Ladies and gentlemen,

This year’s winner of the Arenberg Prize just spoke about the lessons Europe and the euro area could learn from the early American federation. It reminds me of a book I wrote in the aftermath of the 2005 French and Dutch referenda that voted away the European Constitution. I dedicated a separate chapter to the American leap towards a federation because I was impressed by the determination of the American Federalists. They basically put the rule of ‘unanimity’ aside and decided to move forward as a separate group. A risky and bold manoeuvre. But they succeeded. The Philadelphia Convention became a success because the federalists had the power of their conviction. They persuaded the more hesitant states to follow by being true to their believes: that America could only play a significant role if it was a tight federation. I know historical comparisons are alway s tricky, but can learn from the decisiveness with which they acted. Not only 250 years ago, but still today.

If we take back a step, we see a banking crisis that started in the US and ended as an economic crisis here in Europe. Today Europeans suffer the lion share of the crisis. The euro area is stuck at growth forecast o f 1.8 per cent. That is far below what is needed to create new jobs. The rest of the world is recovering. Growth prospects for the US this year are 3.1 per cent. The Federal Reserve is preparing to tackle a potential overheating of the American economy. The difference between the US and the EU growth numbers should be a wake-up f or us. These abstract numbers mean jobs. Employment. Because we can blame the US for being at the root cause of it all, but that will not help us any further. 2 In the United States the financial and economic crisis was addressed with efficiency and rigor. We have seen an American apparatus in full force. Everybody - from the Federal reserve, over the Obama administration to t he US Congress - pulled in the same direction.

1) First of all, the groundwork was done by the Troubled Asset Relief Program or TARP . It made the American banking system healthy again in no time. It was launched in October 2008, which means less than two months after Lehman Brothers went bankrupt and so two months after the start of the crisis. TARP was set up in the middle of a fierce presidential campaign, between Barack Obama and John McCain. But that didn’t stop the US government from buying up more than four hundred billion dollars in toxic assets. 400 billion dollars to clean up the American banking system. The rest of the TARP money was used to save flagship companies such as General Motors and General Electric. TARP was implemented with speed. That’s what made it so effective. Less than two years after the star t of the program most American companies, banks and insurers no longer needed the state guarantee. Or they had paid back the money that the federal government had invested in them. The result is that the car industry in Detroit is not only back i n business, it has reinvented itself. And the American banking system is more solid than ever before. The total amount of bad banking credits is only one per cent of the American GDP. The total amount of bad banking credits in the Eurozone is ten per cent of our GDP. There are ten times more toxic bank loans in our economy than in the American economy. These are the figures from the IMF and the ECB and the reason for the bad situation of our banking system is that we are still waiting for a European equivalent of TARP. We are almost seven years after the collapse of Lehman Brothers and Europe is still without a fully operational banking union. Seven years after the crisis broke out, we haven’t even finished the groundwork. We have launched several rounds of stress tests. All of which are below average in quality. Almost the day after the first round of stress tests was done, Anglo-Irish Bank went bankrupt. Nobody had foreseen this. Because, the first stress test had only checked the two largest banks in each Member State. And Anglo-Irish was the third largest bank of Ireland. In October 2014, the results of the fourth and last round of stress tests were published. This round was said to be “more comprehensive and more though” than the previous ones. The balance sheets of 130 banks were tested in 28 Member States. But the conclusion was again the same: there is no real problem with our European banks. Experts like Philippe Legrain - who is a former adviser to Barroso - called the last round of European stress tests and I quote "simply not stressful enough". According to him, the baseline scenarios depend on - and I quote again "the always over-optimistic scenarios of the Europe an Commission. " The Stern Business School came exactly to the same conclusion : these were not serious stress tests. The European institutions that perform the s tress tests, behave like doctors who refuse to apply the right treatment because the y are afraid the patient might not like it. But this way, it’s impossible to make the patient healthy again. We have seen the same behavior in the creation of t he European Resolution Fund. This Fund, as you know, is supposed to cut the toxic and dangerous link between failing banks and the taxpayers. So that banks no longer drag down entire countries and their budgets with them. By the end of 2013, five years after the outbreak of the crisis, this European Resolution Fund was finally decided upon. But more than a year and a half later, the implementation of the fund is still not completed:

- First of all, the European Council has made the rules of the Fund too complex. It is impossible to save a bank in a night or even a week end time. As if there is all the time in the world when a bank topples.

- Secondly, the European Resolution Fund is not European at all. It separated in different national compartments so that other Member States have to agree before they can help saving a foreign bank. In other words , the taxpayers of one country will still be held accountable if the fund operates too slowly or if it appears to be too small. And too small it certainly is.

That’s problem number three:

- Even without national compartments, the European Resolution Fund can only handle the downfall of one medium-sized bank. After that, the war chest is empty.

2) A second stage of the American three stage rocket w as the launch of the “American Recovery and Reinvestment Act”, better known as the “Stimulus Package". Already in 2009, right after the presidential elections. It is an investment program of no less than 831 billion dollars. That huge amount will have been pumped into the US economy between 2009 and 2019. Broken b ridges and sewer systems were restored. New roads were built. Extra subsidies were given to innovation and research. Taxes for families and businesses were cut. States in trouble like Florida were rescued with federal money.

For seven years on a row, we have done nothing. We only recently emerged from the unproductive debate of austerity versus investment, Furgeson versus Krugman. Greece still is the eurozone’s troubled child. The country still is a risk for the rest of us. There is no clear battle plan. We are still waiting for structural reforms to come and it seems that Mr. Tsipras will not be able to deliver. There is now the Juncker Plan that should boost growth again. But for the moment this plan consists of nothing more than a legislative proposal. But we are very far from having the first shovel in the ground and real job creation. Existing funds like the ones of Horizon 2020 are confiscated, repackaged and wrongly presented as new money. The plan also lacks a clear strategy, with regard to how it will be funded ànd how these funds will be used. There is no trans-European investment strategy. Only a wish-list of national projects. Again: we are fooling ourselves. Just as we did with the banking union. Nevertheless, the problem is clear. The investment gap in Europe is estimated at a towering 700 billion euros. Very comparable with what the American Stimulus Package pumped into the American economy. Thanks to this effort, the US economy is growing again and they are back at pre-crisis in vestment levels. In the European Union on the other hand, investments have declined between 2008 and 2013 by as much as 14 percent.

3) The third part of the American three stage rocket w as the launch of Quantitative Easing. The Federal Reserve introduced multiple phases of Quantitative Easing. To free up money for businesses and families who wanted to invest in the future. The QE was also used to suppo rt the ambitious Obama investment plan. Money for projects. Projects that created American jobs. In Europe, we talked about the introduction of QE for years. Endless discussions. Whether QE was necessary or not. Whether it would h ave long lasting effects or not. Whether it fell inside or outside the ECB’s mandate . Completely useless and largely theoretical discussions. In 2015, the ECB finally launched the QE bazooka of more than a trillion euros. But not to support large scale investments like in the states. No, it was a crisis measure to prevent long-term deflation. Because the ongoing economic crisis risked to push the price level in Europe down. The ECB had to intervene because the European leaders had failed t o solve the crisis. They have failed to restore the confidence of the European citizen and the European business owner.

Ladies and gentlemen,

It is time we forge a real economic union. From the very start, from the launch of the euro itself, it was clear that Europe needed to integrate further and move beyond a monetary union. Actually, it was in the very name of the EMU. This three letter word does not mean European Monetary Union as most people think. It stands for Economic and Monetary Union. It means a monetary union cannot exist without an economic one. It is impossible to have a currency without a state behind it. That is why we need to establish a new governance for the Eurozone, with a treasury, a real fiscal capacity behind it. We need make sure that our 19 member economies grow closer to each other, that they converge.

It is time we forge a real political union , and fix our European democracy. We have a lot of European institutions, but they are big and weak at the same time. The combined European institutions lack own funding, own resources. They lack sufficient competencies to fight global challenges such as the economic crisis, climate change and international crime. And above a ll: they lack democratic legitimacy. We need reform. We need to rebuild and reshape our European institutions. We need to resolve more big, transnational challenges on the European level and we need to do it in a more democratic way . The European Commission should be turned into a small government instead of the 28 commissioners we have today. The European Parliament could do more work with less people. But it should also have something to say. Therefore it should be given more power in the fields of economic policy, energy policy, migration policy and in justice and internal affairs. The European Parliament must be the only one in the world that does not have the right to initiate own legislation. This is an aberration that should be changed. The European Parliament should also have full budgetary responsibility instead of merely overseeing the donations that have been handed out by the member states. I fully agree with what the American revolutionaries of the 18th century once said, that you cannot have taxation without representation. Well, in Europe we have representation without taxation. That might be even sillier. That is representation for the sake of representation in stead of for the sake of the European citizens.

There is no way back. Over the last decades, the economies of the 28 member states have integrated further and further. Our countries are more than ever dependant on each other. Our chances for success are linked to each other. In the field of foreign policy as much as in the realm of global competition. If we remain half- hearted about Europe’s integration, we will fall divided. But if we stand united, we can 6 be a world player. Than we will be able to grow again economically. We can decide which course the world takes. We will be heard in Middle-East and America. We will be respected in Russia and China. That is not the case today. So it is up to us. To rise to the challenge. We should not be afraid of public opinion but listen to it more carefully. The latest polls and eurobarometers, eve n in Britain and the Netherlands, show that Europeans, especially the youngsters, do not like this union. But they want another union: more integrated, stronger and more determined. That is the way to follow.

I thank you.