To quote Federal Reserve Chairman Ben Bernanke “…the very substantial shift in the current accounts of developing and emerging-market nations … transformed these countries from net borrowers on international capital markets to large net lenders.”2 Indeed, it is interesting to observe that, in the late 1990’s, in the aftermath of the Asian crisis, several Asian central banks started accumulating significant foreign exchange reserves in efforts to stabilize their capital flows and their exchange rates, or to be in position to do so, should that prove necessary in the future. Meanwhile, some conjectured that mature economies with ageing populations would experience a peak in their savings rates. The “savings glut” hypothesis is contested, however. A first point of contention is that the impact of demographic change on savings and investments may be limited, compared to that of other factors.3 Indeed, the savings rates of industrialised countries did not appear to increase in this period (slide 5). In some cases, they even decreased. A second discrepancy, asserted by John B. Taylor and others, resides in the observation that the US savings gap, and the surge in savings in the rest of the world effectively cancelled one another out.4 Finally, despite the significant increase in savings rates in China and other emerging countries, there was no clear upward trend in global national savings.
In the U.S., for example, on average about 90, mostly smaller, banks per year have been resolved since 2008 and this had no impact on the solvency of the sovereign. Political union can, and shall, develop hand-in-hand with fiscal, economic and financial union. The sharing of powers and of accountability can move in parallel. We should not forget that 60 years of European integration have already created a significant degree of political union. Decisions are made by an EU Council filled by national ministers and by a directly elected European Parliament. The challenge is to further increase the legitimacy of these bodies commensurate with increasing their responsibilities and to seek ways to better anchor European processes at the national level. A more solid political foundation should allow for agreement on a basic principle: that it is neither sustainable nor legitimate for countries to pursue national policies that can cause economic harm for others. This constraint has to be built into how countries design their economic and social models. The only sustainable model is one that is consistent with the terms of a common currency. Countries have to live within their means. Competition and labour markets have to be reinvigorated. Banks have to conform to the highest regulatory standards and focus on serving the real economy. This is not the end, but the renewal of the European social model. From the ECB’s perspective, a strong economic union is an essential complement to the single monetary policy. Building this will require a structured process with correct sequencing.