European Commissioner for Economic and Monetary Policy
Reforming the European economy towards economic, social and environmental sustainability
European Economic and Social Committee
Brussels, 19 March 2010
President, Ladies and Gentlemen,
Let me begin by thanking the European Economic and Social Committee for organising this timely and important conference. The focus of today's session – "Reforming the economy towards economic, social and environmental sustainability" – touches upon the issues that will affect the development of our economies in the years to come.
The financial crisis has harshly demonstrated that the continuous economic growth of past decades cannot be taken for granted. Today, the worst is over. The economic recovery is now in progress, but it is still not self-sustaining, and employment has not yet turned to the better.
The same applies to the consolidation of public finances, which is a prerequisite for sustainable growth. The two years of the crisis have wiped out over 20 years of consolidation of public finances.
Therefore, this is indeed not a time for business as usual. Instead, this is a time for step change in our policies to promote growth and job creation.
On 3 March, after a thorough preparation, the Commission presented the Communication on Europe 2020, which is a strategy for Europe to exit from the crisis and to build the foundations for sustainable growth.
The underlying principle of Europe 2020 is to mobilise all potential drivers of sustainable growth in order to modernise of our social market economies. It calls for improving the productivity of our economies by investing in innovation and research, and education and training. And it calls for correcting the structural weaknesses in our economies.
Ladies and Gentlemen,
In our proposal for Europe 2020, we set a limited number of targets to measure Europe's economic performance: employment rate; investment in innovation and research; participation in education and training; climate and energy targets; and alleviation of poverty. Based on the joint decision in the European Council, national targets will be discussed and tailored to fit to the particular situation of each member state. The targets are not a goal in itself, but will define what needs to be achieved in some key dimensions to put us on a path sustainable growth and job creation.
Europe 2020 is built on two legs. All measures to mobilise growth drivers should be done while respecting the need to consolidate public finances. Only thus will the strategy be realistic and have a real impact. Therefore, Europe's economic success calls for both the consolidation of the public finances and the mobilisation of growth and job drivers. These two pillars form the basis of the Commission proposal.
In other words, we must restore macroeconomic and fiscal stability, but that alone will not suffice. We also need investment and structural reforms to bolster growth and job creation. To square the circle, we propose to combine fiscal consolidation with a structural reform agenda that unblocks the most important bottlenecks to growth.
First, we need to proceed with what I would call smart consolidation. That requires a quick implementation of reforms to improve the sustainability of public finances, such as pension reforms and improving the efficiency of public spending. There will also have to be a clear priority for public investments with the highest leverage for growth.
Second, we have to focus on structural reforms with low budgetary costs that can significantly improve the functioning of the product and service markets. I am thinking about better regulation and the reduction of administrative burdens, where initiatives are already under way.
At the same time, we need to strengthen our financial systems to make them less prone to such excesses and vulnerabilities that we have witnessed during the crisis. It is worrisome that the momentum for reforms seems to have been weakened. We must not let this happen.
Getting the reforms of financial regulation and supervision done, and thus the new rules and bodies to function soon, is very important to speed up and solidify the economic recovery. It is indeed not only a matter of financial stability, but also a key condition to improve the business environment in Europe. And it concerns not only banks and other financial intermediaries, but has wider implications for the real economy. Without certainty on financial regulation – such as capital requirements – the resumption of normal financial conditions and the normal flow of credit to enterprises and households could be delayed. In my view, we cannot afford that, and should not let that happen.
Ladies and Gentlemen,
The latest developments in the European economy and in the euro area Member States have demonstrated the urgent need to go even further strengthening the financial stability and economic policy.
Earlier this week, the Eurogroup and the ECOFIN Council endorsed the Commission's assessment on the package of new budgetary measures by Greece to meet the 4 percent target of deficit reduction this year. Thus, Greece is now on track to address its serious fiscal imbalances.
However, we are not yet out of the woods. In order to safeguard financial stability in the euro area as a whole, the Eurogroup reaffirmed the commitment by euro area Member states to take determined and coordinated action, if needed. We clarified technical modalities enabling a decision on coordinated action which could be activated swiftly in the case of need. The Commission is ready to do its part and to propose a European framework for coordinated and conditional assistance.
In addition to the immediate crisis management, we need take action to avoid similar situations in the future. The Greek crisis has demonstrated the need for reinforced economic policy coordination in the euro area. This was recognised in the Lisbon Treaty, which provides the legal base for this in its Article 136, which we now have to fill with life.
The primary aim must be to ensure a safe exit from the current precarious debt dynamics in a number of countries, and subsequently to make sure that no country will embark on such a path in the future.
The coordination mechanism must encompass a tighter surveillance of macroeconomic imbalances in general and more binding policy recommendations than has been the case so far. The Treaty provides a sufficient legal basis for strengthened coordination in this regard, too.
Ladies and Gentlemen,
One of the most important lessons of the Lisbon strategy is that we must strengthen the incentives for the EU member states to deliver on reform commitments they have made at the European level.
The Europe 2020 strategy seeks to address the challenge of delivery by ensuring that the European Council is given a leading role in the whole process. The focal point in the process would be an annual Spring Economic Summit, who would review progress and give guidance for the year to come. The European Council will hold dedicated discussions on specific initiatives, beginning this autumn with a special summit on research and innovation policies. This is certainly welcome.
The bottom line is: the strategy won't deliver without more ownership of reforms. To strengthen true ownership, the Commission proposed to establish not only EU-level, but also national targets, which will have to take due account of Member States' different starting positions. Framing of these targets should result from a dialogue between Member States and the Commission, so as to ensure that Member States commitments are realistic and consistent with the EU-wide policy ambition.
Ultimately, the success of Europe 2020 will depend on the credibility of our commitments. This will have to be a joint effort, both at the EU and national levels, and it will have to closely involve the civil society. Therefore, the role played by the Economic and Social Committee and its members and member organisations will be of immense importance.
Ladies and Gentlemen,
We will all have to take bold and difficult decisions across a broad spectrum of policies. By doing so, we can best reinforce the foundations of sustainable growth and job creation, so as to reform the European social market economies, based on sustainability and inclusion.
We are indeed at a crossroads today. Either we take determined and joint action for Europe's economic and political revival – or we risk a lost decade of economic stagnation and political irrelevance.
I trust Europe can count on your support and active participation in making Europe 2020 a success story for the EU citizens and civil society.