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José Manuel Durão Barroso
President of the European Commission
Post-European Council debate
EP Plenary debate
Strasbourg, 19 January 2011
Last year, the European Union faced a series of stern tests. December's European Council has shown just how determined we are to take whatever decisions are necessary to defend our achievements.
By agreeing in particular to establish a European Stability Mechanism, and to make the linked Treaty change, we have demonstrated our total commitment to support the euro area and the Member States that use it, for the benefit of the entire EU.
The Commission will adopt its formal opinion on the text of the treaty change before the Spring European Council, and we will certainly play our part in explaining to Europe's citizens why this limited change deserves support.
This agreement allows us to step up a gear, and the Commission will work closely with Finance Ministers to iron out the details of the Permanent Stability Mechanism before the Spring European Council.
Although this will be an intergovernmental mechanism – which was the only option the Member States could consider – it's important that it is set up in a manner fully consistent with the treaty, and that it reinforces our stability rules, in accordance with the principles and instruments of budgetary surveillance.
These decisions are linked to the wider range of measures we are taking as part of our approach to deal with both the economic crisis and its consequences, and the need to generate growth with jobs. The European Council has recognized that.
The Heads of State and Government of the euro area and the EU institutions in particular have also made it clear that they stand ready to do whatever is required to ensure the stability of the euro area as a whole. I'm quoting and I will go on quoting. In particular, the Heads called for determined action in ensuring the availability of adequate financial support through the European Financial Stability Facility, pending the entry into force of the permanent mechanism. These were the conclusions of the last European Council.
The European Council called for accelerated adoption, by June, of the Commission's economic governance proposals from last September. And it recognised the important role the Europe 2020 strategy will also have in returning Europe to sustainable growth.
The European Union Semester which we launched last week with the Annual Growth Survey ties all these strands together. It breaks new ground, improving decisively the way in which we manage and coordinate our interdependent economies in the European Union.
It is bringing in genuine, European, economic governance. This is our new economic governance at work – governance that should constitute a comprehensive response to the crisis.
So let me just concentrate on this, as these were the conclusions of the last European Council and now we are taking the next steps.
A new reality is emerging. The politics of economic governance and economic coordination have changed. And it is not just because the so-called federalists want it. The markets want it. Our international partners want it. It is a matter of simple common sense. And we are delivering it and we will deliver it.
The new European Semester combines tighter fiscal rules, by reinforcing the Stability and Growth Pact, with effective economic co-ordination. It offers "ex ante" co-ordination which means we are discussing each others policies, both economic and fiscal, before they are adopted. We are not any longer looking back to introduce corrections, we are looking ahead to give guidance.
This ex ante approach is at the heart of what makes this a historic step for the European Union. Effectively, we are introducing a genuine European dimension into national budgetary and economic policy making. From now on, we will be helping to shape policies upfront, rather than assessing and trying to correct them afterwards.
The final decisions on national budgets will be taken by national parliaments, of course. And that is right and proper. But this new form of economic governance simply reflects a rational response to a new reality: when we see the level of interdependence in the euro area, and the EU as a whole, a country should be able to take decisions knowing what its neighbours intend to do. This sharing of information empowers and strengthens national parliaments, it doesn't undermine their authority.
So the Annual Growth Survey launches this process, and its key messages are clear: bring back stability, don't delay structural reforms any longer, and speed up growth enhancing measures.
First, we need to re-establish stability by consolidating public finances. Unless we balance the books, we will not restore confidence in Europe's economies. And if we don't restore confidence, we risk economic stagnation and all the negative social consequences that flow from that, especially for employment.
But we have to approach this in a sober and well thought-out way. Fiscal consolidation does not mean reducing debt by taking a ‘slash and burn’ approach to spending. It is more than anything a matter of prioritising. And some areas - innovation, education, new forms of energy - are good candidates for such priority treatment.
The second key message from the Annual Growth Survey is to push forward with structural reforms, so that we can create new job opportunities.
The choice is a simple one. Do we want jobless growth, or growth with jobs? If the latter, then there are a few things that we are going to have to do. We need to urge Member States to focus this year on labour market reforms so we can remove obstacles to higher employment levels.
We need to help people get back to work or find new jobs by making work more attractive.
We need to reform pension systems and make sure that the unemployed are not left worse off when they find work.
Let me be quite clear: structural reform does not mean reducing our level of social protection. But it does mean bringing in those who are currently excluded from the labour market – especially our young people. Levels of youth unemployment in some Member States - even in good times - are a scandal. Anyone who truly cares about a social Europe knows this cannot continue.
In the face of increased international competition, we can only sustain our social market economy if we adapt.
The third key message in the Annual Growth Survey is frontload and speed up measures that are growth enhancing. Our Europe 2020 programme is central to this.
We must focus on measures that have clear economic benefits in the short to medium-term, and which lend themselves to relatively fast adoption.
That means investing in areas that drive growth; unleashing the full potential of our Single Market; increasing investment in energy, transport and IT infrastructure, in part through innovative financing including, we believe, EU project bonds; and continuing to press for a conclusion of the Doha Round, while pushing forward Free Trade Agreements with key partners.
All of this needs to be reflected in the next multiannual financial framework proposal. Europe’s next budget must be a growth-enhancing budget.
Ladies and gentlemen,
Our economies are starting to move in the right direction. The recovery has taken hold and is currently progressing in the real economy. This year we should see GDP growth at around 1.5% rising to 2% of GDP in 2012. Europe's manufacturing sector has improved markedly in recent months. We should also see a steady improvement in employment prospects.
And we are starting to see public deficits decline, thanks primarily to the consolidation measures already taken, supported in some cases by a resumption of growth. In the European Union, the government deficit is expected to decline from 6.8% this year to 4.2% of GDP in 2012 on average.
But to breathe a sigh of relief and slip back into bad habits would be a grave error. The world has changed, and we cannot return to the old ways of doing things.
If we don't act now, in the face of the biggest crisis since the beginning of European integration, when will Member States be ready to take real steps for economic policy that are consistent with the goals they have themselves set? If it is not us, at European level, that encourage them to take those decisions, who will do it?
Only by sorting out our debt and stabilising finances can we move from crisis management to fostering growth. Not any kind of growth of course, but sustainable and inclusive growth.
That means structural reforms, many of which we have been advocating for several years. Reforms that do challenge old structures, but do so to reduce prices and increase opportunities for new jobs and innovative ways of doing things.
I really believe we have a responsibility towards our citizens to choose the path of growth with jobs. The Annual Growth Survey points the way.
So let's now commit seriously to proper economic policy co-ordination, and real, common, European economic governance in the EU for all our citizens.
I thank you for your attention.