Christian Noyer: Does Europe face the prospect of a lost decade? Speech by Mr Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the Bank for International Settlements, at the International Economic Forum of the Americas, Conference of Montreal, Montreal, 9 June 2014. *  *  *  It is always a privilege to speak alongside Larry. But it is also a challenge. I will make the most of it by referring often to salient remarks made by Larry in recent months. I will address three questions: is the euro crisis over? Does Europe face the prospect of a lost decade? What short-term policy challenges are we facing today? I/ – Is the euro crisis over? Less than two years ago, the euro area was fighting for its existence. Euro pessimists were questioning its ability to survive. Not anymore. Analysts may be questioning Europe’s ability to grow. But the challenges that we are facing are different. They are macroeconomic, not existential or systemic. Thanks, mainly, to the Eurosystem’s actions, financial conditions are normalising. Spreads in peripheral countries have been dramatically reduced. Soon, budgets will be reasonably balanced and there will be no more fiscal drag on the economy. Households and corporates have strong balance sheets. Recent forecasts put German growth at more than 2%, Italy in positive territory, and the outlook for France has improved markedly. Growth of business activity in the euro area in April was the highest in the past three years.
Similarly, having a single financial market can make the task of federal institutions easier, in particular for resolution, as it allows mergers and takeovers to be used as a primary resolution strategy. Indeed, 450 out of the Federal Deposit Insurance Corporation’s 490 bank resolutions since 2008 have involved what is called “Purchase and Assumption” – selling parts of banks to other banks, often located in different states. The conclusion from this is simple: completing the banking union and completing the single financial market go hand in hand. Ins and Outs This brings me to the topic: how does the banking union relate to countries inside and outside the euro area? I will make three points here. First, the banking union is critical for the Euro Area countries. Second, it is also desirable for Member States, which do not share the euro. And third, the banking union should be about strengthening the internal market, rather than dividing it in two. Let me start with the first remark: the banking union is critical for the euro area countries. The reason why we are building it is to break the vicious circle between sovereigns and banks, the manifestations of which are much more acute and disruptive in a monetary union. That is why we need the Banking Union in the single currency area. But one thing must be clear: putting the Eurozone on a stronger footing will also benefit the countries that are not in the eurozone.