European Commissioner for Competition
Working together to clear up the banking mess
'Sky Talks' Conference organised by RZB Austria
Vienna , 26 May 2009
Introduction - the achievements of Europe
These are interesting and difficult times; this crisis is the greatest challenge to open markets and open minds that most of us will come across in our lifetimes.
S o it impresses me that so many of you have come to discuss today what we can do together as Europeans to meet this challenge.
Not everyone is so enthusiastic about Europe. Many will not vote in the European elections next week, and some may even ask why we bother with a European Union.
But I can never forget why we have a Union. And I think it’s important to remember what we have achieved in the spirit of cooperation and progress over these last decades.
After the horrors of the Great Depression and the War, Europe was not a pretty picture. I don’t need to repeat the details; to me it is amazing that we have built today’s peaceful Union and Single Market out of that rubble.
Now we can travel and work and study where we please, as no-one has been able to do before us. That is quite something – something very special indeed.
So I don't ignore people who think that “Brussels” should do better or should do this or that but I always keep in mind the bigger picture. And when I compare life today with life before the European Union, I know very well which one I prefer.
Like any family, the European family has good days and bad days - but one important thing about families is that they stick together, and they are stronger as a result. So a s we face this recession together, we need to fight it together too.
Protectionism and the need for competition
The worst response would be to unravel our achievements and start fighting via protectionism - whether between EU member states, or protectionism aimed at keeping the rest of the world out.
Avoiding this is not going to be easy, though we have been successful so far.
When so many believe the wealthy and powerful have taken everyone else for a ride, it can make protectionism and bail-outs-for-all seem like a magic solution.
But there is no magic solution and no easy answer for citizens who ask “where is my bail-out?” And there is no money for every struggling industry that sees the crisis as an opportunity to milk governments for cash.
The only right answer is to explain what achievements are worth keeping, what we risk if we lose sight of these achievements, and how we can do our best to reduce the bill for fixing the crisis.
Number one in my list: making sure we don't "throw the baby out with the bathwater". The European Single Market is our crown jewel. It is a real positive achievement that has revolutionised how we shop and do business and it has made us richer.
But as you have seen, we cannot be complacent that the Single Market will survive without our help. For that reason you can be certain that the European Commission will always say no to protectionism. We owe that to the taxpayers of Europe.
We are not fooled by the claims that protectionist measures will only be temporary or only for one special sector - it never works that way. In reality, it is like a pregnancy: you think it's for about nine months but there are decades of consequences. Protectionism slows the economy, pushes up prices, and takes years to reverse.
Instead of that we should use the pressure of competition to improve productivity, to lead to innovation, to support purchasing power.
Facing responsibility for the banking mess
So rather than abandon policies like the Single Market that have led to so much prosperity in Europe, what is it that we actually should be doing to get ourselves out of this economic crisis?
First, most obviously, we have to fix the banks. If we don’t fix the banks, the real economy will continue to suffer.
I think that that means we all need to change. Not just the banks.
Because it's easy to blame the bankers who wanted huge bonuses and the investors demanding double-digit returns. But many of us are investors these days, and who didn't want that extra percent of interest? Or that deal that seemed too good to be true? I am sure we all know a family that funded their lifestyle through debt rather than sacrifice.
All of that contributed to the crisis. These were habits of greed that existed from kitchen tables to boardrooms – and they were not sustainable.
We wanted too much from our financial system without asking the hard question about whether it was really possible. Now we are paying the price.
But we can still have a big impact on what that price is by making the right, sensible choices.
As a policymaker that weighs on my shoulders every day.
Like most of you I have children and grandchildren – a son and a grand-daughter actually – and I want to be able to say to them that I did everything I could to correct the mistakes.
I think we all need to make that effort to leave our institutions in a better state than when we found them – for those of us in positions of power today that is now an especially hard task.
A new banking sector - new models, new regulations
My specific contribution – that of competition policy – is to monitor and control the state support in the banking sector; to ensure that we do not lose the level playing field; to ensure that banks who were well run and who did not dig themselves into a hole are not unfairly disadvantaged compared to those who need state bail-outs.
That means accepting the need for rescue measures, but also looking carefully at the restructuring that must necessarily follow.
You should expect that we will be making banks smaller and more focused on core businesses like lending. We have to ensure viability; we will also make transparency a priority; we have to limit the distortions of competition.
For banks there is some fundamental soul-searching that needs to be done. Many bank CEOs are not ready for that yet - they are still in denial. But we are not shifting from the need for transparency and change - they will realise that soon. The recovery has to be sustainable or it is not a recovery.
Looking beyond competition policy and the immediate crisis, it’s obvious that we need to think more about the regulation of the sector. If we have monetary union and a Single Market it makes sense that we also need a single approach to key elements of banking regulation. I expect these to emerge over the coming months.
Some in the industry are still shocked at all this talk of regulation. They need to get real.
It’s not unreasonable to regulate markets - especially ones that have the capacity to do great damage when they fail. Adam Smith himself put great emphasis on ethics and moral values; Keynes devoted much of his life to finding ways to correct capitalism's excesses.
So I think it’s important that we don’t return to our old complacent attitudes to banking. We have to go back and test our assumptions and become more realistic.
And from a personal perspective – it's competition enforcers who get stuck fixing the problems that regulators ignore or can’t fix! I’m determined that we fix these issues before they end up in my in-tray again - competition policy can’t solve every problem!
What is the Commission doing to restore growth?
Of course, the Commission’s work goes beyond the banks.
And although competition policy is the field I claim to know best, the Commission’s work goes well beyond competition policy.
And the Commission itself is only one part of the European response – most of the money and most of the power to spend it rests with individual Member States.
So while we can set rules, and bring parties together and help them to share lessons about what is working and what is not, much of the responsibility has to be taken at a lower level.
What do I really mean by that?
For governments it may mean finding new ways to use all the new opportunities for aid that we have created since the crisis started. Governments are also coordinating on the best new ways to make the welfare system protect incomes and our skills base. This consistent, co-ordinated approach today is very impressive compared to past recessions.
This does not mean the Commission is not busy! Far from it - I actually have staff working in temporary buildings in our courtyard because we had nowhere else to put them! That is how quickly we brought them in.
And they are working day and night, no bonuses either, to get the economy back on track.
The work we are doing is going back to the heart of the Lisbon Strategy for growth and jobs.
But let’s make a deal - I’ll save you the time of reading that strategy if you accept this explanation: it says the Commission and Member States have to work together on specific, proven policies to help deliver a stronger economy. That not only means more growth and better jobs. It means stability as well.
So with that in my mind, my work in 2009 focuses on two maxims:
Firstly, we have a responsibility to ensure all our policies are integrated, so that protectionism does not slip through anywhere.
Secondly, it means fighting for and explaining competition policy more than ever. Most people would say competition policy is all about letting markets operate freely and fairly. That is part of it - but competition is also about social inclusion and cohesion. Competition helps to make daily life affordable, it increases the number of quality jobs in our economy and it creates a friendly environment for entrepreneurship. Europeans need to know that.
So I want to make sure that everyone knows just how many opportunities we provide to help keep the level playing field level.
Whether it is support for small businesses to develop, capital for female entrepreneurs or encouragement for green investments - the Commission offers dozens of options for aid which does not wreck the level playing field or hurt the businesses that have done the right thing.
In conclusion, I want to say that competition is not easy.
But nothing worth having is easy. History shows us that economies are better off when we as competition authorities do our jobs without fear or favour.
This matters more than ever in 2009 as we have to face our responsibilities and make sacrifices.
That will be hard enough as millions of families face budget problems, and law-abiding businesses struggle to survive. So we owe it to all those people to limit the hassles of competition problems, and to save them from the costs of a breaking up the Single Market.
But too much has been built up over the last decades for us to let it go to waste now; so I am optimistic that we can protect our achievements and meet our challenges.
We have faced and beaten great adversity in Europe in the past.
We can do it again in 2009 by remembering the value of cooperation, and the vision of progress that the European Union is built upon.