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José Manuel Durão Barroso

President of the European Commission

Stabilise, Consolidate, Reform: EU Moves from Crisis Management to Reform Agenda

Council on Foreign Relations

New York, 23 September 2010

Ladies and gentlemen,

Let me start by thanking you for inviting me to speak today.

When I last spoke to you, we were still feeling the full force of the financial and economic storm.

Certainly the European economy was in deep trouble. It had suffered the most severe stress test imaginable, and there was a climate of fear. People were worried about their pensions. Companies couldn't get credit. If they had capital, they couldn't risk new investment. Business dropped because no-one knew what the future held.

The storm damage is still all around us. More than 6.3 million Europeans have lost their jobs since 2008. Many families have been pushed towards the poverty line. European Union Member States have seen their deficits rise to 7% of GDP on average, and debt ratios rise to more than 80% of GDP.

Many doubted Europe's determination to respond. Many doubted our capacity to act.

They were wrong.

The nations of Europe looked for answers, and they found them in the European Union. We are overcoming the difficulties, together.

The economic outlook in the EU is now better than when I last addressed you, not least because of our joint action. The recovery is gathering pace - although admittedly, progress is uneven within the Union. Growth this year will be higher than initially forecast. The unemployment rate is similar to the US rate, and while that is still much too high, it has at least stopped increasing. A degree of cautious optimism has taken root.

But we cannot sit back and relax yet. It is too early to write the epitaph of what we might call the 'Great Recession'. Uncertainties and risks remain - outside as well as inside the European Union. The after pains of the crisis are likely to remain with us for quite some time.

So to consolidate the progress we have made, it is now vital that Europe moves from crisis management to a reform agenda.

Budgetary expansion has played its role in countering the decline in economic activity. Now, in the context of an accommodating monetary stance, only significant structural reforms will prevent medium-term growth prospects from being disappointing.

The priorities on the to-do list of EU economic policy making are: completing financial regulatory reform, continued fiscal consolidation, and tackling macro-economic imbalances by frontloading structural reforms.

That's quite a challenge. But as I look at how this crisis has changed Europe, there are plenty of reasons to believe we will succeed.

First, extremely difficult but necessary and unavoidable decisions have already been implemented at the national level. Greece is the obvious example, but many other Member States have also embarked on a path of convincing structural reform and fiscal consolidation.

Second, there is striking consensus on the way forward, forged in a large part by the need to develop a common European position for the G20. The European Commission has been putting forward proposals that have received overall support among our Member States. Traditional policy divides between key Member States have narrowed considerably.

There is now a broad commitment to a balanced exit strategy and a return to fiscal sustainability – particularly as demographic challenges start to bite. Member States agree that fiscal consolidation should involve expenditure cuts – if necessary, reinforced by tax increases. They also agree that priority should be given to growth-friendly budget items.

The third reason for confidence is that the institutional architecture of Europe will be substantially stronger as we exit the crisis.

The reformed system of fiscal rules, a new system to tackle macroeconomic imbalances and the European Systemic Risk Board will help to make the surveillance framework more effective. With better enforcement of rules, and earlier warning of problems, comes greater credibility.

In fact, yesterday, the European Parliament gave its final approval to the supervisory package that the Commission had put forward last year. Up to now our market was interdependent but oversight was purely national. From 2011 on Europe will be the first region in the world to have in place top-notch supervision that is up to the challenges of the future.

Moreover, financial facilities which were created to respond to the euro crisis, and which amount to €500 billion, have plugged a major hole in Europe's economic and monetary union. And they leave open the possibility of developing a more permanent solution.

And the adoption of the so-called 'European Semester', which concentrates in one semester the bulk of economic surveillance of the EU, will encourage greater co-ordination, economic transparency and coherence between Member States, as they plan, discuss and adopt their national budgets.

Taken together, all this represents quite a leap forward for European economic governance. Mechanisms to combine European-led economic reform programmes with European financial solidarity have been created, which were simply inconceivable before the crisis.

These are historic reforms for Europe, but they will also have an important impact on global financial markets.

In parallel, we are now frontloading growth-enhancing structural reforms through our Europe 2020 strategy: a programme to guide our economy towards new sources of growth and social cohesion, in order to achieve smart, sustainable and inclusive growth.

Business is at the heart of this strategy, small and medium enterprises in particular – which is not surprising. Defined as companies employing 1-250 people, SMEs represent more than 99% of all European firms, and provide two out of every three private sector jobs. Getting credit flowing again, investing in innovation and tackling red tape are priorities here.

Another priority is Europe's internal market. This is a well developed web of financial and economic relations, but there are still some missing links and bottlenecks, acting as a drag on growth and entrepreneurship. We are now mapping all of them out.

We will come with a major new package of measures. This is necessary because since 1992, the date of its launching, the internal market, like our societies, has changed beyond all recognition: back then few people had mobile phones, even fewer had heard of the internet. E-commerce had not been invented.

Now, we are truly a service economy. The internal market makes its presence felt in all sectors of the economy, and is boosting competitiveness across the board. We need a new push, because it is the strongest driver for growth that Europe has.

There is no time to lose. So this Fall, we will bring forward a Single Market Act that acts as an early harvest of measures that stimulate growth.

Flanking these priorities are a whole range of measures that add up to a comprehensive reform and modernisation programme, at all levels of governance.

At the EU level we are launching a number of flagship initiatives. Examples include a digital agenda, to create the right environment and infrastructure for emerging high tech sectors; an innovation union, to improve Europe's innovation performance along the whole chain, from research to retail; an industrial policy for the globalisation era, that recognises the new realities of cross-border production; and a jobs and skills agenda.

Finally, trade remains an important engine for growth and jobs that helps to deliver innovation and competitiveness. So a renewed trade policy is also in the pipeline, and will be presented in October.

We will open up more markets for Europe and more job opportunities in Europe through new and better Free Trade Agreements with all corners of the globe.

We will open more markets by joining up our regulatory rules with our key partners, so that we don't have different energy efficiency or phytosanitary standards, and European goods do not sit at foreign ports waiting for extra security clearance.

Of course all this would have been greatly facilitated had there been an agreement on the Doha trade round already. So we will maintain momentum for a successful conclusion. In the EU alone, an agreement would boost GDP by around $40 billion.

Trade also has a huge potential as a means to reinforce the transatlantic partnership. The figures are quite impressive. The European Union and the United States account for the largest trade relationship in the world with 33 % of world trade in goods and 44 % in services. Transatlantic trade and investment is responsible for 14 million jobs in Europe and America.

I will further discuss these matters, together with the President of the European Council, with President Obama in the next EU-US Summit which will take place in Lisbon on the 20th of November.

Ladies and gentlemen,

I have sketched out the briefest of outlines describing how Europe is moving from crisis management to a reform agenda.

I could summarise all of this even further with just three words: stabilise, consolidate, reform.

But now it is time for others to have their say, and I look forward to discussing these issues in more depth with you.

Thank you.

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