Vice President of the European Commission responsible for Competition Policy
SGEI reform: Presenting the draft legislation
College of Europe
Bruges, 30 September 2011
Ladies and Gentlemen:
I would like to thank the College of Europe for hosting today’s conference.
Today I will introduce to you our proposed reform of the rules that the European Commission uses to check that public spending for the Services of General Economic Interest is compatible with free and fair competition in the EU.
As I said in many occasions, before I took over as Competition Commissioner and since February 2010 in my present capacity, public services are one of the pillars of Europe’s social and economic model.
The idea that the community, through its public institutions, takes responsibility for certain social needs and public goods translates into practice the basic values on which our democracies are built. At least, this is our European vision of what a democracy means for our citizens.
Without good public services available to all, such values as solidarity, social justice and social cohesion would have remained mere ideals. Instead – in their different ways – they are a reality everywhere in Europe.
We all know that more and more people have come to rely on them to cope with unemployment, rising income inequality, and uncertain prospects for the future.
So, there are several reasons why I regard this reform as one of my priorities, and the current state of economic and social uncertainty has added a new sense of urgency to the need for strong and efficient public servicies.
The reform process that has just entered its final stretch started back in 2008. During these years, we have conducted an intense dialogue with our stakeholders; there have been reports from the Member States, a public consultation, and many meetings involving myself and my services.
We have listened to the views and the requests that have emerged from this dialogue. And many of them are reflected in the proposals that we unveiled two weeks ago.
But the dialogue is not over, and today’s conference is one of the main opportunities to debate our proposals – now that they are set out in public – until the package is submitted to the College for adoption in the coming months.
Today, I will briefly recall the main results of the dialogue that prepared the reform. Then, I will illustrate and comment on the main features of the four instruments that compose our package.
But first, I would like to explain why we decided to review our rules for the control of the Services of General Economic Interest.
I will start by stating very clearly that the existing package has served us well. Back in 2005, when it was introduced, it included the first ever EU-level rules specifically devoted to public services.
And Professor Monti – and after him, Neelie Kroes – will remember this well, as the package was being thought out under their guidance.
Both our earlier practice and the implementation of the 2005 package taught us many valuable lessons. What I am presenting today has been prepared in light of this experience.
One of the lessons we have learned is that the demand for public services and their provision has changed quite significantly over the years.
Services that had traditionally been delivered directly by the state have gradually shifted towards the private sector.
This shift has been part of a wider trend towards liberalisation, but it has occurred differently in different parts of Europe.
To pick an example from health care, Spain’s hospitals cannot be regarded as economic activities, but hospitals are considered as economic activities in other countries, such as Belgium.
The systems in Spain and Belgium provide similar services, but their respective relations with market mechanisms are different.
Another, more recent and dramatic change for the provision of public services has appeared during the financial and economic crisis.
The crisis has depleted public coffers almost everywhere in Europe and the austerity plans of national, regional and local authorities are making deep cuts into public services and the welfare state.
Every responsible policy-maker must respond to this challenge, and we are no exception.
Our new rules are designed to help public authorities across the EU to design and provide smarter, more efficient, and more effective public services.
So, I present this reform to you as our contribution to defend Europe’s public services and to preserve them for the future.
I hasten to add that our package can only be part of the solution – and certainly not the largest one.
It is national and local governments that make the real difference for Europe’s welfare. They determine which services are required to cater for the needs of their peoples and who should provide them.
They also decide how to adapt or adjust the financing and the provision of public services in their efforts to consolidate national budgets.
Finally, national authorities have the responsibility to look both at the immediate need to reduce their borrowing requirements and at the longer-term goals of promoting growth, job creation, and the wellbeing of their societies.
This is crucial, because without a good balance between emergency and structural measures, any plan to consolidate public budgets can only bring short-lived benefits and growing social tensions.
As I said earlier, over the past few years, we’ve had a long and intense dialogue with European, national and regional authorities, with the service providers, and with civil-society representatives.
In addition, since I took over the reform process, I have discussed with the European Parliament and the Committee of the Regions, while the Economic and Social Committee produced an opinion.
I have met local authorities, public-service providers thanks to the CEEP – their European organisation – and representatives from the European social platforms, who voiced the views and the needs of the people our reform is intended for.
Our proposals take on board many of the ideas and suggestions that they have expressed to us.
Let me give you the main messages very briefly.
First of all, all respondents want strong, affordable, and efficient public services. There is no doubt in my mind that they represent the vast majority of Europeans who demand that their governments preserve an acceptable level of public services.
Many people know that public services are one of the pillars of our society. This sentiment is tangible and deeply rooted – in its different ways – in every corner of Europe.
The main purpose of our dialogue was to collect ideas for the reform, and the responses we have received have been unambiguous. Our stakeholders have asked for clearer, simpler, and more diversified rules.
A great number of respondents – especially public authorities and small providers – have told us that it was difficult for them to understand some of the concepts that we use to carry out our control; including fundamental concepts such as the difference between economic and non-economic services.
Many have also told us that the procedures were too much of a burden; again, this view often came from certain types of social services and from local operations.
As we were looking for the best way to respond to these calls, we realised that what we had to do was shifting the focus of our control.
We had to make life easier for those services that do not have a significant impact on the internal market. At the same time, we understood that we have to monitor more closely the commercial operations that can effectively distort competition.
This is what I mean by more diversified rules. The new rules make a sharper distinction between the different kinds of public services so that our control can be better tuned to their potential impact on the internal market.
I will now turn to a quick overview of our package of proposals. The package includes four instruments: a communication, a regulation, a decision, and a set of guidelines to provide a consistent framework for our policy. I would like to say a few words on each of these instruments.
The Communication – a new instrument that did not exist in the previous package – responds to the many requests we have received to make our rules clearer.
The concepts and rules the Communication clarifies include basic definitions, such as the notion of social services, of universal services, and of economic activity.
As you know, many of these are set by the Court of Justice; it is our responsibility to interpret them, but we must always respect them in substance – and we do.
As a result – for instance – to explain the notion of economic activity the Communication reviews the principles applied by the Court and how they relate to different sectors.
The other new instrument is a Regulation which introduces a new de minimis rule specific to the Services of General Economic Interest.
The basic idea is that amounts under a certain ceiling spent on small and local operations will automatically fall outside our control.
This new rule responds to the call for simplification that we have frequently heard from our stakeholders. Incidentally, it will also reduce the number of notifications that we receive and free resources for more worthy pursuits.
The rule we propose applies to payments of up to €150,000 a year made by local authorities with up to 10,000 inhabitants to providers with a turnover of less than €5 million.
You will agree that the operations that fall within these limits are small and local enough not to be a risk for competition in the internal market.
Our reform of the next instrument in the package – the Decision that will replace the one from 2005 – proposes two main innovations:
the notification threshold for commercial operations will fall from the current €30 to €15 million a year and
more sectors will be exempted from our control.
As to the former provision, if approved, we are lowering the threshold to bring under our control a larger number of contracts of a commercial nature – such as, for example, in environmental services – that are exempted under the current rules.
As to the latter, a range of services that cater for essential social needs and vulnerable groups will no longer have to go through the process of State aid notification. Let me add a comment on this last point.
I have already stressed that taking care of our fellow citizens in need embodies some of the values that we hold dear in Europe. I won’t repeat myself.
Here, I would like to draw your attention on the two provisions combined: on the market side, our rules become tougher; on the social side, they are relaxed.
This is not at all a contradiction, because public services are fully compatible with free and unfettered competition in the internal market.
I’m convinced that a well regulated, free-market economy should not blind us to the fact that the market is not a cure-all.
It is a mistake to think that the market can be used to organise every aspect of life in our societies.
There are public goods and social values that cannot be left to market forces alone; because – if they were – the goods would not be available to all but only to a few; and in some cases, they would not be available at all.
A well-structured mix of public services and market forces is the best means to defend our standards of living and the values that keep us together in Europe.
The final bit of our reform package I will present is the new Framework.
This is a set of guidelines designed to make our control of the compensation of the Services of General Economic Interest more predictable for public authorities and providers.
By proposing this instrument, we try to respond to the calls for a more diversified and more proportionate control.
The Framework also pursues our policy goal to promote the design and delivery of more efficient services.
This is why these guidelines focus on large-scale commercial operations with a clear impact on the internal market – such as such as transport, telecoms, and energy supply – and propose, a stricter scrutiny on them.
This will be done through a variety of measures, including:
the requirement that public procurement rules are respected;
incentives to make efficiency gains over the life of the contract; and
a stronger analysis of the effects on competition in the internal market.
These are the main features of the texts we have presented the two weeks ago. What are the next steps?
As I said, we really have come to the final stretch. The draft texts have been put into public consultation and sent to the Member States. Over the next month, we will gather more comments and proposals and we will use them to improve the texts.
If everything goes well, the final texts will be adopted by the College of Commissioners before the end of this year.
And, as President Barroso pledged at the European Parliament during the debate that followed his State of the Union speech the other day, the Commission will also present a Communication on a quality framework on services of general interest.
Today we are debating a major reform.
Over the past few years, public services have been under enormous and diverging pressures:
on the one hand, they have become a lifeline for growing numbers of Europeans;
on the other, they have become coveted sources of savings for the ailing budgets of many countries in Europe.
Our reform recognises this predicament and shifts the focus of our control to what really counts.
I would be a happy man if – a few years down the road – this reform managed to promote a smarter use of scarcer public resources.
But this reform is not only about helping Member States reduce their deficits; it is also a fight to defend one of Europe’s greatest achievements.
The very idea of public services was born in Europe towards the end of the 19th century and has since become a gift that Europe has given to the world.
Services such as good public schools and excellent public hospitals are a byword for Europe in many parts of the world.
Let me recall the passion and the broad participation that have surrounded our dialogue with the stakeholders ever since we started to engage them in the reform.
There is a genuine popular feeling. Public services touch directly the lives of us all; people know this and want to preserve them for themselves and for the future generation.