WASHINGTON: The euro zone needs its own budget, a fully-fledged banking union and more democratic accountability in its decision-making to reverse the economic divergence that is fuelling populist movements, European Economic Commissioner Pierre Moscovici said on Thursday.
Speaking three days before the first round of the French presidential election, with polls showing strong support for far-right and far-left candidates, Moscovici said Europeans were disappointed that the single currency project had not delivered more benefits.
"I am convinced that reversing socio-economic divergence in the euro zone is the prerequisite to ensuring the sustainability of our single currency - and to containing rising populism," Moscovici said in a speech at the Peterson Institute in Washington.
"I would further argue - and this is perhaps a provocative statement - that the incomplete governance of the euro zone has produced economic divergence rather than convergence between and within its members. And this divergence has in turn fuelled populism, which has its roots in economic discontent.
Moscovici said economic indicators clearly pointed to growing divergence among euro zone economies as Italy's public debt was twice that of Germany, Germany's current account surplus was twice the euro zone average and German unemployment was half the euro zone average.
"With this economic divergence, policy preferences are also becoming more and more polarized," he said referring to the rise of populist parties across Europe.
To reverse this trend, the 19 countries sharing the euro needed to complete their banking union, in which banking risks would be reduced and shared among all countries and savers' money would be more secure, Moscovici said.
While work on the banking union has progressed by establishing a common banking supervisor for all euro zone banks and common bank resolution rules and a fund to finance that, the project is still missing a European-wide deposit guarantee plan.
Moscovici said a euro zone budget, called a "fiscal capacity", and strengthening the role of the European Parliament in decision making, now left only to euro zone finance ministers, was a key step.
While these elements alone will not be enough to contain populism, they will help, he said.
The European Union must also help protect its citizens, he said.
"I am talking here about security in its simplest form. Europe cannot provide all the answers to the issues raised by terrorist attacks on our soil, or the refugee crisis, but we can provide some of them," he said.
"And just as importantly, we must ensure that the benefits of globalization flow to all parts of society. Europeans feel vulnerable in a globalization process that does not distribute extra points of growth fairly."
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