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European Commissioner for Economic and Monetary Affairs
Reinforcing EU Economic Governance
ECON Committee – European Parliament
Brussels, 15 September 2010
Honourable members, Ladies and Gentlemen,
Let begin by referring to the Commission's fresh economic outlook. Our main conclusion is that Europe's economic recovery has gained momentum. Apart from solid export performance, domestic demand has contributed to the upward revision growth forecast to 1.8% this year for the EU. Employment is starting to recover. Thus, we now have solid ground under our feet. But there is no room for complacency.
First, short-term growth prospects are very uncertain: Growth in the US has been slowing down. Financial markets are still fragile in Europe. Second, on current policies, Europe's longer-term growth potential remains very modest: on average below 1½% over the next decade.
It should be clear to all of us that we are not out of the woods yet. The still necessary restoration of confidence requires work in all fronts.
When I introduced my political priorities to you in January, I called for the reinforcement of the Stability and Growth Pact to consolidate public finances and facilitate sustainable growth. Furthermore, I suggested to conduct broader and deeper surveillance of economic and fiscal policies, and promised to make legislative proposals to that effect.
Now, nine months later, we have come a long way on this route.
Most urgently, we needed to take unprecedented measures to safeguard stability of the economy of the Euro Area and in fact the European Union. A combination of determined action by the EU and its Member States helped calm markets and contain bushfires.
Today's second anniversary of the Lehman collapse in the US serves as a reminder of the kind of catastrophe we were able to avoid in the EU. It was a close call, but there has been no Lehman case in Europe.
This was achieved thanks to the setting up of the financial backstops in May and the convincing fiscal consolidation that EU member states have committed themselves to as well as thanks to the financial repair that included bank stress tests and the decisive action by the ECB.
Nevertheless, we all must remain vigilant and stay ready to act. In parallel with the crisis management and financial repair, we must continue with the fundamental reform of economic governance in Europe. First steps in this respect were taken in the spring with the strengthening of Eurostat's audit powers to ensure accuracy and reliability of the Member States' public accounts. The strategic elements of stronger economic governance were outlined in our Communication in May and the concrete roadmap in the Communication in June.
As the first concrete product of these initiatives, the first European Economic Semester will be introduced as of January 2011. As the next and comprehensive outcome, the Commission will adopt on 29 September a package of legislative proposal transforming the most urgent policy proposals into concrete legal instruments.
The European semester brings together all elements of economic surveillance: the fiscal discipline of the SGP, the structural reforms of Europe 2020, and a new mechanism to prevent macro-imbalances which will be fully embedded in the surveillance cycle.
The semester aims at prior policy guidance and preventive budgetary surveillance, in time when these really matter. We must discuss common policy before the budgets are agreed at the national level.
The European and national parliaments have a crucial role to play here.
The European Semester cycle will start in January with an "Annual Growth Survey" prepared by the Commission, reviewing economic challenges. The report would be discussed by the European Council in early spring. In this Summit, the European Council will provide horizontal, strategic guidance on policies for the EU and the euro area.
This guidance should then be taken into account by Member States in their Stability and Convergence Programmes and National Reform Programmes to be submitted in April. The Commission will then evaluate the policies set out by Member States in their programmes, and – should these not be sufficient – recommends the Council to issue country-specific policy guidance in early July. In the second part of the year, Member States will finalise their budgets taking these recommendations into account.
Let me make a concrete proposal to strengthen parliamentary influence.
In my view, it would be most helpful if the European Parliament could contribute to the European Semester right at the beginning of the cycle, possibly around the same time with the Annual Economic Summit.
We could foresee a Parliamentary Conference, bringing together the European and national parliaments, to discuss challenges and compare perspectives for the coming year.
The Commission could present the Annual Growth Survey at this conference, to start the debate. This could facilitate the emergence of a truly European spirit and democratic dimension in economic policy making all over the Union, for the benefit of all EU citizens.
Honourable Members, Ladies and Gentlemen,
The aim of the legislative proposals we are about to make is to reinforce the economic pillar of the EMU and the economic governance in Europe, to create foundations for sustainable growth and job creation.
We need clear rules. They must credible and effectively enforced. The new mechanisms are built on two main features.
First, the mechanisms must become available at a much earlier stage than today (i.e. already under the preventive arm of the SGP, and the beginning of the excessive deficit procedure) and they make the breaching of the rules more biting than currently is the case.
Second, the application of the mechanisms should leave no room for slippage from and softening of the rules. Specifically, we foresee the adoption of a 'reverse majority voting' procedure, whereby the proposals by the Commission for the application of the enforcement mechanisms in connection with the different steps of the Excessive Deficit Procedure (EDP) should be considered adopted unless the Council rejects them within a certain deadline. Clearly, respect on the part of the Council of the Commission's independent proposals of the case underlying EDP decisions will be crucial for the reinforced economic governance to work as intended.
The application of our forthcoming rigorous rules should not be more complicated that in a football game: the players cannot start discussing the rules of the game with the referee every time they commit a foul. Sanctions should be the normal, automatic consequence, if countries repeatedly break the rules and put their partners at risk.
On the macroeconomic imbalances, we propose a structured mechanism to identify and tackle imbalances in a preventive manner. The Commission would monitor a scoreboard of economic and financial indicators and carry out in-depth country analysis. Where necessary we will issue country-specific recommendations. Finally, we foresee also an enforcement mechanism for Euro Area Member States in case of serious non-compliance with the recommendations.
Ladies and Gentlemen,
Let me conclude with some reflections on how I see the next steps in this process. Time is of essence here. We need the foreseen instruments for better economic governance to become real and operational as soon as possible. We do not have the luxury of time.
President Barroso suggested in his State of the Union speech to the European Parliament last week, as well as in his letter to President Buzek, that legislative proposals for economic reform should become subject to a new fast track procedure for adoption.
I would like to encourage this way forward and to cordially call for your support for that proposal. You have already presented arguments for the urgency and need for the foreseen reforms in the two draft reports by honourable members Feio and Beres. I could not add anything to their reasoning and very clear language.
So let us move to the next step together. I hope we can match the achievement of the supervision package of one year from proposal to adoption. I even dare to challenge you to beat that achievement, and set the target for adoption of these proposals before summer break next year. Once I will be able to share with you the concrete legal proposals, I believe you will agree with me that that should be possible.
Let us now maintain the momentum to reinforce economic governance. It is a matter of complementing the already strong monetary union with a genuine and real economic union. It is high time to achieve that.