Juncker: why Asia should care about the euroPosted: 08/11/2012
By Alexa van Sickle, Assistant Editor
Now is ‘a very good time’ for Asia to be open to greater partnership with Europe, according to Jean-Claude Juncker, prime minister of Luxembourg. Delivering the seventh IISS Fullerton Lecture in Singapore this week, Juncker pointed out that Asia was Europe’s largest external trade partner, ‘with flows of goods and services growing again after the global slowdown, and stocks of foreign direct investment … amounting to more than a trillion euros’.
Juncker said cooperation between the EU and Asia was growing, with an EU–South Korea free-trade agreement coming into effect a year ago, and negotiations with several Asian partners and ASEAN on similar deals. There were also plans to finalise agreements with Singapore and India.
‘I foresee the economic health of the euro area as closely intertwined with that of its global partners, of whom Asia represents the largest,’ he said.
Juncker admitted Europe was ‘still in a crisis’, but in a generally optimistic speech about the future of the euro and Asia’s opportunities in the eurozone, he argued that Europe was dealing positively with its financial crisis to develop lasting solutions and ‘dispel the doubts’. Juncker rejected the idea that the eurozone would splinter, or that there would be a two-speed Europe.
Instead, he said the continent’s reforms and deepening economic integration would make it ‘more stable’ and a ‘more reliable’ partner. Asia should therefore ‘take advantage of the reforms taking place and the opportunities that they offer for both trade and investment’.
Juncker added that the EU was ‘very grateful’ for the support and solidarity that Singapore and other countries in Asia had shown to the eurozone. ‘The best thing our partners here in the region could do would be to contradict those who are masters in euro-bashing,’ he added.
‘The euro will survive, because this is not a crisis of the euro,’ Juncker insisted. Instead, he said the roots of the debt crisis lay in the EU’s inability to ensure compliance among all member states with Article 119 of the Maastricht Treaty, which set out convergence criteria for monetary union. A ‘misunderstanding’ of the need to make painful adjustments to wages and prices, and a ‘failure of political will’ on the part of governments to implement all the necessary conditions, ‘exacerbated by easy credit and the mispricing of risk’ meant that ‘some of our member states ran up very high debts while failing to reform their economies and adjust to globalisation’.
The uncertain prospects of these member states have now caused the greatest doubts about the euro. An audience member asked Juncker whether the austerity measures and reforms that the EU was asking Greece, Spain, and Portugal to implement were likely to succeed given how politically unpopular they were – reminding Juncker of his own statement that: ‘We all know what to do, we just don’t know how to get re-elected after we’ve done it’. The world’s longest-serving democratically elected head of government – after nearly 18 years in office – Juncker joked that perhaps his quote did not apply to all politicians. On a more serious note, he accepted that politicians could not be popular when enforcing ‘strong and rigorous’ austerity measures, but ‘our Greek friends do not have another choice; they have do it’.
Nevertheless, he insisted he was optimistic because the reforms now appeared to be better understood by Greek citizens, and the Greek government was apparently taking them seriously.
Juncker said the EU had learned from past mistakes in its current response to the eurozone crisis. It was ‘impressive’ that the reforms made to the financial sector, labour markets and pensions, were not just an ‘immediate response’ to the crisis, but were underpinned by a ‘solid institutional commitment’ to change the whole approach to economic policy. ‘While the world has chosen to focus on the disagreement and differences in the euro area, the euro area itself and the European Union as a whole have actually managed to agree on a level of economic integration that has eluded us for decades.’
He also reminded the audience of the euro’s role as a ‘key pillar’ in the political integration of the European Union. The recent award of the Nobel Prize for Peace to the EU was widely derided. Juncker said he was conscious that the award arguably came when ‘tensions seem more severe than they have been for some time’, but he deflected the criticism with humour. ‘I am even aware that there have been some jokes about winning the prize for peace,’ he said, ‘because we would never win the economics prize.’