It was a privilege to host Eurogroup President, Irish Minister for Public Expenditure, National Development Plan Delivery & Reform, and former Irish Finance Minister, Paschal Donohoe at Guildhall and Mansion House for an important talk in London on liberalism and the capital markets union.
Welcoming remarks
Minister, Your Excellencies, Distinguished Guests,
It is my great pleasure to welcome everyone to Guildhall this evening, the historic and ceremonial heart of the City of London and home of the City Corporation – the world’s oldest democratic workers’ and residents’ cooperative. With elections held continuously here since the 7th Century, we’re almost 14 centuries old.
And I welcome back our guest of honour tonight, Paschal Donohoe, President of the Eurogroup and Ireland’s Minister for Public Expenditure, National Development Plan Delivery and Reform, who spent six happy years working in London for Procter & Gamble after graduating from Trinity College Dublin.
Friends know I have an annoying phrase: it would be a strange thing in life if there were no coincidences. And speaking as the 695th Lord Mayor, and the third in a row to have Irish citizenship and to have spent time at Trinity College Dublin, this remarkable coincidence of a trinity of Trinities is made all the more remarkable by being entirely unremarkable.
Across Europe, we constantly have coincidences in the exchange in people, ideas, and knowledge, and creating coincidences sits at the heart of this year’s mayoral theme – Connect To Prosper – where we’re celebrating the City’s many areas of expertise…the Knowledge Miles of the Square Mile…and promoting the City of London as the world’s coffee house…
…a global, solutions-based hub that proudly treats all-comers fairly, including the one million EU-born residents who call London home.
Now, I am conscious that the Minister, like me, is a classic liberal.
Indeed, I strive – rarely with success, I should add – to uphold US poet Robert Frost’s definition of a liberal as “a man too broadminded to take his own side in a quarrel.”
This year marks a decade since President Higgins made the first state visit by an Irish president to the UK. At a dinner hosted by the City Corporation in this building during his stay, he quoted the words of Seamus Heaney:
“we are not simply a credit rating or an economy, but a history and a culture, a human population rather than a statistical phenomenon…”
…a reminder that it’s not only geography and finance that binds Europe and the UK, but inseparable social, cultural, and familial ties too.
So let me say unequivocally now: the Guildhall is of Europe. London is of Europe. The UK is of Europe.
You and I both share classical liberal values. Three traditional ethical liberal values are individual rights, freedom of speech, and protection of property. To those three add three practical liberal values of limited government, free markets, and free trade.
Liberalism has been successful. So successful we forget to sell it. To quote Koch and Smith in Suicide of the West: “The seeds of liberalism’s downfall lie in its success.” It’s why, together, we need to sell liberalism. That means effective fiscal policies. Tax regimes that are efficient, convenient, certain, and equitable. And sensible levels of public debt.
We need to make a positive case for free markets and shine a light on the considerable force for good private enterprise can be in helping us to address some of the greatest challenges of our time, from an ageing population to climate change.
We have been through a lot together, but we strongly welcome the better working relations between the EU and the UK. I often say that pessimism is for better times, but too much futurology is full of apocalyptic disasters, when most of human history over the past five centuries is a story of progress.
Another Liberal, Macaulay, once said, “On what principle is it that with nothing but improvement behind us, we are to expect nothing but deterioration before us?” Minister, we strongly support the fantastic work you have been undertaking as Eurogroup President to deepen EU capital markets.
Looking ahead to what Macaulay would have undoubtedly seen as the opportunity for improvement before us, we know there is much we can collaborate on. We are honoured to have you with us this evening and look forward to your address.
But first, please welcome Francesca Carlesi, UK CEO of Revolut – a fantastic Europe-UK fintech success story!
Keynote speech by the Eurogroup President, Paschal Donohoe, to the City of London Corporation on ‘Financing Our Future’, 3 September 2024
Lord Mayor, Ambassadors, Governor Bailey, distinguished guests, it is a great honour to be here with you this evening. Thank you Lord Mayor for the invitation, and thanks to the City of London corporation for this opportunity in this storied venue.
As a proud Irishman and European, my connections with the United Kingdom and London in particular run very deep, both personally and professionally. London is very much a home away from home for me. It is where I first moved to from Dublin, it’s where I started my first job, and it’s where lifelong friendships and relationships were formed.
Standing here amidst the timeless grandeur of Guildhall, we are reminded of London’s rich history where every corner tells a story of a city that has shaped the world.
As part of my preparation for tonight, I was reading about the history of Guildhall. This remarkable backdrop is a place where court was held, taxes collected, and laws and regulations fine-tuned. Indeed, I read that ‘guildhall’ probably comes from the Saxon word ‘gild’, meaning a payment. It is a resilient demonstration of what has gone before.
It is appropriate then to set out what I see as a key issue for our economies in the future. And one that is common for Europe, for the UK and indeed for the global economy – namely, how to pay for and meet the very large investment needs which our societies face in the years to come, and do so in a way that reduces inequalities within our countries.
We are in a period of historic change, with new technologies fundamentally changing how we live, wars across the world, and having recently emerged from a global pandemic. All of this is occurring while our ecology and environment is being reshaped by climate change.
The lesson from history is that any of one of these changes would have restructured the societies and economies that have gone before. All of these changes are happening together for us.
This is why we are close to an inflection point among Western economies as we look at the fiscal positions of the EU, the US and the UK and critically the demands on those budgets.
So this evening, I will hone in on three specific areas:
first, making the case for market based economies;
second, how this in turn fits the rationale for the European Union; and
third, why a sea-change in capital markets union in Europe is underway, which leaves great grounds for optimism.
I will then conclude with some thoughts looking ahead from the shared perspectives faced by the UK and Europe.
Markets work, but we need to keep on making the case for them
So to begin, I want to set out the case for market economies and how this can help us approach the financing or investment gaps that we now confront.
From my student days right through to being a Minister, I have seen first-hand how easily opinions become divided between ardent and unapologetic advocates for unbridled laissez-faire on the one side and advocates of a State of the Leviathan on the other.
The market economy is under intense scrutiny, with the current political environment shining a lens on many of its deficiencies. The needle of public opinion is fragile, perhaps due to the ‘permacrisis’ narrative that has gained traction in recent years.
The risk of such trends taking on nationalistic and protectionist hues is very real. Most of us will recall our economic history, in particular the great British classical liberals of the 19th century. Adam Smith, David Ricardo, John Stuart Mill and many others warned of the inherent dangers that such protectionism could bring in the form of vested interests and economic inefficiencies that ultimately fail to deliver on the benign intentions behind such policies.
Their insights are still very relevant today. Yet I do not believe we face a binary choice here between State dominance and laissez-faire economics.
These arguments are well made in Martin Wolf’s excellent book, ‘The Crisis of Democratic Capitalism’, where he says “people expect the economy to deliver reasonable levels of prosperity and opportunity to themselves and their children. When it does not, relative to those expectations, they become frustrated and resentful”.
This encapsulates well the role of markets within democracies and the need to work to maintain the social licence and support for those values. Wolf also emphasises the large extent to which an economy which rewarded people for developing new commercial ideas in competition with one another has been a “driving force behind the transformation in prosperity over the past two centuries”.
However, it is clear that there is dissatisfaction in how market economies are delivering within democracies and this is clearly affecting political outcomes.
Faith in the economy’s ability to deliver for households has ebbed and eroded in recent times. Eurobarometer survey data shows that while 47% of Europeans are satisfied with the situation of the economy – the highest level since 2019 – 73% expect their standard of living to decrease in the time ahead. This echoes similar surveys carried out elsewhere in the Western world. For example, the Edelman Trust Barometer last year showed a significant collapse in economic optimism across Western liberal democracies, confidence levels at their bleakest in Western Europe (France (12%), Germany (15%), Italy (18%), the Netherlands (19%), the UK (23%), Spain (26%), Sweden (29%), Ireland (31%)) and Japan (just 9%) in terms of expectations of being better off in five years, with levels also low in Canada (28%), Australia (30%) and the United States (36%).
In instances of recent market failures or disruptions, it has been the State – in many cases through coordinated action at the international level – that has stepped in, whether through the response to the financial crisis of 2008, the Covid pandemic or the recent energy price shock.
But this is simply not sustainable. Addressing our future priorities which relate to health care, the climate transition and security implies substantial funding needs.
As outlined by the IMF earlier this year, we have a policy trilemma (see IMF report):
first, spending demands and pressures remain very high – for wages, for pensions, for health care, etc,
second, there is an inherent resistance to higher levels of taxation,
third, there is a need to bring deficit and debt levels down to safer levels, to create space for investment and to rebuild budgetary buffers.
In this environment and facing these issues, the challenge is to more than making the case for market based economies. This is more than a communication challenge. This is about how markets are organised. This is why there is a new imperative to harness private savings and investment and to rekindle faith in the private sector’s capacity to effectively respond to public demand for societal transformations.
This is vital because the public purse and the tax payer cannot fund on their own, the investments that societies need to respond to the many changes that we now confront.
As Wolf argued so clearly, the success of the market economy rests very much on the support of the public. This consideration needs to be present in our policy-making. We should not lose sight of how our decisions are communicated and explained to our citizens in an environment where public opinion so easily becomes a victim of false narratives and misinformation.
Evolving the EU Single Market to deliver market change
As President of the Eurogroup, it will be no surprise to this assembled audience to know that the following questions are top of my mind in a European context, namely:
how to support the development of markets within the EU, in a way that is beneficial to EU citizens and to the common good; and
how to communicate appropriately with the public about how the EU operates.
The EU policies that provide the most tangible and practical benefits are the most popular among citizens. Given my role as President of the Eurogroup, I will take the single currency, the euro, as an example.
The euro, certainly in relation to Guildhall, is in its absolute infancy. Despite its infancy it is not without its own trials and tribulations.
This magnificent structure standing since 1411, survived both the Great Fire of London and the Blitz. The euro too has evolved, surviving existential crises like the financial and sovereign debt crisis.
Just this year, we marked the 25th anniversary since the euro came into force as a single currency. In the space of only two decades, the euro has grown to become the second largest reserve currency in the world.
The euro area, it’s institutions and functioning have been modified and improved to address deficiencies in the original construct – a clear example is the establishment of centralised banking supervision following the financial crisis.
The periods in between shocks have also been marked by solid and sustained growth and convergence, perhaps best encapsulated by the recent record levels of employment and activity across European labour markets, where jobless numbers have never been lower, even in spite of a war on our continent.
The success of the euro is not just evident in economic data but it is also recognised by its citizens – with 79% of citizens living in the euro area believing that having the euro is a good thing for the EU, while 69% believe that it is a good thing for their own country (source: Eurobarometer, November 2023).
The EU and its member states must continually challenge themselves to ensure that we are indeed delivering on its promise, in a way which truly benefits our citizens in a meaningful and tangible way.
A good starting point is the recognition that a number of critical aspects to the four basic freedoms remain partial or incomplete. In the period ahead, there will continue to be a lot of focus on breaking down unnecessary impediments to creating a truly integrated single market in Europe.
Despite free movement of capital being one of the fundamental pillars of the EU single market, we have not yet realised a truly single market for capital.
The simple reality is that entrepreneurs and businesses in Europe are more likely to seek bank funding than their counterparts in the United States. Banks play a critical role enabling deeper and more liquid markets. But we know banks typically are more conservative in their lending and also more focused on domestic rather than international markets.
Similarly, if you are an investor and you need capital, the main players tend to be US firms and agencies and the equity market in Europe is less than half the size of the US.
We need to be able to better provide the opportunities and conditions for our companies to find the financing they need to grow, innovate and become more competitive within Europe. We need to take down the barriers which prevent them from fully benefiting from a single market for capital where a business in one European country can easily access financing opportunities in another. We need more competition and greater diversification of risks across the Union.
That is why capital markets union has to be central to our agendas. Why doing more on CMU is back on the agenda. It is because we are at ‘an inflection point’ in relation to the public finances and investment needs.
Debt levels, partly as a result of the pandemic, remain high, and potentially stretched in some cases. At the same time, the demands for spending are at all-time highs and will only get larger as our populations age. That is the uncomfortable but obvious truth.
At a time of growing dissatisfaction about the role of market-based solutions and at a time of such widespread budget challenges, making further progress on Capital Markets Union is essential.
The EU itself has the answer to these questions – in this case, the Capital Markets Union. I truly believe that making progress on the Capital Markets Union will bring tangible benefits to our businesses, and better opportunities for our citizens to provide and save for future projects.
This is all the more important at a time of growing dissatisfaction about the role of capitalism and market economies. Our capital markets are vital as a means of unlocking funding sources – to close the gap between demand and supply, addressing the needs of citizens, communities and society as a whole.
The reality of course is that this is ‘simple economics but difficult politics’. To quote what is known as the ‘Juncker dilemma’, we all know what to do we just don’t know how to get elected if we do it!
Or maybe this is a case of ‘we know what we need to do, we just can’t see why it’s important to getting us elected’. If this conundrum catches on, Lord Mayor, I will christen it the ‘Mainelli dilemma’, in honour of you!
But I am increasingly optimistic on the prospects of real progress towards a true capital markets union in Europe as there is a sea change in attitudes and political determination in recent months.
At the origin has been the recent work by the Eurogroup, the body that I am privileged to Chair, done at the request of EU leaders. Following extensive engagement with industry we agreed on a set of proposals on the future of European Capital Markets in March.
These are ambitious but realistic proposals that I believe will deliver tangible progress. Our pragmatic proposals centre on three pillars of action around the rubric of ‘ABC’, with thirteen priority measures comprising 42 actions, as follows:
A for Architecture – that is, how we can reduce barriers, how we can develop a better regulatory and supervisory system that works for businesses, investors and savers,
B for Business – ensuring that businesses, especially SMEs looking to grow quicker, have access as well as the knowledge and capacity to benefit from the appropriate funding to grow and remain competitive in Europe, and C for Citizens – how we can create better opportunities for citizens to save for future projects, investments and retirement, and facilitate access to capital markets for retail investors.
In addition to the three pillars of our statement, there is another ‘3’ I’d like to mention – the three avenues through which progress will need to be made going forward.
First, there is the EU legislative track, and our statement, which represents the political consensus and identifies recommended areas of focus for initiatives to be brought forward by the European Commission.
Second, measures which can be progressed at the national level, with the aim of developing and deepening European capital markets.
The third and final avenue is industry, which has a crucial role to play in the development of Europe’s capital markets. So while we cannot instruct industry, our statement does include a number of areas which I hope industry will consider over the coming months and years.
Our agreement was endorsed by EU Leaders at the March Euro Summit, and also served as the foundation for the April European Council conclusions.
At the Eurogroup, Ministers agreed a high-level work programme which will ensure that the implementation of our agreement remains at the top of the political agenda over the course of the next year. There is a political consensus and I am determined to keep the pressure on and ensure implementation.
What does this mean?
It means building institutional momentum on CMU within European institutions and also within member states. And we see progress already, not least in political guidelines for the next European Commission outlined in July by President von der Leyen.
To maintain momentum within member states we will hold regular follow-up sessions at technical and Ministerial level to monitor progress on national initiatives to deepen capital markets.
We must act now to take advantage of this momentum. To play the ‘devil’s advocate’, without a true capital markets union in Europe, I think the green transition as one prime example, is far less likely to happen. This would likely weaken further the case for market based economies, I spoke about at the beginning of my remarks.
We need to make the case for the potential within our economies and the necessity of unblocking funding sources and recent agreements in Europe give me a real sense of hope.
Change is happening and we have the necessary political momentum.
Common challenges
Of course, it is not just the EU which is looking at these questions – I know that the UK is also keen to make the most of its capital markets with the right architecture within the financial services sector to provide security for investors, as well as capital for businesses.
There are common challenges faced by both the EU and UK financial sectors. These include issues prioritised by Chancellor Reeves like reforming the pensions system, an area which the Eurogroup has also identified as a priority and where we intend to make progress in the coming months and years. Enlarging the use of longer-term savings and investment products, including through occupational and personal pension schemes will be critical to the success of CMU. Just today I met the Chancellor and discussed these common issues and I look forward to working with her at the G7.
More broadly it is particularly welcome that the UK-EU Memorandum of Understanding on Financial Services was signed last year, paving the way for the first two meetings of the Joint EU-UK Financial Regulatory Forum.
This Forum provides the opportunity to exchange views on key issues of importance for both jurisdictions, with the aim of preserving financial stability, market integrity and the protection of investors and consumers.
Of course, the UK and EU each have to make their own decisions about how to make progress. However, it is really welcome that we have moved onto a new footing in our relationship which allows us to exchange views on these important topics for our citizens and businesses.
Financial instability does not respect borders, so we have to work closely together in partnership to build resilience and safeguard stability.
More broadly, l strongly welcome the UK Government’s intention to strengthen and deepen relations with the EU.
Ireland has always supported the closest possible relationship between the EU and the UK and we will continue to do so. I hope the ‘first steps’ taken to re-build trust and develop relationships turn into a ‘steady walk’.
The case for optimism
I have covered a lot of ground and I want to conclude on an optimistic note.
I strongly believe that our economies and societies have fared well in the face of a pretty severe set of shocks.
If I was to pick one word to encapsulate how the euro area has fared, it would be ‘resilience’.
The pandemic for one was, I hope, a once in a lifetime shock – a black swan event. The forecasts for our future, at that point, were so bleak.
In fact, the euro area economy bounced back very quickly and multiple times faster than the slow dis-jointed recovery that marked the post financial crisis era. The UK economy also showed very strong GDP numbers following the pandemic. These are foundations that we build upon.
However, we need to do more. Europe and the United Kingdom need to double down on our shared democratic values and priorities.
Democracies and economies need to change, and how our capital markets change is part of that in order to address the societal transformations underway. They need to change to address the big issues we face – our investment needs for climate change, digital transformation, defence spending and ageing.
This is the benchmark against which we need to judge the success of the market economy we are developing and communicating about.
So to return to where I began – the remarkable backdrop of this centre of City government since the Middle ages and central to the City’s development since the Romans founded Londinium here 2,000 years ago – this Guildhall.
When building the architecture of our financial future, we can draw inspiration from this building, which has stood the trials and tribulations and tests of time.
We need strong foundations to underpin our market, we need sturdy pillars to support it, we need talented craftsmen shape it and carve it, and importantly we need merchants to operate it.
Let the building begin.
Closing remarks
Ladies and gentlemen,
Thank you for joining us this evening, and most importantly, thank you Minister for your insights. Henry Ford once said:
“Coming together is a beginning; keeping together is progress; working together is success.”
And for this evening’s purposes, allow me to add another: celebrating each other’s achievements is friendship. As you noted Minister, the EU is our friend and neighbour, and here in the City we want that neighbour to succeed as far as possible. As you also know, we have always supported the Capital Markets Union. Let us know how we can help you make it a reality. Though I’m not sure I really want a ‘Mainelli dilemma’ named after me.
Indeed, our position on the CMU hasn’t changed a jot. Speaking of jots, there is a wonderful old Dutch saying, “beter een goede buur dan een verre vriend“ – “better a good neighbour than a distant friend”.
The City will forever be a good neighbour to the EU, and importantly, a mutually reinforcing friend and financial centre. In a sign of just how strong that friendship is, I am delighted to announce that the Minister has been awarded the Freedom of the City, having recently been nominated by the Policy Chairman, Chris Hayward, and me.
Minister, when you formally receive the Freedom, not only will you be entitled to drive your sheep over London Bridge, wear a sharp sword, and be executed with the crest of a silken noose, but more importantly you’ll follow in the footsteps of some of the most iconic figures of modern times: Winston Churchill, Nelson Mandela, and Queen Elizabeth II to name but a few.
Know this: you will always be considered a good friend here in the Square Mile. Thank you.