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Vice-President of the European Commission and member of the Commission responsible for Economic and Monetary Affairs and the Euro
On the way to a new stability culture in Europe
Berlin, 22 November 2011
Sehr geehrte Damen und Herren,
Es ist für mich eine große Ehre heute bei deutschen Freunden sein zu dürfen. Wir haben ein gemeinsames Ziel. Wir alle wollen ein Europa, in dem jeder Europäer zuversichtlich in die Zukunft blicken kann. Wir wollen ein Europa, das der Wirtschaft die Stabilität bietet, die sie braucht, um im internationalen Handel erfolgreich zu sein. Wir wollen ein Europa, das den Menschen Arbeit bietet, in Freiheit und mit Solidarität – mit einer starken sozialen Marktwirtschaft.
Deutschland liegt im Herzen von Europa. Und ich weiß ebenfalls, dass Europa in den Herzen der Deutschen liegt.
Ladies and Gentlemen,
I am honoured to talk to such a large and distinguished audience today. Europe is in all our hearts, but we cannot live from sentiment alone.
As employers, you need to know concretely where Europe is heading. You need a predictable planning horizon in order to be able to contribute to growth and jobs. This is also our interest in the European Commission, and I will present to you our plan. But before doing so, let me say a few words about the current situation in Europe's economy.
There is no doubt that German economy has been doing well. Economic growth this year will be about 3%, as estimated by our recent autumn forecast and confirmed by the latest figures for the third quarter. Fiscal consolidation has been remarkable. The deficit will fall well below 3% this year, although public debt remains at over 80% of GDP. It is encouraging that domestic demand has recently strengthened in Germany, on the back of the strongest labour market performance since the unification.
This is, to a large extent, thanks to the transformation that the German economy underwent over the last decade, subsequent to the unification boom and the opening-up to the new Member States in Eastern Europe. As you remember, this was not easy: The reform process was accompanied by a period of subdued growth, as well as by budgetary consolidation (under the first excessive deficit procedure for Germany). And the latter has been quite controversial, as well as the necessary reforms such as raising the pension age to 67 years.
However, next year, the external climate will start to weaken economic prospects in Germany – not least from the euro area, which accounts for 40% of German exports. We project growth to be only 0.8% next year.
It is worrying that the recovery in Europe has come to a standstill, with euro-area growth only at ½ % next year. Despite determined efforts, some countries still have very high debt levels. They must, no doubt, continue on a strict course of fiscal consolidation, especially as the sovereign debt crisis is intensifying the financial market turmoil.
The fundamental reason for the turbulence in the sovereign debt market is that there is no trust in the market that some member states do the necessary fiscal and structural reforms to service their debt.
Those countries that have come under pressure need to step up their efforts to regain market confidence, and they have committed to do so.
In particular, Greece must make decisive and rapid progress in its transformation. The focus must be on both continuing the fiscal consolidation and intensifying the implementation of such structural reforms that can boost higher growth and job creation. The Commission’s Task Force led by Horst Reichenbach is coordinating technical assistance for Greece with these objectives in mind.
The example of Ireland demonstrates that the approach of conditional financial assistance can and does work. 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.
Fiscal consolidation is a necessary but not sufficient condition to bring Europe back on track. Tomorrow, the Commission will present its view which reforms should be taken as a matter of urgency in our Annual Growth Survey, which kicks off the second annual cycle of economic policy coordination in the Union. First, of course, we address fiscal consolidation and the financial sector. We also outline which structural reforms are most necessary to jobs and growth, in particular as regards human capital, and how to make public administration more effective.
In this spirit, we have started working with the new Italian government. As PM Mario Monti underlilned in his speeches before the Parliament, the government is faced with difficult challenges. Italy needs to deliver on fiscal consolidation and adopt bold measures to re-launch growth in the medium- but also in the short-term. The speed of political change and the very broad support obtained by the government in parliament are proof of the awareness of the need for a change of gear in policies.
The Commission received the mandate from the euro-area summit to monitor the implementation of the letter of intent sent by PM Berlusconi on 26 October. We are going to present a first report to the Eurogroup next Tuesday. Some of the measures have been taken, and the new PM has already indicated the intention to go further in some important areas. We will continue monitoring closely in the coming weeks and months.
Overall, the current situation in Italy represents an opportunity for positive change. I am confident that with the right policies Italy can overcome the current loss of market confidence.
Ladies and Gentlemen,
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.
We must now install a stability culture as the core principle of economic governance in the EU.
By the way, 15 years ago, the word Stabilitätskultur was used to argue for the independence of monetary policy for the upcoming new European Central Bank. The ECB has indeed lived up to its stability culture. It has delivered stable prices in the euro area, and when faced with the threat to financial stability, the ECB decisively took unconventional measures that were necessary and measured.
Now we must bring the stability culture to fiscal policy. We have made progress: New legislation to strengthen the Stability and Growth Pact proposed a year ago will enter into force shortly. It will allow us to tackle both fiscal and macro-economic imbalances of a Member State much earlier than has been the case. The new tools include the possibility of financial sanctions if a euro area Member State does not follow the EU recommendations to put its fiscal house in order.
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 breach of jointly agreed rules by anyone anymore. We have seen, only too concretely, that it happens at the cost of other Member States.
Tomorrow, the Commission will present two proposals that bring further stability to fiscal policy of the euro area.
The first proposal underpins national stability culture by requiring numerical fiscal rules on the budget balance, in line with medium-term budgetary objectives of the Stability and Growth Pact. Such rules shall cover the whole government and be of binding, preferably constitutional, nature. You are right if this reminds you of the Schuldenbremse.
Moreover, we propose independent fiscal councils at national level to underpin robust budgetary planning. We also aim to complete the coordination of national budgetary cycles at the European level. In the so-called European Semester in the first half of each year, we evaluate the multi-annual budgetary plans at EU level. But for euro area countries, we need to make sure that the national budgets are in line with the obligations of the SGP before they are enacted. Thus the Commission should take a look at draft budgets by 15 October at the latest, and if needed issue its opiniion.
Our second proposal is reserved for such euro-area countries that receive financial assistance. For them, the enhanced surveillance and the monitoring of programme conditionality will be required through law.
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 very fundamental changes to economic governance. However, as I have pointed out in the beginning, the crisis has extended and deepened. The Stabilitätskultur is necessary. But we may need to couple it with a further step addressing the sovereign debt directly.
I have read with great interest the proposal by the German Council of Economic Experts, the Sachverständigenrat, on the debt redemption fund. The debt redemption fund would be a systemic response to the crisis. This proposal balances risk-sharing – which is limited in time – with very stringent programmes for fiscal consolidation. I believe the proposal is worth exploring seriously and further.
On the condition that the euro-area governance will undergo a substantial change to ensure rules-based fiscal discipline, I believe that we could also think about how to enhance financial stability through broad liquid bond markets with reduced risk.
Tomorrow, the Commission will present a Green Paper on the rationale, preconditions and possible options of financing public debt through eurobonds – better called stability bonds. While the prospect of introducing stability bonds could help alleviate the sovereign debt crisis, I am also aware of the sometimes strong opposition against them.
For me, it is clear that any type of Eurobonds would have to go in parallel, hand in hand, by a substantially reinforced fiscal surveillance and policy coordination, as an essential counterpart. Stability Bonds would require that any step in the further sharing of risk would have to be balanced by provisions that ensure sustainable public finances and avoid free-riding on the consolidation efforts of others. This would have implications for fiscal sovereignty, which calls for a substantive debate in member states.
In other words, a profound reform of economic governance towards deeper policy integration is a necessary precondition for any serious move towards introducing stability bonds. Thus, the Commission's proposals tomorrow really constitute an interlinked package, which builds on the recent reform of economic governance and stability mechanisms, and at the same time outlines a roadmap towards the next stage of an ever closer and sturdier economic union, in both dimensions.
Ladies and Gentlemen,
Let me conclude. At the current critical juncture, we have two options.
Either 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 downturn into a lasting recovery.
I trust you choose to work together and help revive Europe. Further steps should be carefully considered, and always in balance. Commitments on the one side must be balanced by commitments on the other.
I said that we cannot live from sentiment alone. What I mean is this:
Die nächsten, sowohl notwendigen als auch tiefen Schritte zur europäischen Einigung sind nicht nur eine Sache des Herzens – sie sind eine Sache der Vernunft.