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Olli Rehn

Vice-President of the European Commission and member of the Commission responsible for Economic and Monetary Affairs and the Euro

The Roadmap to a new Stability Culture in Europe


Berlin, 27 October 2011

Sehr geehrte Abgeordnete, meine Damen und Herren,

Es ist für mich eine große Ehre heute bei deutschen Freunden sein zu dürfen. Ich weiß, dass wir gemeinsame Ziele in Europa anstreben mit Deutschland. Wir sind alle für ein stabiles Europa, in dem jeder Europäer zuversichtlich in die Zukunft blicken kann. Wir wollen ein Europa mit einer starken sozialen Marktwirtschaft. Wir wollen ein Europa des Friedens und der Freiheit, der Verantwortung und der Solidarität.

Deutschland steht im Herzen des europäischen Projekts. Die deutschen und europäischen Schicksale sind das gleiche. Wenn es Europa gut geht, so geht es auch Deutschland gut. Wie sagte Konrad Adenauer: "Europas Geschick ist das Geschick eines jeden Europäischen Staates."

Honourable Members, Ladies and Gentlemen,

I am honoured to talk to such a large and distinguished audience today in the wake of yesterday's exceptionally important Eurozone Summit.

All member states have had to take difficult decisions. I am well aware that the decision of the Bundestag yesterday to approve the EFSF framework agreement has not been easy. I highly appreciate the broad-based, cross-party majority for the decision.

The Bundestag has taken a commitment to Europe. And you are right to expect all Member States deliver their part on this commitment and Europe together addresses the shortcomings of the Economic and Monetary Union.

The EU treaties say very clearly that Member States shall regard their economic policies as a matter of common concern. We must ensure that this commitment is respected by all Member States.

They will have to bring their public finances in line with Treaty requirements and take the structural reforms needed for sustainable growth and job creation.

When this is achieved, we will have built the kind of European Union we seek. It is an Economic and Monetary Union that must be, in essence and at the same time, a Union for stability and growth.

The leaders of the European Union and the Euro area agreed yesterday the immediate way forward. For the short term, they agreed ways and means to strengthen our banking system and the financial firewalls.

They also agreed to assist Greece in its transformation with a second adjustment programme adequately financed by both the official and the private sector, supported by technical assistance and robust implementation and monitoring mechanisms.

The example of Ireland shows that our approach of conditional financial assistance can and does work. As Minister Hayes will probably explain to you, thanks to the determined fiscal consolidation, restructuring of the banking sector and structural reforms, the Irish economy is on the path of recovery and is also rewarded by the market. Similarly, Portugal is making good progress with its programme to underpin fiscal sustainability and improved competitiveness.

Beyond the immediate horizon, the leaders agreed on measures to strengthen growth and governance of the euro area, so that developments which led us to the current crisis will never again be repeated.

All over Europe, there has been a broad, thorough and even painful debate about the necessary short term measures over the past few months. Countries that have come under pressure fully realise that they need to step up their policy efforts to regain market confidence, and they have committed to do so.

Yesterday, Italy presented a strategy for rapid fiscal consolidation and growth-enhancing structural reforms, with clear measures and an ambitious timetable. Delivery on these commitments will be monitored closely by the Commission and the Council.

But here, today, I would like focus beyond the immediate horizon, on the fundamental reforms needed for Europe to function as it should.

Ladies and Gentlemen,

Already from the beginning of this year we introduced a change to the principles of economic policy coordination in Europe. We are now assessing and coordinating national economic policies at European level before decisions are finalised at national level.

Some of you may have heard the expression of a European Semester. This is the frame for what it is about. We assessed this spring the Member States' fiscal and economic policy plans for 2012 and onwards, and gave recommendations for their correction. The Council in most cases confirmed them without major changes.

Now we are following closely how Member States take these recommendations into account in their national decisions. And very soon we will launch preparations for the next semester.

In parallel, new legislation to strengthen the Stability and Growth Pact proposed a year ago will enter into force in December. It will allow us to tackle both fiscal and macro-economic imbalances of a Member State much earlier than until now. The new tools include the possibility of financial sanctions if a euro area Member State does not follow the recommendations it receives to correct the imbalances.

And rest assured, I will make full use of all these new instruments from Day One of their entry into force. We cannot afford to tolerate a disrespect of jointly agreed rules by anyone anymore. We have seen, only too concretely, that it happens at the cost of other Member States.

The Commission has also proposed that the use of Cohesion Policy Funds, which represent about 40% of the EU budget will become subject of macroeconomic conditionality. This means that if a Member State breaches the rules, the use of these funds will be reviewed. And if a Member State were not to correct the imbalances, the funds could be suspended.

Ladies and Gentlemen,

In essence, we must now install a stability culture as the core principle of economic governance in the EU. The term Stabilitätskultur is not new. 15 years ago, it was used to argue for the independence of monetary policy for the upcoming new European Central Bank.

I want to join Chancellor emeritus Helmut Schmidt in his last week's strong defence of the ECB, which has lived up to its stability culture. The ECB has delivered stable prices in the euro area, and when faced with the threat to financial stability, it decisively took unconventional measures that were necessary and measured.

Our present task is to bring the stability culture also to fiscal policy. Market discipline alone does not have a good track-record on this. Before the financial crisis hit in 2008, markets did not anticipate the risks that were building up. Now they react with great exaggeration. Policy-makers do not have a good track-record, either. The Maastricht criteria have been consistently broken and so far without consequences, including by some unnamed Member States with a tradition in Stabilitätskultur!

I am aware that there are currently rather high expectations on – and likewise opposition to – how eurobonds could help solve the debt crisis euro-area member states. For me, it is clear that any type of Eurobonds – or better called stability bonds – 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 necessarily have 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.

Last night, the euro-area leaders committed to further reinforcement of economic governance. They are ready to introduce debt brakes into national legislation and call for prior examination of draft national budgets by the Commission and the Council for such countries that violate the rules on the excessive deficit and/or macroeconomic imbalances. The Commission should monitor budget execution and, if necessary, suggest amendments.

Moreover, the policies of a member state that benefits from financing from the stability mechanisms should be under particular scrutiny by the euro-area. This should apply not only during the adjustment programme, but also afterwards, until the loans have been paid back.

We have been calling for these reforms for some time and will make use of the Treaty Article 136 for the euro area to initiate legislation to this end. In the coming weeks the Commission will present proposals on how to further reinforce surveillance of the budgets and policies of euro area Member States' if they breach the Maastricht criteria. We are also going to present proposals on how to better arrange policy cooperation within the euro area, and how to organise its external representation.

These proposals can be implemented within the current EU Treaties. But strengthening the Economic and Monetary Union further would require changes to the Treaty. The President of the European Council, together with the Presidents of the Commission and the Eurogroup, are now identifying what kind of changes the deepening of political and economic integration within the euro area may require in the longer term.

Ladies and Gentlemen,

These are crucial decisions for our common future, for tomorrow. But first we must overcome the very pressing challenges of today.

We have two options. We can give in to populist voices and risk losing all we have achieved in fighting the crisis – and much of the achievements of European integration. Or we can choose to work together and take responsible decisions to conquer the financial turmoil, reinforce our economic governance, and turn the recovery into a lasting revival.

For the sake of Europe and our fellow citizens, I trust we have the wisdom and courage to make the choice for Europe. As Adenauer said: "The destiny of Europe is the destiny of every European state."

Thank you very much.

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