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José Manuel Durão Barroso
President of the European Commission
Remarks by President Barroso to the Brussels Forum
German Marshall Fund – Brussels Forum
Brussels, 25 March 2011
Ladies and Gentlemen,
Good evening. Many thanks to the German Marshall Fund for inviting me once again to this yearly Brussels Forum. In just a few years it has become quite an event attracting eminent people from all over the world. And I would like also to say that it is always a great pleasure for me to come here especially, I have to say, after tense and dense weeks and a busy European Council yesterday and today. This is a relaxing moment and also a pleasure to come with what I believe are good news on Europe, especially after the very difficult and challenging times we have been living.
But let me, before sharing with you some of my remarks, thank you very sincerely for your commitment to the transatlantic relationship. I think we need it more than ever - a strong transatlantic relationship. I need the work of organisation like yours that are so inspiring for leaders on both sides of the Atlantic.
We have been going through the worst crisis since the beginning of the difficulties of the euro, about the marginalisation of Europe even the break up of the European Union, and so on and so forth.
This has not been the case. On the contrary, I would say. Once again the prophets of doom proved to be wrong.
As regards economic policy, key decisions have now been taken, at the European Council which was over by lunch-time today, decisions that are a real game-changer.
These decisions culminate a process that started more than two years ago. A process full of concrete actions to respond to the challenges with which Europe was faced. The crisis has acted as a wakeup call for Europe and has led to a new lease of life for European integration.
Action has been the key word in Europe since the crisis began.
Allow me to recall some of the responses given. Let me go back to the fall of 2008, more precisely to the post-Lehman Brothers collapse.
The first response given by Europe was to do the necessary to avoid a financial meltdown. Massive support was given to European banks, in the form of guarantees or recapitalization. The total amount, spread through 2009 was above 1000 bn euros. Does not compare badly with the 700 billions of the TARP!
Then we turned to the real economy: by December 2008 Europe adopted its Economic Recovery Programme. This was a fiscal expansion programme, amounting to some 6% of GDP including the effects of the automatic stabilizers.
As you are aware in Europe the government sector is on average much bigger than in the US. This means that the automatic response of government expenditure and revenue is larger than in the US. As a consequence, the need for discretionary fiscal expansion is smaller.
But the European fiscal expansion was timely, targeted and temporary. In fact it covered the period 2009-2010. Indeed, from 2011 the stance of fiscal policy was reversed. And not all countries responded in the same way because the fiscal space was not the same across the board.
Also in this area Europe does not compare badly with the fiscal stimulus adopted in the US under the American Recovery and Reinvestment Act.
But the unfolding of the crisis revealed some weaknesses and raised new challenges also in Europe. In particular, as regards the euro area. In the post-Lehman world of global risk reassessment and financial deleveraging markets started to doubt that some euro countries could honour their government debt. This translated into a systemic sovereign debt crisis in the euro area to which a clear response was called for.
The response was indeed given, and let me spell out two dimensions of it which are directly linked to the decisions taken today by the European Council: economic governance and mechanisms for financial assistance to countries in distress.
On economic governance, the question was: "how come that we did not prevent a sovereign debt crisis?". The reasons, simplifying things a bit, were that our fiscal rules were not always respected and that the coordination of economic policies was insufficient. It became imperative to correct this. And here the crisis helped: Member States (finally!) realized that the degree of interdependence among them was such that reinforced coordination of policies was needed.
Action was taken and a new system for economic governance in Europe is now being put in place. Today's European Council concluded the first phase of the new governance system. A system in which countries share and exchange a huge set of information, a system in which countries discuss among themselves ex-ante (!) the measures they intend to take, a system in which the European Council (that is the highest political level) gives political guidance to Member States policies and eventually makes to them concrete policy recommendations.
Moreover, economic governance was widened with the adoption of the Euro Plus Pact. Under this Pact countries committed to take action to foster competitiveness and convergence in areas primarily under national responsibilities such as wage developments and pension reform. The Pact will be open to non-Euro area countries and in fact six of them informed at today's European Council they had decided to join the Pact. So we have the seventeen members of the euro area plus these six countries and in fact others signalled their willingness to join in the near future.
The new economic governance system should be completed before the summer when the legal texts on the revamped fiscal rules will be adopted by the legislators, the European Parliament.
As regards financial assistance the European Council today decided to create a permanent crisis resolution mechanism the ESM, the European Stability Mechanism. With the creation of the ESM the overall Euro architecture becomes richer and more powerful. So today's European Council decision is indeed a milestone.
The ESM is an arrival point, not a starting one. Indeed the response in terms of financial assistance was initiated with Greece in April/May last year. In the absence of a mechanism and given the urgency of the situation, an ad-hoc solution was found in the form of pooled bilateral loans from other European countries. But more important than the form is the amount 110 billion Euros (more than 150 billion dollars), of which 80 from the European Union and 30 from the IMF. The granting of the assistance was, naturally, subject to the implementation by Greece of an adjustment programme with strict conditionality.
But ad-hoc solutions are not real solutions. And it was necessary to demonstrate that enough financial means were indeed available in case of need. The European Financial Stability Mechanism (EFSM) and the European Financial Stability Facility were created in May last year. Combined they have a firepower of 500 billion Euros. These mechanisms were activated for Ireland, upon its request in November last year to the tune of some 40 billion Euros to which the IMF topped 22.5 billion.
But the EFSF was, from inception, a facility of a temporary nature, coming to its term by 2013. A permanent mechanism was necessary. This was not foreseen in the Treaty which therefore is being changed accordingly. And today the European Council agreed on the terms for that permanent mechanism called the European Stability Mechanism, the ESM. The ESM will have an effective lending capacity of 500 billion Euros and will be ready to start operating by June 2013.
Ladies and gentlemen,
It is fair to conclude that on the Euro front, we have proved wrong those who doubted our determination to do whatever it takes to defend the Euro. The decisions we took today in the European Council are the fruit of frank but hard discussions. However, and sometimes coming from very different positions, we have been able to reach a consensus on the necessity to foster the European construction.
Allow me to recall that the European Union includes 27 sovereign Member States. This implies that the decision making process is not always so fast as in a single country. Take the case of bank repair: in the case of the US the steering of the Financial Stability Plan launched in February 2009 was in the hands of three persons: President Obama, Secretary Geithner and Fed Chairman Bernanke. Simple, I would say, to agree on banks stress-tests and the necessary backstops.
In the EU we have 27 Heads of State or Government, 27 ministers of finance and, its true, one single central bank as regards the euro area, but also the other independent central banks. In spite of this, coordinated stress-tests were carried out in Europe last year. A new batch of tests will be done before the summer and now under the supervision of the pen-European supervisory authority created now – the European Banking Authority – and now it will be under stringent assumptions, and with the necessary backstops in place.
It is perhaps more complicated to take decisions in Europe, but the truth is that Europe does take decisions! And I would like to underline this because sometimes outside Europe there is a lack of understanding of the way the European Union works. I want to reassure you that also in Europe sometimes we don’t understand it very well, but at the end it works. In fact, Europe has always been at its best when faced with a crisis. Remember Jean Monnet, one of the "founding fathers", who wrote in his Memoirs "Europe will be forged in crisis, and will be the sum of the solutions adopted for those crises". Once again, we have not failed the rule.
Let me come back to economic governance. Economic governance is a system of rules to achieve a goal. Financial assistance is a remedy. But in the end what is the real goal you might ask. The real goal is growth and employment.
This is why we are also advancing on two other fronts: fiscal consolidation coupled with structural reforms. This is done against the backdrop that we want to preserve our social market economy model.
Fiscal tightening is not an end in itself. It is just the best way to avoid a jobless recovery and to enhance our market economy that has a strong social component. Without fiscal consolidation, there is no confidence, without confidence there are no investments, without investments there is no growth. And this is precisely the virtuous dynamic we are putting in action with a focus on long overdue and sometimes painful reforms of our labour markets and pensions systems and with priorities given to investments in the industries of tomorrow notably through innovation, research, education, energy efficiency and energy independence. The growth we are aiming at is not any kind of growth it is a sustainable, smart and inclusive growth. Europe has adopted a strategy towards this overarching goal - the "Europe 2020" strategy.
As I mentioned above we are advancing on the track of stronger economic governance which takes our "Europe 2020" as "toile de fond".
This includes naturally developing and deepening the European Single Market. Next month we, the Commission, will come forward with its vision on the new Single Market Act because the Single Market is not "yesterday's business", but the springboard of tomorrow's Europe. By removing obstacles in our Single Market to mobility of people, goods, services and investments, we can increase competition, reap economies of scale, and promote innovation and enterprise; and thus boost growth too.
I also think of our long interest in an open trading regime because trade brings economic growth, more jobs, more ideas and innovation and because trade also helps reduce poverty. That is why I have launched a renewed trade strategy. We notably want over the next few years to complete a series of trade agreements at multilateral and bilateral levels and we want to deepen our trade and investment relations. First of all, of course with our main partner - the United States of America, but also we are developing our trade relations with China, Japan, Russia and others. Of course we will pay due attention to keep and foster a fair and rule-based international open trading regime.
Indeed it has been quite a journey over this last year and I am really pleased of today's result; this game changer I mentioned earlier. We have now clear priorities of economic policy included in a system that guarantees strong coordination.. We will also have a stronger system of surveillance and accountability to oversee whether Member States respect their commitments and a financial backstop mechanism guarantee the stability of the Euro area.
We have also progressed a lot on the front of financial stabilisation and bank repair, in fact more than many of our G20 partners.
And as President of the European Commission allow me also to underline, with great satisfaction, that the Commission has been at the forefront of the European response to the crisis and will be at the centre of its implementation.
Ladies and gentlemen,
I've taken a lot of your time and I know that your day is not yet over.
But let me conclude with a word on what we have adopted today in the European Council on the South Mediterranean.
You have already had the opportunity today to listen to Catherine Ashton, Vice President of the Commission and High Representative, so you are well aware of what we are doing in the Southern Mediterranean region.
Let me tell you that Europe moved swiftly, resolutely and proactively to the huge and diverse challenges stemming from the so called "Arab spring". Of course there is a special, more difficult case - the case of Libya. We are convinced that without a European initiative, working of course with our allies and partners, the siege of Benghazi could have become a new, if not much worse Srebrenica. So I think the European Union took the right decisions not only supporting military action, but also we have acted decisively in the political-diplomatic front, in the humanitarian and civilian protection emergency help, in the migratory and refugees assistance and above all and in the long run, in devising a wide support package to democratic transformations and economic reforms.
We are fully engaged in all these fronts. This is in the genes of the European Union – support democratic transition. We have a lot of expertise in this area. We are indeed a successful case of transformation for democracy in the European continent. Our place has always been and will always be alongside those who are calling for political freedom, respect for human dignity, and justice. I don’t believe in a culturalistic or particularistic approach to fundamental human rights. They should be seen as universal because they are fundamental to any human being no matter what ethnicity, nationality, gender or belief.
Supporting our Arab neighbours as it was requested is not only about solidarity. It is about us, in Europe, and the world we want to live in. We have learned our domestic lessons and we have learned the lessons of today's increasingly competitive and interconnected world. I am fully aware that we still have a long way to go, our efforts cannot falter, we are not yet out of the woods in terms of economic and financial crisis and we have to fully deliver. But I want to conclude, with my message of conviction that deep changes are ongoing here in the European Union, in the way we think and act together and I believe that this crisis is making us a stronger and a more credible international partner for the benefit of the European Union, but also for the benefit of our allies, partners and friends.
Thank you for your attention.