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European Commissioner for Economic and Monetary Policy
The Giegold Report on the 2009 Annual Statement of the euro area
Figures and graphics available in PDF and WORD PROCESSED
Brussels, 25 March 2010
President, Honourable Members,
I want to thank you for the chance to discuss the 2009 Annual Statement on the Euro Area. When we prepared our Annual Statement, we knew that the selected issues would be topical; however, they might have become even somewhat too topical recently, at least to my taste.
Let me first of all congratulate Sven Giegold for his excellent Report, which constitutes a substantive contribution to the current debate on economic coordination and governance within the euro area. The broad support Rapporteur Giegold enjoyed within the ECON Committee is testimony to the relevance and balance of his approach.
Since 1999, the euro area has mostly been an area of economic stability. It has shielded its citizens from economic turbulences. Since end-2008, however, the euro-area has been hit hard by the global financial crisis.
Still, financial markets remain volatile and the degree of uncertainty remains exceptionally high. Recent waves of risk aversion have especially hit the market for sovereign debt, notably in relation to Greece.
Greece is now on track to meet the 4% target of deficit reduction this year 2010, following the bold and convincing measures that the Greek Parliament decided earlier this month. This can be made a turning point in the Greek fiscal history and economic development.
However, neither Greece, nor the euro-zone, are completely out of the woods yet, as there still concerns of financial stability.
Therefore the Commission has strongly encouraged the euro area member states to take a political decision on a mechanism to ensure financial stability in the euro area as a whole – a mechanism, which could be swiftly activated in the case of a need, in conformity with the Treaty and its bail-out course and without any automaticity built into it.
On our side, the Commission is ready to put in place such a European framework for co-ordinated and conditional assistance, which could be used if needed and if requested. We are working closely and intensively together with all euro area member states and the ECB in order to reach such a solution this week in the context of the European Council.
The Commission prefers a euro area facility for a euro-area problem. There needs to be a European lead and policy conditionality decided by the euro-area, based on the Stability and Growth Pact. We work in liaison with the ECB and draw on the expertise of the IMF, too.
We have a sense of urgency and we are seeking for a solution which should be based on a clear lead of the European Union and a policy conditionality defined by the European Union.
In addition to the immediate crisis management, we need to look at how similar situations can be avoided in the future. The Greek crisis and its aftermath have demonstrated the need for enhanced economic policy coordination in the euro area. This underlying need was already recognised and the legal basis provided in the Lisbon Treaty. We are preparing proposals for the implementation of the Article 136 of the Treaty. My intention is that the Commission could make a proposal for enhanced economic policy coordination in the course of the spring.
First and foremost, we need it to prevent unsustainable public deficits. Therefore we need to be able to monitor better the mid-term budgetary policies of the euro-area member states. We need to be able to issue broader and more stringent recommendations to the member states to take corrective measures. I count on your support for this.
But we can also make a better use of existing instruments. The Council has the possibility to address recommendations to a Member State whose economic policies risk jeopardising the proper functioning of EMU. This has been used in the past probably too rarely. With the new Lisbon Treaty, the Commission has the possibility to issue similar early warnings under Article 121 of the Treaty directly to a Member State. This is something we must do in order to help Member States to address emerging economic problems at a much earlier stage.
Like you, Rapporteur Giegold [in paragraph 28], we regret the lack of binding commitments among governments to enforce coordination in the euro area. An integrated and forward-looking approach focussed on policy action and clear operational arrangements is therefore needed.
Furthermore, the current economic and financial crisis has proved that policy coordination cannot be limited to purely fiscal matters, central as they are. Other macroeconomic imbalances as well can have serious consequences for individual countries and the euro area as a whole.
In particular, weak competitiveness and the associated current account deficits compound the detrimental effects of fiscal deficits. Therefore, the most urgent task is to implement corrective measures in the deficit countries which have lost their competitiveness. Also large and persistent current account surpluses in some MS can have an effect on growth in the euro area as a whole. This is especially true when rapid fiscal consolidation is needed in other parts of the currency area.
President, Honourable Members,
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 to promote sustainable growth and job creation.