“Responding to global challenges as a small economy without the weight of Europe would be considerably harder” - Deputy Governor Sharon Donnery

• Over the last six months, we have seen the European project deliver. Fiscal, monetary and financial sector policies were deployed when faced with this common challenge.
• While the financial system withstood the initial effects of the pandemic, the resilience of the financial system and indeed Europe’s resilience may be tested further.
• It is critical that we deepen integration in Europe, that we complete this Union, and do not end up in a ‘halfway house’, a monetary union needs a banking union.
• Our engagement in Europe and the deeper integration of Europe offers us a path of ‘prosperity based on balanced economic growth and price stability, a competitive social market economy, aiming at full employment and social progress’¹

Addressing a webinar hosted by European Movement Ireland today, Deputy Governor Sharon Donnery reflected on how Europe has helped shape Ireland’s development from a closed protectionist nation to an international hub and she argued that our role in Europe is as important as ever as we manage the fallout from Covid-19.

Commenting on the response of the European Union during the current crisis, Ms Donnery said that over the last six months, we have seen the European project deliver. “Fiscal, monetary and financial sector policies were deployed when faced with this common challenge. But while the financial system withstood the initial effects of the pandemic, and we are now seeing a gradual economic recovery, the resilience of the financial system and indeed Europe’s resilience may be tested further. “

Discussing the role played by Europe in managing the effects of the pandemic, Ms Donnery said the actions taken by policymakers to counter the effects of economic shocks has been key to mitigating the effects of the current crisis on households and firms. “For Ireland, as a small economy on the periphery of Europe, particularly vulnerable to global shocks, being part of the Single Market has been critical to our growth and prosperity in recent decades. And our resilience to shocks would likely have been weaker, absent the common market, currency and policy actions of Europe behind us. The policies and decisions we make engaging with our colleagues at various tables in Europe are central to this.”

Addressing the shared concern of maintaining a strong financial system, she said, “financial stability [is] a core aspect of our mandate at the Central Bank of Ireland, and an area where co-operation and integration with our European and international partners is crucial. The financial system is international, interconnected, and interdependent. It is only by engaging and working together across borders that policymakers can ensure it remains stable and absorbs, rather than amplifies shocks and so, operates in the best interests of consumers and the wider economy.”

Speaking on the effect of the pandemic on the financial system, Ms Donnery noted it will depend on the evolution of the virus and the scarring effects of this crisis. Reflecting the deeper integration that has taken place since the last crisis, she noted that “the deeper European regulatory and supervisory integration has created a more robust and resilient system to withstand the initial shock” of the pandemic.

Ms Donnery argued that domestically, “our engagement in Europe and the deeper integration of Europe is critical for the macroeconomic stabilisation and financial stability challenges we face.” In addition to these challenges are shared issues including the withdrawal of the UK from the EU, climate change, cryptocurrencies and ageing populations. “Responding to these global challenges as a small economy or Central Bank, without the weight of Europe - would be considerably harder. Instead, our engagement in Europe and the deeper integration of Europe offers us a path to ‘prosperity based on balanced economic growth and price stability, [and] a competitive social market economy, aiming at full employment and social progress’.²”

Notes

[1] See Juncker, J.C., Tusk, D., Dijsselbloem, J., Draghi, M. and Schulz, M., 2015. Completing Europe's economic and monetary union.

[2] ibid.