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Olli Rehn

European Commissioner for Economic and Monetary Affairs

Speaking Points at the Press Conference on the Annual Growth Survey

Press Conference on Annual Growth Survey

Brussels, 12 January 2011

President, Ladies and Gentlemen,

As President Barroso explained, the rationale behind the Annual Growth Survey and the European Semester is to have a real and effective and prior coordination or our economic policies before the final decisions are made at the Member State level. The European Semester will provide a framework for this and the survey will provide the substance for Policy Coordination. In this sense, the survey will provide the flesh around the bones of the European Economic Semester.

In the framework of the European Economic Semester, the next step is for Member States to discuss the common stance in fiscal, macro-economic and structural policies from no on until February/March and use this as their common platform for drafting their 2012 national budgets and national reform programmes.

The key message of the Annual Growth Survey is that we need both fiscal consolidation and structural reforms to create pre-conditions for sustainable economic growth and job creation. There is not one without the other. Consolidation and growth go fundamentally hand in hand in today's Europe.

Without intensified fiscal consolidation, we are at the mercy of the market forces as we have seen. Without substantial changes in the way European economy functions, Europe will stagnate and will be condemned to the vicious circle of high unemployment, high public debt, and low economic growth. We can avoid that by determined fiscal consolidation and intensified structural reforms and that is indeed the key message and the essential content of the Annual Growth Survey. My colleague Laszlo Andor will focus on the structural reforms, labour market and the other related aspects. I would just like to say a few words concerning the fiscal policies.

I said rigorous fiscal consolidation is a fundamental pre-requisite for financial stability and for sustainable economic growth. In our view, consolidation in all EU member States must definitely start or continue this year, 2011 and go well beyond 0.5% of GDP per year in structural terms, which is in itself an ambitious objective. All member States should primarily adjust their expenditure while protecting growth-friendly expenditure, especially education, research and innovation. When tax increases are necessary and in many cases they are necessary, economic distortions should be minimized. Indirect taxes are more growth friendly than direct taxes, and broadening the tax base is normally better than raising the rates. It is also important the Member States will improve their domestic fiscal frameworks for instance, by deciding on national fiscal rules and medium-term budgetary objectives. Empirical evidence shows that those countries which have seriously applied this kind of national fiscal frameworks have achieved much better and more sustainable public finances. I would like to cite Sweden as the prime example in this regard.

We also have to tackle macro-economic imbalances for the Member States with large current account deficits. The reforms of wage-setting systems and services markets are of paramount importance to enhance their overall economic competitiveness. Likewise, Member States with large current account surpluses need to identify and tackle the sources of weak domestic demand. This is important for overall balanced economic development of the European Union. Growing imbalances and growing debt represent a heavy burden for our economies and for next generations there is nothing more anti-social than unsustainable public finances and therefore it is essential that we immediately tackle our fiscal imbalances and pursue the structural reforms outlined in the Annual Growth Survey.

To conclude, before turning to Laszlo, this year will be without doubt a very challenging one for Europe again, but it can also be made the year when Europe overcomes its sovereign debt crisis, lifts its growth potential and reforms its economic governance. This calls for a comprehensive response by the entire European Union as President Barroso said, and this calls for bold fiscal measures and structural reforms in each and every Member State.

Thank you.

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