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Štefan Füle

European Commissioner for Enlargement and Neighbourhood Policy

Ukraine: from crisis to growth - economy, investments, markets

Conference on Ukraine - Egmont Palace

Brussels, 13 October 2010

Ladies and gentlemen:

It is a great honour to participate in this distinguished panel.

I want to focus my remarks today on the interface between the EU and Ukraine in the area of economic reform. I should like to highlight in particular the business climate, which is very closely linked to growth and which deserves more attention.

Let me start by recognising that the EU has gone through its own economic difficulties during the global economic and financial crisis. Reform has been critical in order to respond to these challenges.

Only two weeks ago, the Commission adopted a package involving the most comprehensive reinforcement of economic governance in the EU and the Euro area since the launch of Economic and Monetary Union.

As regards the economic situation in Ukraine, I should like to make a few of my own observations in a spirit of partnership and friendship:

- first, Ukraine is already travelling in the direction of economic integration with the EU, not only in the Deep and Comprehensive Free Trade Area, but also in terms of increased co-operation in every sphere from public health to the environment. We believe this gives a strong strategic direction to policymaking, budgeting and law-making in Ukraine and will contribute to a policy continuity which can bring huge economic benefits;

- second, Ukraine has enormous economic potential, but a number of obstacles stand in the way of the realisation of this potential. I will come back to this later.

- third, Ukraine’s experience of the economic crisis was, like ours, truly multi-dimensional, taking in both the revenue and expenditure sides of the national budget, the banking system and also a number of factors with an impact on growth such as the availability of credit or the state of energy and transport infrastructure. Such a crisis does not pass quickly or easily and we should be ready for after-shocks and even for disappointments.

- finally, as in the EU, there are also human factors to consider in our economic assessment. The labour market, after all, is composed of jobs and people, with the test being our success or failure in matching them together. A recent survey by the European Training Foundation concludes that just under half of Ukrainian enterprises consider that lack of skills obstructs their performance and development. So we need to plan ahead, as our education and training systems are key to economic development .

None of this analysis should surprise anyone in Ukraine, Both the IMF Standby Agreement and the National Economic Programme make important commitments in all these areas. I am also glad that the EU will shortly build on these stabilization measures with its own macro-financial contribution to Ukraine of €610 million.

Mr Chairman I spoke earlier about Ukraine’s enormous economic potential: realizing this potential is not just about spending public money: it depends on securing investment and encouraging companies to be creative and competitive, ready to take risks confident in the knowledge that they do so within a stable and predictable legal environment.

This is an area where we regularly hear strong criticism of Ukraine by business and investors. Concerns include: the taxation system in particular as regards VAT; agricultural exports; customs procedures; non- respect of court decisions; slow progress in the fight against corruption; and a lack of transparency in the area of privatization. All of these factors contribute to a loss of confidence among the business community, and a loss of investment in Ukraine.

This problem is just as pressing as any of the more classic economic symptoms which we regularly discuss. A step forward on economic transparency could bring enormous economic gains. I therefore suggest the Ukrainian authorities pursue a continuous dialogue with business about the regulatory environment, administrative procedures, the practical realities of import and export and about the labour market.

Mr Chairman, ten days ago in Yalta I recalled President Yanukovych’s repeated statements that for Ukraine the path towards the European Union “is one of reform”. The EU-Ukraine Association Agreement has an enormous potential in this regard. It will take forward the economic reform agenda - precisely in some of the areas I have highlighted today. It offers the prospect of a gradual opening of the EU’s internal market of 500 million consumers to Ukrainian businesses and investors - a market 10 times larger than any of Ukraine’s other neighbours. The Agreement will also assist Ukraine in exploiting that market and in securing the investment needed to make sustainable growth a reality.

Let me pause here a moment, to deal with two points which have arisen recently. First, it is said that Ukraine will lose 20% of its public revenue base as an immediate consequence of the operation of a deep and comprehensive free trade area. Based on experience, we cannot agree with this assessment. On the contrary, evidence suggests that increased economic activity has the potential to promote increased public revenue. For Ukraine the impact of the agreement is likely to be largely positive, involving real income increases; gains in international trade; productivity and employment generation. It will impact positively on consumers, businesses, investors and workers.

Second, there is the issue of when the Association Agreement can be signed. Again let me be clear: we are fully committed to the negotiations on the Association Agreement – for the reasons of growth and prosperity which I have already underlined. However, the deep and comprehensive free trade aspects of the Agreement are highly ambitious and technically very complex. It is therefore not possible – even in the most positive negotiation scenario– to accelerate negotiations in time for signature at the Summit.

Let me conclude these remarks by noting that in determining the overall strategic direction of EU-Ukraine relations we need to put aside shorter-term economic considerations which can serve the interests of only a few. Instead, by using the transformative potential of the Association Agreement, we will ensure that we achieve our common goals of growth and prosperity.

Thank you.

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