Brussels - London: Europe and the Arabs
Eurogroup President Pascal Donohoe delivered the keynote speech at the City of London Corporation conference on "Financing Our Future", held on Tuesday evening in the British capital. He said: "It is appropriate, then, that I present what I see as a key issue for our economies in the future. It is a common issue for Europe, the United Kingdom and the global economy indeed - namely, how to drive and meet the huge investment needs our societies face in the coming years, and to do so in a way that reduces inequality within our countries. We are in a period of historic change, with new technologies radically changing how we live, wars around the world, and the recent emergence from a global pandemic. All this is happening while our environment is being reshaped by climate change. He added in his speech, which was included in a European statement issued in Brussels: "The lesson of history is that any of these changes would have reshaped the societies and economies that preceded us. All of these changes are happening together for us. That is why we are approaching a turning point between the Western economies when we look at the fiscal positions of the EU, the US and the UK and criticise the demands placed on these budgets.

So I will focus on three specific areas:
First, making the case for market-based economies; second, how this in turn fits into the rationale for the EU; and third, why the radical change in the capital markets union in Europe is now taking place, which leaves great grounds for optimism.
I will then conclude with some forward-looking thoughts from the shared perspectives facing the UK and Europe.

Markets work, but we need to keep making the case for them
So I would like to start by making the case for market-based economies and how this can help us deal with the financing or investment gaps we now face.
The market economy is under intense scrutiny, with the current political environment highlighting many of its shortcomings.
The public opinion index is fragile, perhaps because of the ‘permanent crisis’ narrative that has gained traction in recent years.
The danger of such trends turning to nationalism and protectionism is very real. Most of us will remember our economic history, especially the great British classical liberals of the 19th century. Adam Smith, David Ricardo, John Stuart Mill and many others warned of the inherent dangers that such protectionism could bring in the form of special interests and economic inefficiency that ultimately failed to deliver on the good intentions behind such policies.

Their insights are still relevant today.

But I do not believe that we are faced here with a binary choice between state dominance and laissez-faire economics.

These arguments are well articulated in Martin Wolf’s excellent book The Crisis of Democratic Capitalism , where he says that “people expect the economy to provide them and their children with reasonable levels of prosperity and opportunity. When this does not happen, they become frustrated and resentful of these expectations.”

This sums up well the role of markets within democracies and the need to work to maintain the social license and support these values. Wolf also stresses the extent to which an economy that rewards people for developing new business ideas in competition with one another has been “a driving force behind the transformation of prosperity over the past two centuries”.

However, there is clearly discontent with the way market economies are performing in democracies, and this is clearly affecting political outcomes.

Confidence in the ability of the economy to meet household needs has declined and eroded in recent times. Eurobarometer data shows that while 47% of Europeans are satisfied with the state of the economy – the highest level since 2019 – 73% expect their standard of living to decline in the future. This mirrors similar surveys conducted elsewhere in the Western world. For example, last year’s Edelman Trust Barometer showed a major collapse in economic optimism across Western liberal democracies, with confidence levels at their lowest in Western Europe (France (12%), Germany (15%), Italy (18%), the Netherlands (19%), the UK (23%), Spain (26%), Sweden (29%), Ireland (31%) and Japan (9%) with only expectations of improvement in five years, and levels also falling in Canada (28%), Australia (30%) and the US (36%).

In recent market failures or disruptions, it has been the state that has stepped in – in many cases through coordinated action at the international level – whether in response to the 2008 financial crisis, the Covid pandemic or the recent energy price shock.

But this is simply not sustainable. Addressing our future priorities around healthcare, climate change and security means significant financing needs.

As the IMF explained earlier this year, we have a political trilemma.

First, spending demands and pressures remain very high – for wages, pensions, health care, etc.,

Second, there is an inherent resistance to higher levels of taxation,

Third, there is a need to bring deficits and debt levels down to safer levels, to create space for investment and rebuild budget reserves.

In this environment and in the face of these issues, the challenge is more than just making a case for market-based economies. This is more than just a communication challenge. It is about how markets are organized. And that is why there is a new imperative to harness private savings and investment 

And to re-establish confidence in the ability of the private sector to respond effectively to public demand for societal transformations.

This is vital because public treasuries and taxpayers cannot afford to finance the investments that societies need to respond to the many changes we now face.

As Wolff clearly argued, the success of a market economy depends largely on public support. This consideration must be present in policymaking. We should not lose sight of how we communicate and explain our decisions to our citizens in an environment where public opinion is easily victimised by false narratives and misinformation.

Developing the EU single market to deliver market change
As President of the Eurogroup, it will come as no surprise to this audience that the following questions are at the forefront of my mind in a European context:

How to support the development of markets within the EU, in a way that benefits EU citizens and the public good; and
How to communicate appropriately to the public about how the EU works.
EU policies that deliver tangible and practical benefits are the most popular with citizens. Given my role as President of the Eurogroup, I will take the single currency, the euro, as an example.
The euro, in its absolute infancy. Despite its infancy, it is not without its trials and tribulations. The euro has also evolved, surviving existential crises such as the financial and sovereign debt crises. Just this year, we celebrated the 25th anniversary of the euro’s entry into force as a single currency. In just two decades, the euro has grown to become the world’s second-largest reserve currency.

The euro area, its institutions and functions have been modified and improved to address the shortcomings of the original architecture – a clear example of this is the establishment of central banking supervision in the wake of the financial crisis.

The periods between shocks have also been characterised by strong, sustained growth and convergence, perhaps best illustrated by the recent record levels of employment and activity in European labour markets, where unemployment has never been lower, even despite the war on our continent.
The success of the euro is not only evident in economic data, but is also recognised by its citizens – 79% of citizens living in the euro area believe that the existence of the euro is good for the EU, while 69% believe it is good for their country (source: Eurobarometer, November 2023). The EU and its member states must constantly challenge themselves to ensure that its promise is actually delivered, in a way that truly benefits our citizens in a meaningful and tangible way.