European Commissioner for Economic and Monetary Affairs
Overcoming the Economic Crisis in Greece and Europe
"Reset Greece" - ALDE Seminar
Brussels, 7 September 2011
Honourable Members, Ladies and Gentlemen,
Let me thank you for the invitation to speak at today's highly topical seminar. I want to thank Jorgo and Theodoros for taking the initiative to have this opportunity to exchange views on this issue.
In my intervention I will briefly touch upon the current economic situation, the state of play with Greece and the governance package.
In the first half of 2011, the EU economy continued its gradual recovery, although recently with a slower pace. After the strong GDP growth in the first quarter (0.8% quarter-on-quarter), the second quarter recorded slower growth (to 0.2% q-o-q). Short-term indicators for the euro area point to a further moderation of growth.
All in all, the short-term growth prospects have somewhat worsened compared to our spring forecast. Temporary slowdowns are not unusual in multi-year-long recoveries. In particular, this subdued recovery is not surprising in the aftermath of a financial crisis, given the continuing need for financial deleveraging in the private and public sector.
However, what obviously makes the current situation worrisome is that the level of unemployment remains elevated and public finances are vulnerable to any slowdown of the economic recovery.
Stress in financial markets increased over the summer, leading to substantial volatility and occasional turbulence. The rough ride in the financial markets is a real test time for the euro-area. The situation is serious and there's no need to pretend otherwise. At the same time, funding pressures in the EU banking sector have risen.
What we seem to be currently going through is a more parallel performance of financial markets and the real economy. The financial markets and the real economy now move more in synchrony, and the continued financial turbulence is spilling over to and potentially harming the recovery of the real economy. This underlines the importance of containing the market turbulence to secure the economic recovery.
In order to do so, the Euro-area Summit took important decisions on 21 July.
The euro-area leaders agreed on a new EU/IMF programme for Greece, which facilitates the financing of the Greek state in the medium-to-long-term. Private sector creditors will contribute to the solution through voluntary debt roll-overs and buy-backs.
They also agreed on a new set of stabilisation tools by increasing the flexibility and effectiveness of the EFSF and of the ESM. These enhancements to the EFSF and ESM are a clear change of approach and will allow acting earlier and more efficiently to ensure financial stability.
We have called on the euro-area member states to accelerate the approval of these decisions, so as to make the EFSF enhancements operational very soon. Rapid implementation of these decisions is essential for addressing the debt crisis and restoring market confidence.
Ladies and Gentlemen,
Let me now turn to Greece. The Troika of the Commission, the IMF and the ECB interrupted the fifth review mission in Greece last Friday. The mission has made good progress, but has temporarily left Athens to allow the authorities to complete technical work, among other things, related to the 2012 budget and growth-enhancing structural reforms.
I expect our mission chief Matthias Mors and his team to return to Athens by next week, when the Greek authorities should have completed the technical work, to continue discussions on policies needed to complete the review.
At the same time, we are taking a broader and deeper perspective to the necessary reform of the Greek economy and administration, in order to create preconditions for higher growth potential, more productive entrepreneurship and thus more sustainable job creation. The Commission decided in July to set up a special Task Force on Greece to identify and coordinate all the technical assistance that Greece needs to deliver the EU/IMF programme and to accelerate the absorption of the structural funds. This work, of course, will be carried out in close cooperation with Greece, and will benefit from the input of other Member States, and other assistance providers, such as the IMF, OECD, EIB etc.
This initiative has been strongly welcomed by the European Council and by the Prime Minister of Greece. The Task Force will report to President Barroso and me. It is a quantum leap in improving the effectiveness and overall impact of technical assistance to Greece.
The Task Force will report quarterly. The first report, scheduled for end October, will set out the strategy for the work of the Task Force and, together with the Greek authorities, identify the priorities for the delivery of technical assistance. The immediate priorities are to boost growth, competitiveness and jobs in the Greek economy.
This is an unprecedented, high level effort by the European Union coordinated by the Commission to help Greece get the technical assistance it needs as quickly as possible in key areas.
The Task Force is now being constituted. I can tell you over 500 people have applied to join the Task Force team – a very positive indication of the enthusiasm with which this endeavour is embraced. This will allow Horst Reichenbach, its Head, to put together an outstanding team of really top class people for the difficult tasks ahead. The Task Force will also have an antenna in Athens to assist on the ground in Greece.
I request today that all interested parties cooperate with the Task Force, and with Greece. The time for real action on the technical assistance front to help Greece is right now.
And I say to my Greek counterparts, and friends, that this is a unique opportunity to work together towards sustainably strengthening your country…..an opportunity that we must seize!
Ladies and Gentlemen,
Let me move on to my last point. There has been much debate around EU economic governance and the need to rethink our institutional structures. Given our growing interdependence, the Commission has been pushing for stronger economic governance – particularly for the euro area. We made legislative proposals in September 2010 to that end, and remain confident that these will soon be definitively approved.
In line with the decisions of the euro-area summit, further ideas will be developed in the next weeks. It is important to note that the treaties offer a very broad range of options for a deeper and more efficient economic coordination and integration.
We should, in particular, find ways to provide more institutional clarity in the euro-area. Especially, we need to reflect on how to improve the division of labour and respective responsibilities of the euro-area meetings in the composition of Heads of State or Government and of Finance Ministers, and how to improve the working methods of the Eurogroup, including also its support structures and communication practices.
There are currently rather high expectations on how eurobonds could help solve the debt crisis by pooling the debt issuance of euro-area member states. However, it is clear that eurobonds, in whatever form they were to be introduced, would have to be accompanied by a substantially reinforced fiscal surveillance and policy coordination as an essential counterpart, so as to avoid moral hazard and ensure sustainable public finances. This would have unavoidable implications for fiscal sovereignty, which calls for a substantive debate in euro area member states to see if they would be ready to accept it.
A Treaty amendment to allow for the establishment of the ESM is now being ratified. Should future moves to deepen economic integration require a new legal basis, the Member States would need to consider further Treaty change. At this stage this is a hypothetical question.
In the very short term, the adoption of the legislative package on EU governance will be a crucial step forward in strengthening fiscal surveillance and formalising the surveillance of macro-economic imbalances. In his forthcoming State-of-the-Union speech, President Barroso will outline the Commission's proposals on how economic governance of the euro area can be further developed.
Ladies and Gentlemen,
To conclude, the light at the end of the tunnel does not necessarily have to be the oncoming train, unlike many doomsayers would quickly point out. As the euro-area struggles with the current crisis, I call for the spirit of responsibility across Europe and across political spectrum to reach sensible and forward-looking decisions to restore confidence into the European economy, for the benefit of our citizens. Time is of the essence now.