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European Commissioner for Competition Policy
Address at 105th meeting of the OECD Competition
Ladies and gentlemen,
"The EU lacks ideas and direction in economic crisis" this is what I read this morning.
The message to us is many people are looking to Brussels for answers. Point taken; you deserve answers from Brussels. Let me correct the record today.
But let me be clear that Brussels is only part of the solution. Brussels can set the tone of Europe's response to the crisis and we can coordinate and enforce fairness, but we need all hands on deck.
The hands are many – Member States, the Council, ECB, EIB, the Commission and our international partners. The answer has to come from all these actors, not least because Brussels does not have spending power.
I will of course play my part. The answer you will always get from me is this: we say no to protectionism. We say no to the proven failures of protectionism.
The false promises of protectionism will only lead us deeper into the hole we are in. I think you will agree we have done enough digging already!
Of course no politician will admit to protectionist policies. It will be presented under better colours, using national money to protect national jobs. That is rhetoric, not reality.
We have to protect people by creating for them real jobs with real futures, not jobs that only exist as long as the taxpayers' money exists. That takes leadership. Leadership is not bribing multinationals and stealing jobs from one's neighbours.
Taxpayers' money should be spent countering the credit squeeze; it should not be spent endangering the single market.
Of course, maintaining competition in the face of political pressure is not easy. I have been in politics long enough to know all about that. But someone has to look out for the big picture – that is another thing that I and Brussels offer today.
We need to be flexible on procedures – yes - but not on principle. The temporary and targeted aid measures in the EU address the new market failures in the provision of credit using our existing principles. Flexibility does not mean throwing out the rules.
When it comes to state aid spending: quality not quantity is the key. To use an American phrase: we have to get 'bang for our buck.' If state aid does not boost economic growth, it is wasted money. It is not a way out of this recession, only a tax burden on future generations.
So yes, we must spend money and yes it is Member States that must do the spending. But we are determined that this spending should be an investment in Europe's future.
For example, the car industry's difficulties must invoke reform as well as sympathy. This industry has to change and invest in green car engines if it wants to remain competitive, and Europe wants to keep jobs.
The European Investment Bank's green transport facility will be useful in that respect, but Member States need to act too.
Returning to viability
While financial meltdown has been averted and patchy improvements in interbank lending have been achieved – we are a long way from recovery. And recovery cannot happen until the banks are back in order.
Governments have started down that path with the bank guarantees and recapitalisation, but we now need to address impaired assets and, most importantly, the restructuring of the sector and of its major players.
The toxic assets of the financial system have already polluted the water supply to the real economy. They must be cleaned up.
Although banks have started to address this problem by writing-down asset values, reclassifying other assets and putting more capital aside, estimates of financial institutions' exposure to impaired assets continues to grow. The IMF estimates that the potential deterioration in US-originated credit assets held by financial institutions has risen from $1.4 trillion in October 2008 to $2.2 trillion. The point is that impaired assets need to be dealt with using specific new measures which can restore market confidence in banks' present and future solvency.
Several EU countries have announced their intention to put in place such measures. And it is essential that we have a consistent and coordinated approach – not only in Europe but around the world.
We are in this together. If every country acts according to "my way or the highway", the banking sector as a whole – and with it the entire world economy – will suffer for many, many years to come.
Although individual Member States should retain the choice of which particular scheme best suits their budgetary and banking circumstances, the need for coordination and consistency is non-negotiable.
And whichever approach is chosen, we face hard questions.
Do we target schemes at only the most distressed banks, knowing some banks that need help might be reluctant to join such schemes as their very participation will stigmatise them as distressed?
If a scheme is too restrictive, it risks not clearing up the problems and not restoring confidence.
Do we manage the closure of the worst banks, target schemes to save those in the middle, and leave the very strongest banks to fend for themselves?
Without adequate safeguards, that risks undermining the very strongest banks, and still not restoring confidence.
Do we force participation in the schemes across the board? That, of course, risks enormous costs to the taxpayer, and it may be that the banking sectors in some countries do not need such far-reaching state support.
Perhaps for many countries it is the harsh medicine that we need to swallow now, to avoid a worse prescription later.
A middle way would be to have regulators to require full and frank disclosure from all banks to be able to direct their interventions to systemically relevant banks most in need of it.
Proposed schemes will need to be sustainable from a budgetary perspective, and the budgetary position may affect the type of scheme chosen.
Consideration of the medium and long-term impact must be built into the design of impaired asset schemes.
They must not inflict damage on other market players and will need to be
And, where necessary, accompanied by a restructuring of the bank to the extent necessary to ensure not just viability - in the sense of survival - but real ongoing utility as a means of channelling credit to the economy.
This leads me to my most important point.
Guarantees, recapitalisation and the treatment of impaired assets are necessary, but they are not sufficient.
Tough decisions on restructuring or possible managed liquidation need to be made, and they need to be made very fast. We cannot afford delay.
Member States have to be resolute and determined to reduce uncertainty and increase trust in the banking system so that the real economy can again access the credit that it needs.
If we fail to take decisive co-ordinated action now, we will
Competition policy is ready to deliver and develop ways out of this recession. Brussels will provide that leadership.
But competition policy cannot do everything.
National leaders cannot escape their responsibilities in times of crisis. They cannot put the blame on others and hide behind rhetorical arguments.
If we want to return the banking sector as a whole to health, and restore the sector's crucial function of supporting the wider economy, restructuring decisions need to be taken before the end of 2009.
This will not be a smooth ride for anyone, particularly not for the management or the shareholders. Hard questions will have to be asked along the way, about business models and the appropriate scale of banks in the future.
But there is no doubt in my mind that we have a responsibility to citizens and businesses to summon the political will to answer these questions.
Whether we meet that challenge will shape the economic experiences of a generation.
And if we do not rise to this challenge, future generations will rightly wonder how we messed it up so badly.
It will take more than a few late nights and a good deal of courage. But compared to the false promises of protectionism, the choice is clear.