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José Manuel Durão Barroso

President of the European Commission

Delivering on our highest law: the good of European citizens

LUISS University

Rome, 14 March 2011

Presidente della Camera dei Deputati, onorevole Gianfranco Fini,

Presidente Emma Marcegaglia, autorità, Signore e Signori,

E' un onore per me ricevere da questa prestigiosa Università un riconoscimento così importante. Vorrei innanzi tutto ringraziare la Presidente, Emma Marcegaglia, il Rettore Massimo Egidi e il Professor Gian Domenico Musco per il conferimento di questa Laurea "Honoris Causa" in diritto.

Non è solo un onore per me, ma anche un segnale di incoraggiamento a continuare nel mio lavoro, nella costruzione di un'Europa più unita, e quindi anche più preparata a giocare il suo ruolo nel mondo.

Ogni volta che ho occasione di venire in Italia, mi sento a casa in questo paese che dà lustro all'Europa con la sua arte e la sua bellezza e che tra qualche giorno festeggerà 150 anni di unità: uno Stato giovane, ma di cultura antichissima.

Colgo quest’occasione per porgervi le mie più sentite congratulazioni.

In questo momento, particolarmente significativo per l'integrazione europea, sono lieto di avere l'occasione di rivolgermi a un pubblico illustre, ai giovani che si formano in questa Università e che, ne sono certo, avranno ruoli chiave nella società di domani. E, soprattutto, sono felice che ciò avvenga proprio in questa città, nella quale è stato avviato il processo della costruzione europea.

Ladies and Gentlemen,

The impact of the crisis on our economies and societies has been far reaching. It has been a huge shock for millions of citizens.

Much of the progress made in the past ten years has been wiped out. Our GDP fell by 4% in 2009, our industrial production dropped 20% in less than two years, and the rate of unemployment rose to 10% of our active population.

I am speaking on averagefor the European Union Member States.

The crisis has made the task of securing future economic growth much more difficult.

Europe's structural weaknesses have been uncovered. Even before the crisis, we were indeed lagging behind in some areas compared to our main economic partners and competitors.

The impact of the crisis has also been a serious blow to confidence. Many investment plans, talents and new ideas risk going to waste because of uncertainties, sluggish demand and lack of funding.

Our shared responsibility is to rebuild confidence. We need consumers who have the confidence and the means to spend. We need companies with the courage to invest in promising ventures and seek out new export markets including in fast-growing economies. We need markets to be appeased and to continue to regain confidence in the euro area and in the European Union as a whole.

In a word, we need trust in our ability to respond in a decisive and cohesive way to the crisis and to lay sound foundations for a prosperous and more stable future.

Cicero said that "salus populi suprema lex est” (“the good of the people is the highest law") The good of European citizens is indeed our highest law. It is at the core of our European project. This is the reason why we focus all our efforts on creating the right conditions to restore confidence for sustained, inclusive growth and job creation.

Europe is now responding. We have understood how interdependent our economies are and we have agreed that real European economic governance is not an option, but an imperative. This is a position that the European Commission has been defending for many years now but, let's be frank, some Governments were still reluctant to accept. It is not only those who are defending European integration, but also the markets that are asking for it.

We have understood and agreed that our response to the crisis has to be comprehensive and clearly coordinated at European Union level, while being adapted to each Member States' diverse situation.

On the basis of proposals tabled by the Commission, we have started rebuilding confidence through fiscal consolidation efforts combined with structural reforms, financial stabilisation measures and strengthened economic governance. These collective efforts would have been unthinkable only two years ago.

And we are also working on improving the business environment through smart regulation to get rid of unnecessary bureaucracy that might be difficult in particular for SMEs

There is some good news. According to the Commission's last interim economic forecast, European economic recovery is taking shape amid better prospects for the global economy and an upbeat EU business sentiment. Real GDP growth, I am speaking on average, is now estimated at 1.8% in the European Union which is a slight upward revision compared to our autumn forecast. The recovery is expected to become more balanced towards domestic demand, which will result in more sustainable growth. And labour-market conditions are showing signs of improvement. The unemployment rate, while still too high, has been almost stable since mid-2010.

However, uncertainties remain high and the recovery is still fragile and uneven among EU Member States. Our efforts cannot and should not flinch.

Europe must do more. We have to finish the unfinished business. Our interconnected key objectives – fiscal consolidation combined with structural reforms, financial stabilisation and economic governance strengthening – remain at the very top of our to-do list to put Europe back on track towards sustainable and inclusive growth.

Ladies and Gentlemen,

Our first line of action is determined fiscal consolidation. Without fiscal consolidation, there is no confidence, without confidence there are no investments, without investments there is no growth.

Investors have to be reassured that the ascending debt trajectories will be quickly reversed. Thus all Member States must demonstrate their commitment to fiscal consolidation in line with their obligations under the Stability and Growth Pact.

This is a matter of responsibility. In the European Union and in the euro area in particular there cannot be solidarity without responsibility nor responsibility without solidarity.

This is the principle, which is at the core of the determined and coordinated action that we have taken to safeguard the financial stability in the euro area.

It is on a shared commitment to responsibility and solidarity that rest the existence of the temporary European Financial Stability Facility (EFSF) and of the permanent Mechanism for stability, which will take over as from 2013. So we are creating new Mechanisms which were not foreseen by the Treaty.

This commitment has been reaffirmed last Friday at the informal Summit of the euro area Member States.

Over the last months, the Commission had continually stressed the need to enhance the effective financing capacity of the current Fund and broaden its scope. A few weeks ago this still seemed impossible, infact there was a lot of controversy, but now we have a decision in principle.

European leaders have agreed they will make sure the full amount is available, that is 440 billion euros for the current Fund and 500 billion euros for its successor, the future permanent Mechanism. This is a major step forward, not only for the euro area but for Europe as a whole.

But let's be clear, fiscal tightening is not an end in itself. Taking the painful decisions that have been left for too long is the best way to make sure that we avoid a jobless recovery.

All the efforts made are meant to enhance our social market economy. I wish to underline the word social. We should not try to follow other models we see in other parts of the planet. We certainly do not want to follow models from others. It is a way to restore confidence and growth.

It is a measure of fairness towards young and future generations which will not have to carry the burden of debts. And it is our duty to ensure that financial resources are allocated in the most efficient way to guarantee a sustainable and inclusive growth.

Market perception of countries' vulnerability is also shaped by medium-term growth prospects. Thus fiscal consolidation also needs to be growth-friendly and to go hand in hand with structural reforms to improve growth potential. To invest in sectors of importance for the future, like research and innovation, is just as necessary. Frankly, it is not smart to cut in research, education and culture.

Our comprehensive ten-year strategy of structural reforms to boost growth and jobs creation, the Europe 2020 strategy, puts together in a coherent framework, economic reforms aimed at increasing productivity and labour force participation.

It focuses on key areas where a mutually reinforcing mix of EU and national efforts is needed: knowledge, innovation, energy efficiency, and social inclusion. It introduces as well an enhanced economic surveillance in line with the Treaty.

We have now in place a new economic governance cycle, the so called "European Semester." From now on, we look at each others economies before decisions are made, so we can coordinate ex-ante, upfront instead of trying to make corrections afterwards. Once again, this would have been impossible two years ago. Economic policy is a matter of concern for all. Once again, this would have been impossible two years ago.

The first European Semester was launched in January with the presentation of the Commission's Annual Growth Survey, which sets out the priorities of the competitiveness strategy for the European Union and the euro area as a whole.

Ladies and Gentlemen,

The European Semester is part of a broader set of measures to reinforce economic governance. We are also putting in place a system to guarantee much stronger surveillance of the fiscal consolidation and to deal with harmful macroeconomic imbalances, including competitiveness divergences.

These Commission proposals are currently under discussion by the Parliament and the European Council and should be decided before the summer and infact, last week there was a consensus to reinforce the rules of economic governance.

So we're not just comparing and coordinating early on, we will also be able to intervene effectively early when things take a wrong turn.

On the front of financial stabilisation, Member States have also eventually acknowledged the degree of interdependence of their economies and have agreed to the establishment of new supervisory authorities and to a detailed crisis prevention framework that we are currently setting up.

This will allow us to spot problems much earlier and take decisive action at the right time. It will also mean that banks in the future, if they fail, they will not bring the whole financial system down with them.

The European Systemic Risk Board for macro-prudential supervision and the European Supervisory Authorities for micro-prudential supervision in the three important sectors of banking, insurance and securities have already come to existence on the 1st of January and indeed it is a distinguished Italian the first President of one of these authorities, the European Banking authority.

A new round of EU-wide bank stress tests that will be more ambitious than the previous one is being proposed. Transparency is essential so that policymakers and investors can make informed judgements and so is the willingness to follow through with tough, indispensable decisions.

A healthy banking system is a prerequisite for a sustainable economic recovery. It is particularly important that small businesses have access to the credit they need to survive and invest and to contribute to growth and job creation.

So we are ensuring that we are learning the lesson of our interdependence, also at global level.

It was Europe which took the initiative to establish the G20 leaders process when President Sarkozy and myself went to Camp David to propose it to President Bush. Open societies need rules, the rule of law, economies also need rules.

Ladies and Gentlemen,

Structural reforms and investments promoted under the Europe 2020 strategy can deliver potentially large benefits. Preliminary estimates suggest that an ambitious but realistic strategy of structural reforms, combined with budgetary consolidation, could increase GDP in the European Union by around 4% and create about 5.6 millions new jobs by 2020.

These reforms will not only increase the growth potential but will also lead to positive spill-overs on the demand side.

Properly designed structural reforms will help the euro area and the European Union as a whole to support domestic demand, reduce intra-euro area imbalances and increase market flexibility.

And by removing obstacles in our Single Market to mobility of people, workers, services and investments, we can increase competition, reap economies of scale, and promote innovation and enterprise; and thus boost growth too. So our agenda is not just an agenda of consolidation, but of growth. One of the main sources of our growth is our Single Market.

In April the Commission will come forward with its vision on the new Single Market because the Single Market is not "yesterday's business", but the springboard of tomorrow's Europe, fostering competitiveness that is essential for growth.

And precisely on this we can and should do more. Competitiveness is indeed a necessary condition for stimulating growth and job creation. And competitiveness gaps are a real problem for countries with a single currency.

Competitiveness and convergence of the economies of the euro area are essential for the viability of a strong and stable euro area to the benefit of the European Union as a whole.

As you know, last Friday euro area Leaders have agreed on a Pact for the Euro, which should be formally adopted at the next European Council.

This Pact is fully in line with the Treaty, anchored in Europe's institutional framework and with full respect of the role of the Commission, which will guarantee objectivity and independence in monitoring the efforts of Member States. Why do I insist on the role of the Commission? Because it the Community institution "par excellence". Only the Commission can guarantee that a decision taken by 17 will not harm the European Union as whole.

The Pact now fits fully with the economic strategy set out for the 27 Member States in the Annual Growth Survey, which we have tabled in January. It focuses primarily on matters under national competence. I believe, it represents an added value both in terms of policy and in terms of ambition. But it is not, I insist, a parallel exercise. The Pact is in line with the Treaty rules and its commitments will be brought into the Stability Programmes and National Reform Programmes assessed by the Commission. It perfectly fits into the European Semester.

This is a very important agreement, because as you know when the Pact was launched there were some doubts precisely about the point of governance. I think now we have a good solution. As you know, we have been for a long time asking Member States to commit to higher level of economic policy coordination and stronger economic governance, especially in the Euro area. And this is now accepted.

But not only for the Euro area. The Pact is open to non-Euro area members if they so wish. The agreement reached on Friday is crucial for the Euro area, but, I believe, it is relevant for the whole of Europe. This is not a closed club; it is an open club – our European Union.

I thank Italy for the support given to a truly community approach in the consultations that the President of the European Council and myself have made to prepare this Pact for the Euro.

The fact that countries like Italy made a proposal compatible with the Treaty was essential to have this truly community approach.

At the same time, we need to do more to promote growth in the immediate term, especially in parts of Europe where debts are high, economic conditions are weak and the required fiscal adjustment is considerable.

In countries where domestic demand is weak, the authorities need to take appropriate measures to stimulate it, not least removing excessive regulation.

In countries where exports are weak, governments could rebalance the burden of taxation, shifting taxes off labour and on to consumption and land, thereby boosting exports and jobs.

Ladies and gentlemen,

As you see, we have come a long way on reinforcing economic governance in the European Union. This is already economic governance in action based on serious commitments on growth, competitiveness, employment and public finances. This is work in progress, but very relevant work.

It is an amazing progress in European integration, in such a short period of time, against the backdrop of the crisis. Or perhaps I should rather say, precisely because of the crisis. Sixty years ago the European process was born against enormous odds. Adversity stimulated our predecessors as it is stimulating us now. I really believe the European Union is at its best when we have to face these kind of challenges.

But let's make no mistake a lot remains to be done. We need to keep the momentum and a sense of urgency to fully deliver on our comprehensive response to the crisis. It is true that we are reinforcing the missing pillar of the economic and monetary union, so that the European union can rest on its two legs.

I have been speaking about economic governance because indeed this is the most urgent priority.

If we want to reinforce common action to achieve stronger economic growth is indeed an indispensable condition.

But let’s not forget that the European Union is not only based on economics, but as a true political Union is based on values, like human dignity, peace, freedom, justice that people, young men and women, of the South Mediterranean countries are fighting for.

More than ever, the European Union should make it clear that we stand for values and our neighbours on the other side of the Mediterranean Sea may count on us for democracy and shared prosperity.

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