Jean-Claude Juncker, Discours à l'occasion de la Fullerton Lecture organisée par l'International Institute for Strategic Studies (IISS), Singapour

Ladies and Gentlemen,

It is a great pleasure for me to be here to deliver the seventh IISS Fullerton lecture. I come to you from attending the ASEM Summit in Laos, where the overarching theme was "Friends for Peace, Partners for Prosperity", and I hope to develop both elements of this theme in today's discussion on the euro.

When a room is so full of such distinguished guests, here to consider the future of the euro, a currency whose closest domestic users are 8000 kilometres away and whose central bank is another 2000 beyond that, then you have cause to believe that the topic is an important one. When that distinguished crowd is assembled on the day of American Presidential elections, you know it's not only important, but also serious.

I hope to convey to you today my very strong belief that, while the topic is of course an extremely serious one, it is absolutely not the seriousness of imminent catastrophe, as has often been portrayed in the media; nor is it the seriousness of fundamental incompatibilities between euro area members, as has also been suggested. These make for very dramatic headlines, as well as for boldly calamitous predictions about the euro's future. But these predictions are wrong!

The seriousness I want to talk about is rather the commitment that the EU has shown, over many, many years, to building a political and economic community, and an economic and monetary union, to deliver peace and prosperity to its people. Also to extend the promise of that peace and prosperity to those who wish to become members, and to develop relations based on the same principles to those beyond the EU's borders. For me, this is what is embodied by the ASEM Summit, and what drives the European Union.

Of course, the European Union has moved beyond a purely economic construction, and it will need to move further along the road towards more political integration. I will come to that shortly. But first of all, I want to spend a moment reflecting on the original concept underlying European integration. That concept is, first and foremost, the avoidance of armed conflict. And to achieve that, the pursuit of shared economic interests. And through the pursuit of those shared interests, the broadening of the avoidance of conflict into the creation of a positive common interest, both political and economic. And thus the creation of a virtuous circle of the achievement of mutually beneficial economic objectives, delivering greater prosperity to all - we arrive at the point where we have moved so far from our previous conflicts that we over-dramatise all disagreements, all differences of emphasis in our shared political and economic approach.

It may not be a fashionable or universally well-received opinion, in the context of the problems we have experienced in the euro area, but I would firmly place the euro at the heart of the good work that the EU has done, and continues to do. I would pay tribute to the role of the euro in helping the countries of central and eastern Europe reform and strengthen their economies over the last two decades. And I would claim a great deal of credit for the euro as a key pillar of the EU as a whole, which will as a whole collect the Nobel Prize for Peace next month.

Of course, I am aware that some people have expressed surprise at the EU winning that Prize, and I am aware that some have commented on the fact that its award comes at a time when tensions between Member States seem to be more severe than they have been for some time. I'm even aware that there have been some jokes about winning the Peace Prize because we would never win the prize for economics. But the political context of Europe, both historical and present, and the political reality of the euro is what we live with every day in the EU. And it is what we need to make work every day.

So we are unlikely to win any prizes for the academic neatness of the euro area. But if we look at the euro from the perspective of a political imperative to integrate our economic interests, with the aim of delivering greater prosperity to our people, we can see some very real, very significant practical achievements.

You can travel from Helsinki to Lisbon, from Athens to Dublin, from Nicosia to Valetta to Amsterdam, you can meet and do business with a market of more than 330 million people, all sharing a single currency. You can establish a business in Ljubljana or in Rome, in Paris or Madrid, and have direct access to all of that market, those 330 million customers, without the need to work out exchange rate hedging strategies for 17 different currencies. You can choose Tallinn or Berlin, Vienna or Luxembourg, Brussels or Bratislava, and you can base your choice on the real needs of your business, safe in the knowledge that you have access to that whole market, with its single currency and its 330 million customers.

And if you have a concern about the currency strategy you need to adopt, you can talk to the European Central Bank to be reassured on the commitment to price stability or other monetary policy issues. If you need guidance on the competition rules, you can talk to the European Commission. For other euro area issues, you can talk to me - I am always happy to talk.

To me, and to many nations and international organisations, and thousands of businesses operating in Europe, that short list of people to talk to is no small achievement. It has taken us decades to get there.

Of course, as we have found out over the last couple of years, that isn't quite enough. The spirit of our "ever closer union" and the expectation of continued economic convergence have not been sufficient to deliver the economic and monetary union we hoped for. But again, not achieving everything that we hoped for doesn't mean not achieving anything at all. The monetary union that we have has improved the functioning of our single market; and on even the most pessimistic assessment, it has taken us onto the road we have now embarked on, where we can define the economic elements that will make a full economic and monetary union a reality. Not to forget the social elements of our political union.

We have seen the establishment of stable exchange rates in the run-up to the launch of EMU and irrevocably fixed exchange rates ever since, covering a period of 20 years since the signature of the Maastricht Treaty. This in itself is unprecedented in European history, and has delivered a level of economic stability that many of our Member States never experienced before.

We have seen a real shift in the way our governments manage their public finances. It may look at the moment as though some of our Member States are facing real difficulties, and indeed they are. But the bigger picture is of a recognition of the need to plan for the long-term costs of our ageing populations, and of most Member States taking their responsibilities and introducing a combination of budgetary control and structural reform measures to ensure that public finances are sustainable in the long term. And all this with a very high level of social protection and increasing life expectancy.

I am not complacent. I am not in denial about the weaknesses in our economic and social framework. But I do not think it is fair to say that we made no provision for these issues when we launched EMU. We made provision. Our failure was one of perhaps excessive optimism. In particular, we overestimated the determination of governments to make the reforms necessary for the long term, to ensure sustainability of public finances and a lasting convergence of economic performance. And the ability of governments to hold each other to account, when many of them were faced with similar difficulties.

So here we are today. Still facing uncertainty about the viability of the economic and budgetary plans of at least some of our Member States. And therefore facing questions about the viability of the single currency itself. I can not today deliver the answers to all the questions that have been raised. Nor can I dispel, in one lecture, the doubts that some people have about the single currency. What I can do is express to you my confidence that we are making progress along the path towards answering those questions; we are developing the solutions that can dispel the doubts; and we are deepening the process of integration that was only partially completed through the creation of the single market and the single currency.

When we achieve that deeper level of integration that was missing from the initial structures of economic and monetary union, what will emerge will be a stronger EMU, composed of stronger Member State economies, with a much stronger framework for delivering future stability, prosperity and social justice. So the euro will survive! For we are not facing a crisis of the euro.

So what was missing from the initial blueprint? What went wrong in EMU? And how are we going to fix it?

Of course, I was very closely implicated in the drafting of the provisions of the Maastricht Treaty on Economic and Monetary Union. And I have been very closely implicated in their implementation ever since. So I find myself in a good position to know what we were trying to achieve, to see whether we did achieve it, and to tell you where the fault lies if we didn't.

So let me start with this: we did not achieve all that we set out to achieve. This much is clear.

Very specifically, we did not manage to ensure compliance, in all Member States, with the guiding principles of Article 119, paragraph 3 of the Treaty - "stable prices, sound public finances and monetary conditions and a sustainable balance of payments".

We did very well on stable prices, at the aggregate level, through the ECB. We also did reasonably well on the other items, at the aggregate level. However, our monetary union is made up of diverse economies. The mechanisms for continuing the process of convergence that had been so strictly monitored prior to euro adoption - these mechanisms were simply not strong enough, and certainly not effective.

And why was this?

It may have been through a misunderstanding of the full implications of being part of a monetary union - not only budgetary constraints, but also the need to manage potentially painful adjustments through the real economy, through wages and prices.

And if not through this misunderstanding, it was through a failure of political will to address fully the demands placed on government policy by these constraints. Such a failure is understandable, perhaps. With an environment of low interest rates and some asset price bubbles, the pressure comes off the need for fundamental structural reform. It is hard to sell a consolidation message during a boom, just when it is most appropriate. The easy path, after the hard work of convergence for euro adoption, was just too tempting.

So through both misunderstanding and political failings, exacerbated by easy credit and the mispricing of risk, some of our Member States ran up very high debts while failing to reform their economies and adjust to globalisation. They built up significant macroeconomic imbalances. And the unwinding of these imbalances, when the global financial crisis hit, has been abrupt. In some cases, it has been more than abrupt, and has resulted in the exclusion of sovereign borrowers from financial markets.

That's the bad news. Member States failed to pursue appropriate policies, and our collective oversight failed properly to hold them to account. Bad policy choices were facilitated by cheap borrowing and a weak framework for economic policy surveillance and coordination. Because of this, we have indeed got ourselves into a terrible mess.

But then comes the good news - good news which fits with the "Friends for Peace, Partners for Prosperity" ethos. And which embodies the spirit of the European Union to seek to learn from previous mistakes, to offer support to those who need it in order to enable them to remain and develop as partners for prosperity.

That good news is the response of the EU, and more specifically of the euro area and its Member States to this crisis. While that response has been criticised, by some extremely harshly, I would still regard it as an impressive display firstly of crisis management, secondly of solidarity within the euro area, and thirdly of a strong desire to rectify the failings in our institutional framework and in our past behaviour.

Klaus Regling came here a little over two months ago and spoke of how Member States are going about the work of adjusting their budgetary and economic plans. I do not want to repeat what he said. But it is worth drawing attention, one more time, to the main headlines:

• Fiscal deficits are being brought down, even in the difficult economic circumstances we face, including through radical reforms to labour markets, pension systems and public administrations. This action will make our economies more resilient in the future, and better adapted to the challenges of the globalised economy.
• The EU really is tackling macroeconomic imbalances, in a way that it in the past failed to do - we have established specific procedures to identify and correct serious imbalances, and we see that these are bearing fruit in those Member States which saw their current account deficits increase dramatically in recent years. In short, we are seeing progress in reversing the loss of competitiveness in some Member States that followed the introduction of the euro.
• We are tackling the weaknesses in our financial sector, by ensuring that banks increase their capital, intervening with official support if necessary.

Now, while these are to a certain extent only the necessary reversals of past policy failures, and while some will say that they may in the short term actually have adverse effects on the growth profile of some Member States, I still think they are impressive. And what I find particularly impressive, as a politician, is the way that these reforms are not just an immediate response to the crisis we find ourselves in. They are not just what we need to do to get through the next news cycle or the next electoral cycle, or even the next business cycle.

No. Each of these elements is accompanied by a solid, institutional commitment to change the whole approach that we take to economic policy. While the world has chosen to focus on the disagreements and the difficulties within the euro area, the euro area itself, and the EU as a whole, have actually managed to agree on a level of economic integration that has eluded us for decades. A level of integration that eluded us, even in the optimism that followed the fall of the Berlin Wall, as we were creating our single currency.

From an economic point of view, I see the euro as the unifying common interest that propels us to make the right economic choices, for the long term, even in difficult times. For five good reasons, I am very optimistic about the future of the euro area:

• Firstly, Member States are taking their responsibilities to each other within the euro area much more seriously than ever before. The difficult discussions we've had demonstrate that there is solidarity, but there is also a strong requirement to behave responsibly within the monetary union.
• Secondly, we are much more realistically self-critical as regards our own capacity as governments to take the right long-term decisions. And so we have constrained ourselves to do the right thing. We have a "fiscal compact" under which each Member State will adopt a balanced budget rule, and automatic budgetary correction mechanisms. We have strengthened our EU surveillance procedures, both for budgets and for macroeconomic imbalances. It is very tempting, as a group of Finance Ministers, to be a little too understanding of each others' problems. We may be too ready to accept the logic of the easy short-term solution, which postpones those problems into the future - so we have toughened up procedures to remove that temptation.
• Thirdly, we have shown a remarkable degree of solidarity in developing financial support mechanisms for those in need of them. First an ad hoc set of bilateral loans to Greece. Then a temporary joint vehicle for financial support, which has provided assistance to Greece, Portugal and Ireland. And finally, coming into being only a month ago, the permanent European Stability Mechanism, with a standing capacity of 500 billion euros. Governments, Parliaments and ultimately the citizens of the euro area have shown their solidarity with those in difficulties in other Member States, while also insisting on the economic reforms that are the basis of a return to longer-term prosperity.

I have to say, on the creation of the ESM, that I am impressed. I am impressed by the resolve of euro area Member States to find solutions to serious problems, on issues that they approach from different directions. And I am also surprised by the representation of agreements on those issues, after long negotiations, as evidence of partial disharmony. I chair those negotiations, and I can tell you that I find the very fact that they are taking place a great reassurance of the common will of our Member States to act in the collective interest of the euro area. The fact that they produce very clear, tangible outcomes agreed upon by all is a remarkable testament to the ability of the euro area to do what is necessary when times are hard.

• The fourth element that gives me cause for optimism is the very real progress we are making in the financial sector. In particular, the firm commitment to break the vicious circle between banks and sovereigns, and to establish a single supervisory mechanism, under the auspices of the European Central Bank. Our timetable for agreeing on the necessary legislation by the end of the year is extremely ambitious, and an indication of our determination to make things happen. Once that mechanism is operational, we will have the possibility to recapitalise banks directly through the ESM - a weak banking sector need no longer exacerbate the weakness of a sovereign.

This is probably the right point at which to highlight the role of the European Central Bank. It is the essential institution created as part of the economic and monetary union, and it is an institution that has always served the interests of the Union extremely well. It has the credibility and trust to take on the supervisory role for the whole euro area; and it has demonstrated excellent guidance and leadership in the financial crisis. Its decision to embark on a policy of outright monetary transactions, to ensure the transmission of its monetary policy and signal to markets its determination to see financial support programmes work - this intervention has been decisive in providing a strong and credible backstop for the euro, and will continue to be so.

• The fifth and final element in my tour of optimism around the euro area is less about how we deal with the crisis and more about how we prepare to face the future. This element is the discussion about deepening integration in the euro area, beyond the banking union, beyond the establishment of financial firewalls and beyond the reforms to our surveillance procedures already agreed.

We are discussing, at the very highest political level, and in the most fundamental terms, what structures we need in the euro area. We are engaging, in a very open way, in a discussion of what we need to make our economic and monetary union both stable and prosperous. And this includes a clear commitment to more extensive sharing of sovereignty - that is no longer absolute anyway-, more collective responsibility for economic policy decisions and more systematic consideration of the impact across the euro area of policies decided by individual Member States.

What kind of agreement we come to on budgetary and economic policy frameworks will become much clearer over the next month or so. But what I take away already is the determination to hold that discussion; to really engage with each other in a debate on who should make decisions and to what extent we need to deepen our reflection on shared economic interests within the euro area. This really is about how the euro area will move from the European Union's overall founding principle, along the lines of "Friends for Peace" to a real, and much deeper, "Partnership for Prosperity", not just on a country-by-country basis, but as a unified economic and social entity.

I see economic and monetary union as much more than just a single currency. I see it as much more than a single monetary policy. I see it as much more than a set of rules and obligations. I see the euro as the most important practical and symbolic achievement of European integration over the last sixty years. As the primary tool and driver of deeper integration over the next sixty. As the unifying force that makes real our shared endeavours in the pursuit of prosperity, peace and a political union.

The euro is our money, our currency, the collective expression of the political and economic strength of our continent. It is a fundamental value that we hold in common. As a matter of fact, it is foremost a daily peace project. As such, we will need to meet the increasing challenges of our collective responsibility for it.

But with the actions that we have undertaken, I am confident that we will indeed meet those challenges. That we will exceed the expectations not only of the pessimists, but even of the optimists about the future of the euro.

The reforms that we are undertaking mean not only that the euro will remain a strong and stable currency, serving a market of 330 million citizens. They mean that the Member States within that market will work together to ensure that public finances are sound and sustainable; that economic policies enhance competitiveness; that our economies are fit for the future.

The reforms already implemented in Greece, in Spain, in Portugal and Ireland, not to mention those implemented in other Member States which do not need financial support, will make their economies more resilient and adaptable. Our further innovations in economic policymaking will reinforce the obligation to ensure our economies continue to become more resilient and adaptable.

Further integration will mean that global partners will be able to talk to the European Central Bank not only about monetary policy, but also about banking supervision. I know that the European Stability Mechanism is already talking to many investors, around the world, about the opportunities it may offer to invest in a common asset for the euro area as a whole.

Above all, the reforms we are undertaking will surely lead to the euro area becoming a even more stable and reliable partner, for all parts of the world, for trade and investment. The economy of the euro area will not only be more robust in the future, but also more open.

And this more open euro area economy will also become larger as more Member States join. It seems fashionable at the moment to draw big distinctions between the euro area and the European Union, in some quarters to question whether the single market can really be maintained if economic integration in the euro area deepens. I reject the distinction. I insist that the single market of our twenty-seven, soon to be twenty-eight Member States is one of the fundamental achievements of the EU and must continue to be one of its cornerstones.

But I also insist that the euro is the currency of the European Union - over time, almost all of our Member States will join, thus deepening our single market and presenting an ever more unified economic area for the rest of the world to do business with.

I am very pleased to say that Asia and the European Union are already extremely significant partners, both for trade and for investment, and, I can reaffirm after the ASEM summit, for peace, friendship and prosperity. Asia is Europe's largest external trade partner. Trade flows of goods and services are growing again after the global slowdown of 2008-2009. Stocks of Foreign Direct Investment of Asia in the EU and the EU in Asia now amount to over a trillion euro.

The level of cooperation between the EU and Asia is also increasing, in a very positive way. A full free trade agreement between the EU and South Korea has been in operation for a year, and negotiations with a number of Asian partners are ongoing. And there is a determined effort to move towards finalising the agreement with Singapore in the near future.

With the ASEM meetings, at both Finance Ministers and Summit Level, with relations between the EU and ASEAN and bilateral relations between the EU and Asian nations being developed further, I envisage a deepening of ties on all levels, political, economic and cultural. And I foresee the economic health of the euro area as closely intertwined with that of its global partners, of whom Asia represents the largest.

Based on my optimistic assessment of the developments currently underway in the euro area, I can only conclude that now is a very good time for Asia to be open to greater partnership with Europe. It is a very good time to take advantage of the reforms taking place and the opportunities that they offer for both trade and investment.

The euro area has experienced difficulties. This is true. Those difficulties are not yet entirely overcome - that is for certain. But we have taken great strides to tackle our problems not by turning inwards and erecting barriers to protect our domestic markets, but by pursuing ever more integration amongst our own Member States, and greater openness to our partners around the world.

In taking this approach, the euro area is delivering three key messages, both to its own citizens and to the world:

• Firstly, we recognise the political and economic imperatives to implement the short-, medium- and long-term measures required to make the euro work as it should; and we are determined to do what is required.
• Secondly, we will build the institutional framework to deepen integration within the euro area, so that it becomes more recognisably a single economic entity, rather than a set of disparate economies sharing a currenc.
• Thirdly, that the euro area as an economic entity will prosper in partnership with others around the world - the interconnections of globalisation bind us all, and it is through openness and greater cooperation that we can all become genuine partners in prosperity.

The history of the European Union has been of sixty years of building peace and prosperity, in a spirit of openness and cooperation. And now we are living through a period of great financial end economic turmoil. I am confident that the European Union, and the euro, will emerge from this turmoil stronger and fitter for the challenges ahead. Together, we will overcome the current crisis.

I am also confident that the spirit of partnership between Asia and Europe that I have experienced over recent days will lead us to greater cooperation, deeper friendship and success in our collective endeavours to increase our peoples' prosperity. For Helmut Schmidt is absolutely right in saying that we are “global neighbours�?. I would add: “good global neighbours�? in en ever smaller world.

We cannot afford to miss this historical opportunity!