banks simply have no practical means of hurrying holding currency at scale.
A larger supply would make it substantially easier to hold euro-denominated bonds as reserve assets, and there is evidence of growing appetite to diversify away from the dollar. So credible and growing stock of EU-level bonds would provide this diversification. Now I'm aware that the term joint debt or anything related to common safe assets will also carry significant political weight. There are various proposals on the table on how to increase the supply of safe assets, each with somewhat different implications. Of course, the most plausible near-term solution is targeted joint debt issuance to finance common European public goods.
Most commonly discussed recently is that of defense procurement. Another option would involve swapping national debt into EU-level debt to just increase the joint pool. Both proposals, of course, would lead to an increase in safe assets, which is ultimately what I'm advocating for here. But in this case, the latter, so the swapping of national debt into EU-level debt, is more likely to lead to a consistent provision of safe assets. So it's also not about one-time issuance, which we've also heard today.
And that's why I think this is probably the better option in this case. So let me summarize. Strengthening the role of the euro requires strengthening structural foundations and doing so consistently over time as well. First and foremost, the euro area needs to address the insufficient supply of safe assets. Second, this must go hand in hand with deeply integrated capital markets.
This is where the SIU becomes central. Its relevance for the international role of the euro lies in whether it can deliver scale, liquidity, and cross-border integration. Third, signaling willingness to strengthen the euro's international role. For example, which is also what we refer to today through a more systematic use of ECB swap lines, which can support the international use of the euro by providing liquid liquidity in terms of stress. Finally, let me just briefly address the role of the digital euro, which I haven't mentioned at all today.
But as financial systems digitalize, the euro needs to remain anchored in a public and trusted monetary framework. Otherwise, there's a risk that private or foreign alternatives will fill this vacuum in digital financial infrastructure, and potentially weaken monetary sovereignty and, ultimately, the credibility of the euro itself. So the international role of the euro cannot be strengthened by any single initiative in isolation. What will be decisive is whether you can deliver on the combination of these more structural changes that I have mentioned today. Thank you.
Irene Tinagli
Thank you. Q and a session now. One minute, one minute and a half for the question. Four minutes for the answer by two speakers maximum, and please let them let us know the speaker or the speakers to whom you are addressing your question. And I will start for EPP with Mister Gibbontella.
Michalis Hadjipantela
Thank you, chair. I would like to thank all the speakers for their presentations. I believe our aim is to be the number one currency in the world and not to be the second currency. So my, in order to achieve this, we have heard the presentation of experts here. I would like to ask first a question to Mister Vales.
He mentioned a unified issuer of bonds. What can we do as a parliament, specifically in order to have a unified issue of bonds? And my second question, which is for Mister Berg and Miss Labbe, they spoke about unified safe assets. We understand about this. And, again, what can we do as a parliament in order to achieve this?
Thank you very much.
Speaker 7
Thank you. So there are two questions for three speakers. So if you can answer, yeah. With one minute and twenty seconds for each, it will be perfect. Easy question.
Right?
Speaker 2
I will be very quick. I, you know, I think I've flagged one venue in particular. So I think you will soon be party to the very important EU multi-annual financial framework negotiations, where the issue of issuance of new EU debt will be part of the negotiations. I think that's one lever that the European Parliament has. The other is the discussion about the future of the ESM.
As you may remember, when the ESM was created, it was created with a commitment that it was an intergovernmental arrangement, a temporary intergovernmental arrangement, and that it would be brought eventually under community law. I think the time for bringing the ESM under community law has come. I would, in particular, flag one very important legal precedent coming back to December 2022 in the European Council, where the European Council has agreed to an enhanced cooperation for the purpose of an EU loan to Ukraine. This is a very important precedent because it means that for the first time, we are issuing an EU budget-backed loan without the full-fledged support of the 27 member states, but actually, in this case, two member states had opted out. Under that legal precedent, we could actually create an enhanced cooperation for the Euro Area, and fold that into the EU budget.
So I think we have created, with this agreement in the European Council in December 2020, a very important precedent that can provide the legal venue for bringing the ESM under community law. And I would stress, finally, that the ESM treaty has still not been ratified by Italy. And as a result, a number of new provisions of the ESM, in particular its backstop for the banking union, are not operational. So that could all be part of this new discussion.
Thank you. Miss Slab?
Marie Sophie LAPP
Yeah. Let me perhaps start, and yeah. So I think one thing that I would like to iterate is indeed the upcoming MFF negotiations. I think this is somewhat the most, let's say, politically realistic point of the debate to bring this up. I mean, as I mentioned, the financing of common European public goods using a joint European safe asset for that would most likely be, in a way, the most straightforward way to implement this.
So that's where the MFF comes in. But what I would also like to reiterate is that these are, of course, as they need to be, compromised solutions, but I think we also need to be realistic of what these solutions can then achieve. If we go for a onetime NGU type issuance, I do not think that these will substantially help the international role of the euro to the extent that it needs to be. So in that sense, I think the political debate needs to turn into something a little bit more bold, something a little bit bigger, and we need to keep this in mind. So in that sense, in particular, what the European parliament can do, of course, I mean, you have significant influence here in the EU, and I think it is important to shift the debates also towards stronger solutions, towards a safe asset, and not try and dabble into temporary solutions that might not deliver all of the promises that we tend to all make when we say you should go for safe assets.
So that's one thing that I would say.
Thorsten BECK
Thank you. I'm gonna be a bit boring and agree with the previous two speakers. Four quick remarks. One, what we sometimes call a flow solution, so issuing of bonds through the financing of common objective, common goods, as already said. I think the multi-annual financial framework offers a great opportunity.
Number two, modest stock, converting existing national debt into European debt, for example, through the ESM buying and then issuing bonds. That might be an option. There might be others. Three, as just said by Ms. Lappe, go big.
I think only a safe asset is only really a safe asset, it's not just a safe asset, it's a safe and liquid asset, which again requires the whole yield curve, requires frequent issuances. That's important. And fourth, maybe that's an additional dimension I want to bring in. We cannot ignore the financial stability implications. We have a very high degree of government over indebtedness, not as extreme, at least on the average, as in the US, but we still have it.
And we have to keep that in mind. We should see there is a fiscal policy dimension too. We have to make sure that we do not use this as an excuse to just expand government debt even further, without any further constraints. Thanks.
Nikos Papandreou
Thank you for your excellent presentations and many questions, but not able to put them all right now. Just a quick point. Digital Euro should be, the way it's being planned, a public infrastructure for sovereignty, and I consider it a public good. So, the ECB will pay part of the setting up that infrastructure. I'm one of the repertoire.
Two questions, then. One very sort of rhetorical question. Why did the role, why did the share of the euro go down in the last few years? That's a little bit rhetorical. Second, there's some and, mister Beck mentioned that one about the Eurobond trading for the national bonds, if I understood right.
And that's one of the proposals. And I think one of the proposals is to go even to 25%, according to Olivier Blanchard. So I'd like to hear how much you support that, to go big. And finally, we have some European banks that are issuing US-based stablecoins today. And I agree very much with Mister Valle's presentation that the stablecoin is a dollarization and a smart way for the dollar to enter the digital market.
But should we allow European banks, of course, there's no law for that, but I'm talking philosophically, to set up US-based stablecoins given the difficulty and the instability and the increased dollarization that'll come from us ourselves? So, three questions. Thank you.
Thorsten BECK
Yes. Thank you very much. So I think, I'm not, I don't wanna go into details of the, there are lots of different proposals on the table concerning how to create safe assets. And in general, I would agree with the theme of going big because, again, I said earlier, you need volume, you need liquidity. Now, again, whether you go for one specific number, that might be less important than to kind of have a very forward, clear, forward-looking kind of strategy in terms of issuing bonds across the yield curve.
I think that's the important thing. Thanks.
Speaker 2
There is something a bit ironic in this panel is that I am probably the one who is most skeptical about a big, you know, mutualization of existing debt. And so I'm the French sitting on that panel, and the two Germans seem to be more enthusiastic towards that, which is a strange irony. I am indeed not of the view that the Blanchard Houbidet or the original Van Weitzecker Del Plat proposal is the most obvious way of creating new European debt. I am a lot more in favor of creating new debt, so the flow option is by financing new European public goods. And I think that's a more realistic, even though I agree that this option is probably the first best and that it would create more rapidly a larger stock of European debt.
On your question about stablecoin, I do think Europe should allow US institutions to issue stablecoins in US if they so choose, but I don't think we should be naive about that. The benefits for the euro's internationalization are strictly zero. What we should not allow, however, is for these institutions to issue dollar stablecoins that are fully fungible with dollar stablecoins issued in the US. In particular, because we have created, thanks to you and Mikar, a redemption principle without a fee. And so if we did that, we would create very vicious incentives for stablecoin issued in the US to be redeemed in Europe, and that would create a very important financial stability risk in Europe.
And so accepting a financial stability risk with zero benefit is a very bad calculus in my mind.
Enikő Győri
Thank you, madam chair. Unfortunately, mister Pimpi, who is responsible for this issue in our group, cannot be with us today, so I'm speaking on his behalf. So, I think there is a consensus among colleagues and even among experts in this hearing that the euro, yes, could become a global currency. There is a window of opportunity for that. But as Mister Rollie has emphasized, global currency is the result of a strategic choice and not an automatic outcome.
So you need that for to make this sure. And, we have been living with the euro for more than 24 years. And indeed, in this first ten years, the euro rose to represent 25% of the global currency reserves, and it has since then fallen to around one fifth. Most interestingly, this share is precisely the average share that the national currencies, which later merged to form the euro, had in the years prior to its creation. So it also demonstrates that this is not a natural automatic development to become a global currency.
And the question and dilemma is that I think more or less you all stated that pushing harder and cost trying to sampling cost to a European financial state, so want a much more integrated financial system, is, well, my group has very strong concerns whether it really serves Europe's interest. Could you be a bit more specific on the benefits of having the euro as a global currency, just to see the sacrifices and the benefit size? And just a final remark, I was quite pleased to hear, by mister Wallace saying that the ECB should have a differentiated treatment concerning the subs towards the EU member states and the outside world because I think it's really necessary. Thank you.
Thorsten BECK
I can start. So, yeah, you can have two different debates. One is, should the euro become the global reserve currency? Number one, I think we would be very far away from that. I don't think that's even a realistic objective.
And the question, as you said rightly, yes, there are costs and benefits. There's a so-called exorbitant privilege, going back to Malarish Schistka, referring to the US, obviously, to the US dollar. And there's also the exorbitant duty, during crisis times, being the lender of international last resorts. There is the cost of capital flow volatility. There is the risk, not necessarily, but the risk of currency overvaluation and running a persistent current-account deficit.
There are also, of course, lots of benefits. But I think they should focus on what Europe is and how Europe is being defined in the new geopolitical, geoeconomic environment, and that we need less dependence on other players, not stopping to cooperate. We need to cooperate with other players, with the US, with China, with other advanced and developing countries, but we can also be able to stand alone. And that comes back to sovereignty. That comes back to the strategic autonomy.
And I think that's maybe the kind of the vision through which I would like to look at the role of the global Europe. And, of course, as I said earlier, it's really the other side of the coin of having an integrated financial system in Europe, which ultimately can help economies grow faster and help us in these multiple transitions that we are currently facing, from the demographic transition to the climate transition, to the digital transition. So that's how I would frame the discussion. Thank you.
Speaker 2
Maybe just add a word. Yes. I agree. I think the question is not whether the euro will become the new hegemonic global reserve currency. And I think if it were to be the case, maybe there will be questions about the cost and benefit that would be a bit more difficult.
But what we're talking about is a multipolar world emerging where the euro should be able to stand as one of the global reserve currencies. And I think in that case, the trade up between cost and benefit is a lot easier. And I would completely second what Mister Beck has said. What is really pivotal is that the euro and the euro's financial system is a lot less dependent today on others and, in particular, on the dollar. And maybe one key fact to remind us all, today in Europe, we're not able to clear a private payment without the intervention of a US company.
More importantly, we're not able to clear a public payment between two central banks with Target 2 without the intervention of a US company. It means we are fundamentally at risk of sanctions for any payment inside Europe. That is not a risk that is acceptable.
Thank.
Marlena Maląg
you. Thank you very much. I will speak in Polish. Thank you, first of all, for this very substantive debate. The potential role of the euro as the leading and global currency that would be an alternative to the American dollar brings about important consequences, both from the macroeconomic and economic political point of view, the increase of the political importance of Europe, the stability of transactions, and a better exchange rate.
The European Central Bank would lose the flexibility of its monetary policy. So the euro would also increase in its value, which would adversely impact exports. So my question is, is this desirable for Europe? That's one. And the second question is whether the EU should indeed try to increase the role of the euro in the first place.
Mister Thorsten, I think.
Back. Okay.
Thorsten BECK
K. Well, thank you very much for this question. I think if I understood the translation correctly, I would disagree that with the euro having a stronger role, a global role, the ECB would actually lose monetary flexibility. That would probably increase. I do agree that there is a risk of appreciation.
Although, I think, again, given that the euro would not take on the role of a global reserve currency, I don't think the risk is probably being overstated. I mean, as I said before, and I can just repeat myself, is that we should really see the strengthening the role of the global euro in the context of strengthening growth in Europe and strengthening the strategic autonomy and sovereignty of European countries and the European Union. Thank you.
Thank.
Speaker 22
Thank you very much, madam chair. Thank you very much for these very useful explanations. I'd like to look at this from the prism of our current legislative work and to make sure that it's useful. You talked about the digital euro, but there's also securitization, which is extremely important. An important part of the savings and investment union is pretty controversial.
Speaker 24
So I wanted to know, are these texts important? Can they contribute to bolstering the international role of the euro? And perhaps I could ask a question to Missus Lapp. What are the specific decisions that we can take that will help European citizens save and invest here in Europe instead of the U. S?
Speaker 23
We talked about more liquid markets. We talked about better rates of return in the short term. And I'm wondering whether, as European lawmakers, we can do something so that the European stock markets are more appealing to Europeans. I'd like to know whether fiscal tax harmonization could be an important way of bolstering the international role of the euro. I think that there are important tax divergences here in the euro area.
Speaker 22
This is what the member states wanted when they drafted the treaties, and I respect that. But I'd like to know whether potentially that could be an important factor that would make the euro more appealing around the world. The question is to anyone who wants to answer it. I'm sure that they will share these questions pretty well. Thank you very much.
Speaker 7
I thought that one of the questions was for Mrs. L'app. So maybe we could start off with her. Go ahead.
Marie Sophie LAPP
Yes. No, happy to, and thank you for the question. Let me maybe start with that specific question on basically how to, so I would like to change the phrasing of the question a little bit. So I think if I understood correctly, it was related to how to convince Europeans to invest more in Europe. And I think the convince is the important point.
I think this came up in more general SIU debates, also in relation to pensions and funneling savings into the European capital market. I think it's important not to kind of force the shift, but literally to make the shift more convincing to European savers. And I think in that sense, many of the aspects that you mentioned are very important, in particular relating to more integration of European capital markets. So this goes a little bit into the direction.
Marie Sophie LAPP
The points that you mentioned. And in terms of making European markets more attractive for European savers as well, how this also relates to the international role of the euro, of course, is in that sense that, of course, by having more integrated capital markets, it would kind of also increase the pool and capital markets at a European level in a way if they are better integrated, which means Europe will be a more important or a more attractive destination also for foreign investment and thus also increasing the importance of euro denominated assets globally. I think you also mentioned a point on fiscal tax harmonization. Let me just reiterate here the point that I think, in general, more European integration here is crucial, mainly because of the scale that we're talking about, that we need to promote the euro as an international currency. Perhaps these other speakers also have something to add.
Thorsten BECK
Thank you. So on the securitization, I’m kind of bidding no. Didn't really expect this kind of question, but I can't go into details. But if securitization done in an incentive comp compatible way, as we economists like to put it, is done, it can, of course, help deepen financial systems. Of course, it helps the banks, but it can also help the markets by creating new markets in these asset classes.
So, yes, as a general statement, I would say yes, it can be helpful. It coughed the devil is in the detail. On taxation, and here, I will become a little bit personal, I have to say. So I'm always smiling when somebody refers to me as being German because I spent, actually not just most of my adult, but also most of my life now outside Germany, including in several European countries, which also means I have accounts in several European countries, which is always difficult for both me and for my tax consultant at the time of tax, when it comes to filing tax returns. And I think having a common regime, for example, for investment accounts for retail investors like me, I think would be a very positive thing.
Again, very simple. We can have more options to invest outside the country where we have the residents. So more competition among investment funds mean investment opportunities, and therefore, also lower costs, more opportunities ultimately for Sabos and ultimately then also for the projects, the funds that are being, the firms that are being funded. Thank you.
Speaker 26
Yes. Thank you so much to all of the experts and also to the different colleagues already asking some questions. I'm also quite interested in. I would also like to go a bit more in-depth with the question on the European safe assets, which will definitely be one of the main topics which will be discussed in the report we are drafting right now, and we will present very shortly. Maybe to Mr. Beck and Ms.
Speaker 25
L'appel, about the scale of the safe assets. I mean, you have all been quite vocal on the need for European assets. But on the scale, you have been quite reluctant on coming up with a bit more concrete figures. And maybe if you don't want to provide any kind of figure, I understand that completely, then maybe you could still reply a bit more in-depth when it's about maybe some references on GDP level or compared to the U. S.
Market or other references you would like to take just to go a bit more to become a bit more concrete on the scale of the asset market you think are needed? And Mr. Valer, I would like to ask a question on the design of the safe asset question, where you, on one side, if I got it right, argued for less fragmentation compared to the instruments we are having now. But on the other side, we are also dealing or need to discuss what kind of concentration we would like to have in the financing instruments, for example, on the European goods. So maybe you could come up with a bit more remarks on how this works out from your perspective.
Speaker 7
Thank you, Dia Porter. And maybe we can start with, I don't know, mister Vale is ready or miss Lap. It's up to you. Okay.
Speaker 2
I'll be brief. So on the size, even though it was not directed to me, I would like to point you to a very interesting report by the in France, which has, you know, produced a very simple model that suggests we could increase the issuance of safe assets in Europe without affecting what is called the convenience yield, we could increase it by €2,500,000,000,000. So the current stock is roughly €1,000,000,000,000. And according to this paper by Subram and Henri, we could increase it by 2,500,000,000,000.0 without undermining the current convenience yield. On your point about how I see the expansion of the supply of safe asset, we basically have about €500,000,000,000 of firepower at the ESM that is currently sitting unused.
If I go by what has happened since 2022 to the ESM, I suspect that firepower is going to stay dry and unused for an extended period of time, and I don't think we can afford it. So my proposal would be to basically bring the €80,000,000,000 of paid-in capitals that the member states have placed into the ESM, bring that into the EU budget, and use that as a way to finance under the own resources ceiling of the EU budget an additional few hundred billions of euros. How much exactly that would create is something that has to be negotiated as part of the EU budget negotiations, but I think that's a very promising avenue, which I think could expand the amount that could be borrowed by the EU budget quite significantly. And that umbrella would be able to finance several European public goods, a new safe program for defense, a new fund for energy transition, and so on and so forth.
And so, Filipe?
Marie Sophie LAPP
Yeah. Let me maybe follow up on this. Actually, referring to a similar paper, or basically the same paper, which has a very nice scale. It has a very nice graph where you kind of see the different sizes of the US debt market, also the role that China has to play there, and then looking at the common EU debt issuance, and then on top of that, also combining some of the safer assets as in higher rated EU bonds. And you see there even the combination of what we currently have is somewhat still much below at least what the US have.
Now I'm not saying that we should issue the same amount of that as The US has at the European level. Definitely not. So I think setting a number to this is going to be very difficult, because it depends on a number of conditions. First of all, how the stat is issued, then what are the specific backings of this debt? Is there gonna be a common, basically, a tax revenue behind the debt or not?
So these are all factors that go into this. So it's gonna be very hard to give you a specific number. What we know is it needs to be significantly larger. How much larger also depends a little bit on the specific setup. So there, I'm sorry, but I won't be able to give you a number here.
Thorsten BECK
Yes. So I'm not gonna be the one either giving a specific number, but I agree with everything that has been said. Of course, also that, again, just adding additional debt to the outstanding national debt, that is simply not, I don't think that's a financial stability option, I would say. It's not healthy also for future generations. I mean, if you really push me hard, I guess, you mentioned 2.5 trillion.
I think it's about 15% of the Euro Area GDP. So I would go, I mean, again, let's look at a horizon of 20 years, maybe 30 years. If we wanna be at a level where we have a deep market in one safe asset within the Euro Area, 30, 40 percent of GDP, I think that would be approximately a good number. But, again, I'm talking about the really long term, not over the next five years. And, of course, again, as already said, it's important how this is being funded, how is this being repaid, how is it structured, is it the replacement partly for national debt?
Very important. I think these are all factors that have to play in. So just focusing on one headline number, I would say it's very dangerous. Thank you.
Thank you. For the last, you see Sramo.
Speaker 27
Thank you, madam chair, and thank you, speakers. Very interesting. Behind the US hegemony, there have been decisions, not only economical decisions and structural decisions, as you have been telling us. And they had a willingness to run an enormous trade and fiscal deficit with the rest of the world. And indeed, in order to ensure a sufficient supply of safe assets, the country or area issuing those assets must be willing to run considerable fiscal and trade deficits, probably.
However, the EU economic model has been based on export competitiveness, trade surpluses, and a fiscal framework geared towards austerity. I would like to ask if you think such a macroeconomic framework is fit for a political community aiming to improve the international attractiveness of its currency? And then another question. Regarding the global role of the euro, do you consider the fact that such major economies as Poland and Sweden still have their own currency? Do you think it's a big problem?
Speaker 28
It's something that we didn't actually touch on yet in this debate. And because it's quite wide, maybe if I can ask if all of them could answer. Thank you.
So who wants to start?
Speaker 2
Quickly. So it seems that the conversation around joining the euro in many member states that were skeptical has moved over time, including in Sweden. I think there was a new report recently, you know, putting that on the table again. Whether it will move, it's still a question mark, but I think the conversation has changed in nature and potentially will change of nature in Hungary tomorrow and in Poland, maybe the day after. So I have the feeling that this is evolving.
And if we go by the history of the last few years, the attractiveness to EU member states of the euro has remained even at the time where following the euro crisis, a lot of people predicted that the euro was doomed. So I think that's a conversation that is still in motion. Regarding the growth model, it's a very important point you're making. Actually, the academic literature is somewhat debating, you know, the extent to which you need a persistent current account deficit to internationalize your currency. It's not so clear.
And if we go by the empirical experience of China over the last fifteen years with enormous current account surpluses, China has been able to internationalize its currency quite considerably. So I would not necessarily argue that it's impossible to internationalize the currency, the euro, without a radical change of the model. Of course, you know, if you issue more safe assets, it's probably helping, and it will be faster, but I don't think it's completely impossible to have one without the other.
Marie Sophie LAPP
Let me just, perhaps add to that, just to reiterate also what we said earlier, the point that we're not making, or we're not saying the euro is gonna be the only global currency and overtake the US dollar. So we're, as we said earlier, we're probably working or looking towards a more multilateral system where these disadvantages that are ascribed to the US, which are, of course, some of them also disputed, are probably not gonna be as large for the euro as such.
Thorsten BECK
Just to add, so I disagree that you need to run a big deficit, including a fiscal deficit, to have a global role for your currency. I mean, just to remind you of the U. S. Late '90s, early 2000s. Actually, the '90s was the last time they ran a surplus, a fiscal surplus.
The role of the U. S. Dollar as a global currency was not questioned. Then, of course, the deficit had increased somewhat in the early 2000s. But I think the main problem that The US faced was they had an they build up an enormous private debt, private debts over these years, which, of course, then, as we know, during a financial crisis, private debt becomes public debt as we've seen it in 2008, both in The US and in Europe.
So I think it's not necessarily the case. It's a political choice. And I think you can be a, you can have a globally important currency even without necessarily running a large deficit, be it in trade or be it on the fiscal side. Just to give you one more example, and I'm going on thin ice here. I'm doing an apple and an orange comparison.
Well, Switzerland, the Swiss franc, I mean, you wouldn't call it the global reserve currency, but it's a safe-haven currency. Now I don't think Switzerland has a problem with deficit, neither on the current account nor on the fiscal side. So, again, I don't quite believe this. It's a political choice, I would say. Thank you.
Thank you. For ASN, Siegbert van Drose.
Thank you, chair. I will speak German.
Siegbert Frank Droese
Thank you very much to the experts for what we heard. I've got two questions. The first one to Mr. Vale. EU analysis and studies have shown that the EU is structurally not in a position to pose any kind of threat to the dollar. So why are projects like Eurobonds or more of fiscal integration should be pushed forward?
This would mean that member states would ultimately be liable, without any real perspective of being strategically useful. Second question is to Mr. Beck. What do you think of the goal of strengthening the euro as a global reserve currency when, if you look at the situation with Russian assets, you can see that there is a political risk to investors in European assets.
Speaker 2
Thank you for your question. I think, you know, the question of European fiscal integration and more common debt is important for the purpose of internationalizing the euro, but it's important, more broadly speaking, irrespective of the internationalization of the euro. So I don't want to say or to be misunderstood in thinking that the only purpose of common European debt is the internationalization of the euro. I think the first objective is actually to finance European public goods. And in particular, I'm thinking given the current moments, you've referred to the war in Ukraine, financing the war effort and financing Europe's defense capacity is one such European public good.
Now I don't think it is correct to say that the dollar is structurally going to be forever the dominant global reserve currency, and that there is no point in making any effort to expand the role of the euro. I think we are seeing already that the role of the dollar in the global financial system is eroding. I think that erosion is accelerating. In fact, the current operation in Iran might be The US's Suez moment and could, you know, create an unrepairable blow to the standing of The US and to the standing of the US dollar. So I think there is a case for making efforts in Europe to achieve a greater role for the euro, and these efforts are not without a purpose.
Thank you. Mister Beek?
Thorsten BECK
Yes. Thank you for the question. So first, also on the, again, as I mentioned earlier, I don't think the idea is to replace the US dollar. I don't think that should be objective. That shouldn't be the primary objective in the first place.
I think, as Mr. Wally said, we have to be ready. It's about resilience. It's about sovereignty. It's about strategic autonomy. I think that is the main goal in terms of strengthening the global role of the euro.
Now you mentioned the Russian asset freeze. So there are two sides from it. I can, look at it from the side that The US for decades has used its function of the dollar being the global reserve currency and, therefore, a lot of payments, for example, going through The US jurisdiction basically as a geopolitical tool for sanction purposes, for example, for criminal prosecutions. I mean, I remember the FIFA case, for example. Now, if you have a stronger role for your currency, you also have a, per se, a stronger geopolitical role.
But I think, as we also now see in the case of the US, you can also overplay your hands. And if you push your luck too much, then ultimately, you might actually lose. And I think that is one of the reasons why we see questions about the US dollar as the global reserve currency, because some countries just don't want to be subject to US jurisdiction or to political leadership and wanna kind of have their own little system. So I think there are two sides to it, and I'm not gonna get involved in the discussion about the Ukraine War or the specific issue of the Russian asset trees. Thank you.
Markus Ferber
Thank you. For APP now, Markus Herbert.
Yeah. Thank you very much. That's really an interesting and lively debate. Well, appreciate it. I was a little bit cautious at the beginning whether it would be a very abstract discussion, but I really like it.
So I tried to jump in with a very concrete question as well. If I look at the order books of Airbus and Boeing, I think the world market leader is Airbus. But, if we construct a plane finally in Toulouse, we sell it in US dollars, and all the spare parts as well. So why does the market leader, to sell something in a different currency, in an abroad currency? Why does the producers have to bear the risks of the currency and not the seller?
Speaker 36
And therefore, the question is, maybe to miss the back, what would happen if Airbus, for example, would say, January 1 year, we sell only in euro?
Thorsten BECK
Okay. Well, thank you. I think the last question should probably go to the CFO of Airbus, and not to me. So that's the first thing. Yes.
Speaker 35
So I think that what you're respecting the risk. Yes. So, yeah. No. No.
Thorsten BECK
But I see your question. I clearly see your question. So, I think this is something that I referred to earlier, the so-called incumbency advantage. The U. S.
Dollar has the incumbency advantage. I mean, most clearly, we can see this. I mean, that's why we call it the petrodollar, right? Because oil is being paid in U. S. Dollar. Period.
Price invoice paid in U. S. Dollar. Similarly, the other commodities are mostly paid in U. S.
Dollar, paid, funded, and so on. And I think the fact, for example, that if you buy a country XYZ outside Europe buys a couple of airplanes from Airbus, the funding might be in US dollar. So they might push for invoicing payment in US dollars. So I think this is, again, this hangs altogether in the sense of the this kind of entrenchment of the US dollar as the leading currency. And it comes through these different functions, both the reserve currency, funding currency, and invoice currency.
And it's not easy to just move away from that. Now, again, one could start slowly and look at the regional environment and say, well, let's at least try for Airbus to sell only in euros around Europe and North Africa in the neighborhood, so to say. So I think you have to go one step by step. But again, it comes back to the funding issue. Why would a company I don't know.
Let's say Georgia. Let's say Armenia. You name it. Morocco. The funding, if it's international funding, comes through US capital markets in US dollars.
It doesn't come in euros. So again, that's where the capital market in Europe might not be big enough to fund international firms that wanna buy Airbus planes. So as you can see, it hangs together, and we have to kind of work on all of these fronts at the same time. Thank you.
Speaker 40
Thank you very much. I'll speak Spanish. First of all, I'd like to thank all three speakers for this high-quality debate. As Marcus Verber said, it's been extremely interesting, probably because we focus the discussion on a central issue, improving the international position of the euro. And this whole issue of safe assets is something that we've been talking about all afternoon.
Speaker 39
Behind the European safe asset, we also need collateral resources for the issuance of this debt. And there are various options. We can issue European debt, pass this on to the states via liquidity as we did with some of next generation or the ESM, or the investment dump issuing debt for development by the Member States. I don't like that type of European debt. It makes it difficult to see what's happening in terms of expenditure.
Brussels could give instructions, issue debt, but then not know what's happening with it. And that applies to the next generation. But the other part of new generation debt is through European programs, European projects, to issue this European debt, to finance European public goods. Where there is no moral hazard, that's what we need to aim at. We have to have our own resources.
The question that the commission has raised relates to own resources. I'd like to ask you how you see this. The European safe assets, how can we not only defend them, but go further? How are we going to amortize?
Speaker 38
Thank you very much. I've given extra time to everyone. Who would like to kick off?
Speaker 2
Thank you. This is, I think, a very important point that you touch on, you know, what are safe assets for. So, you know, are they really for the purpose of financing true European public goods, or are they only designed basically to create transfers between member states? And I think this is maybe part of my skepticism towards mutualization by way of neutralizing existing debt, because it would not answer a clear, you know, European purpose and public good. But I think you're raising another potentially even more important point, which is the question of European resources to repay the debt.
And you're absolutely right to remind us all that when NGU was created, it was with the promise that by 2028, we would agree on new own resources to repay that debt. And as far as I can tell, we haven't made much progress in the direction of creating new European resources. I think that will be the key battle of the forthcoming MFF discussions. I have to say that I don't think there are on the table very many compelling proposals for own resources. And I think this is something on which the European Parliament and this, probably, this committee in particular can press the European Commission and member states to come up with new proposals.
I'm particularly worried that a lot of the ideas of own resources have either been killed or weakened, whether it is a final financial transaction tax that does not really exist or even a carbon border adjustment mechanism, which was supposed to create large resources for the EU, and we are realizing is creating a lot less. Especially if we're going to weaken the emission trading scheme and provide new free allowances, you were in fact reducing the amount of resources that could be raised from CBAM and from the ETS. So I worry that we have a big issue here, and I agree with you that this is a prime responsibility. I tend to think that corporate tax, and maybe that answers the point that was raised earlier about fiscal and corp and tax harmonization. Corporate tax and a point of corporate tax, should the base be harmonized, could be an important resource for the EU budget.
And VAT, because it's easy, it's already there, it's already harmonized. So I think we should probably think about simpler solutions than, you know, creating completely new resources, but I think it's a prime political issue indeed.
Marie Sophie LAPP
Perhaps I agree with a lot of things that were said, and let me perhaps phrase this question a little bit bigger on what kind of backing you could imagine for safe assets, and what kind of effects that would have. So I think in the most ideal case, which I understand is probably also not the most politically realistic case, it is to basically have the fiscal capacity in the EU to also tax and to back that whatever debt would be issued at an EU level also with an EU level tax. So that would be kind of an ideal scenario in a way where also the safe asset would likely have more desirable properties in terms of, like, borrowing costs and stuff like that. Of course, there is then also the other options that we mentioned to basically, in a way, turn national debt into EU debt and so on. These are all levers that should definitely be considered also in terms of just getting that size effect.
So, yeah, I think it's a complicated question and an important point, but definitely, think so. An ideal case, in a world of issuing an EU level safe asset, would also give the EU some amount of fiscal backing for that.
Thorsten BECK
Thank you very much. So, I mean, this comes back to a question, I think, by Mr. Andreessen. So I think it's important to look both at the issuance, but then also at how to pay for it. So kind of the spending and the revenue side.
And, of course, there is a certain political asymmetry where it's easy to discuss the spending, and it's to delay the revenue decisions to an undetermined future. So I think balancing that in, again, a forward-looking way to have a path towards both the spending side and issuance and the revenue-raising side, I think, is absolutely critical. And maybe the ongoing MFF discussions can help there, together with the political accountability. I think that is absolutely critical. Thank you.
And the moral hazard argument, of course, that is, yes. Fully agree.
Irene Tinagli
Thank you very much. I would like to echo the compliments made by the EPP and S and D to you. I thought this was a fantastic panel with great speakers, and this has been very helpful. So your main messages got through, and you concluded.
On the proposal amending the institution and institutions for occupational retirement provision directive, the IRB two directive. This proposal follows several key developments. Experts and social partners highlighted in 2019 how supplementary pension can help ensure adequate retirement income in addition to robust statutory pensions. The European Court of Auditors found in 2024 that EU action in this area had been limited and needed strengthening. In March 2025, the commission underlined that supplementary pension could have mobilized private savings for long-term investment and better retirement outcomes.
It is, therefore, integrated into the European Saving and Investment Union. In November 2023, the commission presented this proposal to update the IRB directive. And just last week, we had in Econ a hearing on the role of pension funds and insurers in capital markets, which I think provided useful input to today's discussion. Okay. Sorry.
Speaker 7
So the report is late. Okay. Okay. So we're waiting for the reporter. My apologies.
Damian Boeselager
Since we were late, thought it was already here.
Colleagues, I apologize for the delay. I will blame it on the German pilots, who are currently striking. So excuse me for being late in that regard. I'm very happy that we have the chance to discuss the IOPS directive now, and I would be very much looking forward to your views on the matter. Think we had a very good exchange of views or more hearing last week, where we learned from the experts on the matter to really understand where the current situation is and what we can improve.
I also made it clear in that meeting already that I think we have a pension crisis. When we look at the situation, many member states, it is clear that the younger generation will not be able to benefit from the system if you just rely on Pillar 1. And therefore, think it's very timely that we also look at Pillar Two and Pillar Three. I mean in Germany, for example, we know that 80% of workers are currently fully dependent on Pillar one, and it's clear that this is not going to hold with the current demographics. And so I think it's important that we look at how we can make I Ops and PEPs successful.
And the question that I want to ask you in this exchange of views is, Bill, what is success for you? What are the drivers of success in the I Ops review? And there are different, let's say, candidates for it. One is the question of consolidation and scale. So we know that the review wants to encourage a larger and more efficient perspective on IOPs and more pooled structures to lower costs, and also allow for more professional long-term investment, also in innovation finance.
There could be a second candidate for success, which is transparency in the member understanding. Of course, for us, it's very important that beneficiaries understand, but also members understand what kind of cost, performance, benefits, and risks they're facing. The third candidate would be more investment flexibility. Of course, the idea to clarify the prudent person principle has the aim of allowing for more broad investment possibilities, more diverse portfolios with long-term assets and equities. Then, of course, there could be other candidates like more risk-based supervision or more cross-border functioning.
And I think in order to understand a bit where this house and this committee stands on these issues, I mean, questions we could ask ourselves here, how do we overall balance the push for consolidation versus the idea of setting up a new, the difficulty of setting up a new IOPS, and we had this discussion before. It would be interesting to understand also from your perspective, where do you see, amongst these different candidates that are put forward, where do you see the most important success factors? And what can we do to really reach the two goals that I think we should all share, which is to increase benefits as much as possible for members and, of course, beneficiaries, and also make it easier for them to really add value by having more transparency? And also, what role does this IOPS review play in pushing the overall goal of competitiveness of the European Union and of deeper financial markets to allow for more innovation finance? So these are the introductory remarks.
I'm still very open to hear all of the members, also those who are not in the negotiation team, perspectives to understand how we can really make the best of it. I think it's rather a technical discussion. And, of course, there are political points, but I would be very happy, and I will take note of all of your ideas and excuse again the delay.
Speaker 7
Thank you. So a lot of questions for the shadow, and I will start with Mister Gauteng for APP.
Speaker 43
Thank you very much, Madam President. Thank you, Damian. We have indeed already met a couple of times now, with experts and people also involved in drafting the proposal. And to be honest, the raison d'être of the reform is not yet clear to me. And that's a problem, I think.
Speaker 44
Because I think many of us share the political goal that we want more Europeans to have second- and third-pillar pensions. Why? Because it prevents a massive social crisis that is coming at us, which has to do with poverty at elderly age. If you're only dependent on a first pillar income after your retirement, it is very challenging in many member states. And this is demographically simply coming at us, and we need to deal with it.
Speaker 43
The question is, is the knee or EORB reform the right approach? And at the moment, I don't see it, to be honest. Because we've been doing this already for a while and there is not a European market of EORPs. I think 1% is cross-border. So it's all national systems.
But the commission is providing a proposal based on an internal market article, which somehow gives this idea that there is this free flowing product out there, which is called the second or third pillar, pension fund. It is not. Why? And I think it also has to do with the genealogy of how systems exist. It's the social partners that decide on setting up collective schemes for sectors or companies.
And then they are managed by another entity, which we then call the ERP. That's what we're dealing with. So it's not the social partners starting it, it's the ones managing it. Now, my biggest priority would be don't get in the way of well-functioning systems. Yeah.
And that's a big challenge, I think, in the sense that there is a lot of supervision where I don't see the added value. And there is a lot of details also on the governance, where I believe you're not making it easier for existing funds, you're actually making it more complex. And then on your issue of consolidation, consolidation is a competition policy. Consolidation, for me, that there's how do you regulate bigger pension funds if you're not talking about the actual issue of talking to social partners and getting basically a starter pack for pension funds in member states, which is not what the commission is proposing to us here. So, I mean, we're still early in the process.
We still have a lot of time. But if we're looking at the upside, we need to make sure that you have the freedom to invest in different asset classes. I think with a prudent person principle, you're making a step in the good direction. There's another, there's a couple of other things about transparency. Of course, it's important, but please don't impose a European system on national structures that have evolved over twenty, thirty, forty years, where there is, honestly speaking, not a very convincing European dimension.
Thank you.
Not too much of a bother, I will continue in touch.
Speaker 46
Thank you, chair, colleagues. The proposed harmonization of second pillar pension products connects with many other subjects, and I hope that we will take the time we need in the negotiations to tackle those broader challenges. I'm just going to mention one or two, and this continues our discussion from last week. Our redistribution system is a problem because of the way our markets are developing. A second pillar, pension, is better.
That's obvious. But this proposal doesn't encourage that. Governance, transparency, there's a lot there that makes it more difficult to start a new fund. And in addition to that, the commission wants new rules. Opportunities for investment, private equity, other assets, all of those make sense.
But this isn't a European problem. We have 1,600,000,000 in the Netherlands. The possibility already exists. I think it's actually a German problem, where there are strict rules about investment in different classes of assets. How can we stimulate this second pillar market in Europe?
Well, economies of scale, tax issues. But this isn't really an EU competence. There are some ideas that we could discuss, but I don't think we're ready for that yet. It is timely to look at the two and the three. I think what it was in 1995 that I was a pension manager, and the U.
K. And France and Germany were not willing to take steps. I'm not so much in favor of scale, consolidation, transparency to members. Yeah. I think we need that, but we need better results.
And the prudent person principle and flexibility, yes, I'm open to that, but we need to take a far closer look at it. Thank you.
Marlena Maląg
Thank you very much, madam chair. The changes to IORP two directive follow the conviction of the European Commission that Europe needs to save better. We have a lot of savings, but we do not use them well enough. So the European Commission wants to channel those savings towards the capital market in order to support investment and economic growth. But we should highlight here that this proposed reform does not really respond to the need to change regulations or eliminate shortcomings.
The IRPs, as they are at the moment, function quite well in our member states. What we want to change is to do something in order to have better support for investment. So we need those funds for investment. Let me remind you that national pension systems have developed for years, and they are very deeply rooted in the local, legal, and social rules. Any idea to try to impose some solutions without particular attention to those characteristics might backfire.
We have already seen what happened to initiatives like the PEP product. This has failed as well, and it meant that we had high administrative burden for those who wanted to participate in it, and the beneficiaries were not flocking to the system. That is why we have many doubts. And any discussion on the changes to this directive should take into account not just macroeconomic goals, but the very realities of national systems and how it can impact stability in the future. Thank you.
Speaker 47
Thank you. Just because from the, S and my colleague, Adnan, who is the shadow, is in The US. I'm not speaking on his behalf. I just thought it was a pity for the S and D not to participate. We are following this, but alas, he is in the US at the moment.
And I just wanted to pick up on a few things, from last week on this and from a previous speaker who said that this is not a European problem, and I find that too narrow an analysis. And I agree with their quoting that we need to be careful that where national systems function well, we don't do something to their detriment. But at the same time, I think it's important, and it was said last week, that we recognize that since we have a number of European member states who have created the union together, who have a single market together, that by its nature now, when one of the member states has a problem, be it democratic or financial, that others can suffer from that too. And if the economy of one of them slows down, that happens elsewhere too, if we're not careful. And therefore, I do think the implications of this problem are European.
I think another thing that's important in all of this, ah, okay, is the question of trust. Maybe I'll leave it at that. I won't go into the other points, but I think very importantly, the question of trust and how that functions in regard to the uptake of the funds and member states is key to all of this.
Yeah. Friedland Danke, Verzinsen.
Markus Ferber
Yes. Thank you very much. I'll try to keep it brief. Okay. Can we use regulation to try and create complementary pensions where they don't exist?
Well, I'm not sure about that. If I think back to the hearing last week where Iopo was thinking about how existing pension systems could be brought under solvency. Well, sorry, comparing pension funds with life insurance is just daft. So I've got some fundamental problems here. If what we're trying to achieve is to create more possibilities for occupational pensions, but regulating where we don't manage to create them, I'm not sure that this is an appropriate Commission proposal.
Speaker 49
More requests for the floor? No. Okay. So I give the floor back to the reporter.
Yeah. Good luck.
Damian Boeselager
So I am also, as I understand history, I think, mister Faber was also involved in allowing me to have this position as a reporter. So thank you very much for, so what do I say? I think the big question mark is in many people's faces when looking at this review. I think, and this is maybe to the commission, an impact assessment would have helped to make it a bit clearer what is happening and why this is happening and what the effect of the different proposals is. I think, at least from my perspective, I would still stay with the fact that it's not a highly political question, because we do agree on the goals.
I think nobody wants to destroy functioning national systems. Everybody would like to increase the uptake. At least I have not heard anyone who doesn't believe that this is a decent goal. And there's a bit of unclarity whether the, let's say, change of rules that has been proposed is going to increase the uptake. And I think there's a bit of a question mark on whether consolidation itself is something that rules should force or enforce.
And I think there's a bit of unclearness on what kind of governance changes, and supervision changes are helpful. Of course, I have the benefit of the doubt that the commission has really thought about their proposals, you know, very carefully, and we will look in our rapporteur staff very carefully in, for example, the prudent person principle and other ways to increase the uptake and to improve. That's our role as a legislator to improve the regulation as proposed, and we will take it very carefully. And we take all your points, of course, into consideration. Thank you so much.
Speaker 50
Thank you, dear reporters, and thank you to all of you for this discussion. And the presentation of the draft report is scheduled for June 3. We will proceed to the vote in a few minutes. K. Dear colleagues, if you go back to your city, we'll proceed to the vault.
Marcus Schick
So when I pass, we will start with the test first. So the bot is open. What is thank you, Marcus.
What is closed?
Irene Tinagli
Thank you. I close the vote. Everything is working well. So we now pass on to the agenda item five regarding the two votes on the COD five of the economic governance simplification package. We will first vote on the report demanding regulation as regard the economic and budgetary surveillance of member states in the euro area experiencing or threatened with serious difficulties with respect to their financial stability by showing off.
And we will start with compromise C. Ways in favor. With against. Ways 10. Adopted.
Compromise. Who is in favor? With against. Withstand. Adopted.
Compromise a b. Who is in favor? With against. Withstand. Adopted.
And we go to the final vote by the whole coal. The vote is open. And the vote is closed, and it is adopted with 34 in favor, eight against, and four abstentions. Congratulations. We now vote on the decision to enter into inter-institutional negotiation by roll call vote.
And in accordance with rule 72, the required majority is 31 members. By roll call? So by roll call, the vote is open. And the vote is closed. So it is adopted.
Congratulations. 35 in favor, two against, and nine abstentions. We will now continue with the vote on the second fight, the report demanding regulation as regards alignment with the EU economic governance framework and further simplification of that framework by showing off a compromise was in favor, was against. Webster. Adopted compromise b was in favor, was against.
Who abstained? Adopt it. Compromise c was in favor of against. Who abstained? Adopt it.
And the final vote by Hochul, the vote is open. The vote is closed, and it is adopted. 35 in favor, 8 against, for abstention. We now vote on the mandate. The vote is open.
Irene Tinagli
The vote is open. And the vote is closed. 36 in favor. Two against nine, abstention. Congratulations to the.
Thank you so much. And the next second committee meeting will take place in May in Brussels. Thank you to all of you.
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