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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

Inter-parliamentary Committee meeting on the European Semester

European Parliament

Brussels, 28 February 2012

Madame Chair, Honourable Members of the European and national Parliaments,

I am glad to discuss with you the conclusions you have reached in the debates on the European Semester of economic policy coordination. It is very encouraging to see that this interparliamentary conference is becoming a regular event early on in the European Semester.

The importance of accountability and democratic legitimacy of our economic policy coordination can hardly be overstated, particularly in a time of crisis. And only you, as elected representatives of EU citizens, can ensure that accountability.

We have come a very long way over the past two years in completing the Economic and Monetary Union with an appropriate architecture for economic governance. The new structures aim at ensuring that all Member States regard their economic policies as a common concern and contribute to the common objectives of balanced growth, stability, employment and social progress, as provided for by the EU Treaties.

This requires assessment and coordination of policy plans in advance of final national decisions – not only afterwards, as largely has been the case previously. The essence of the European Semester is precisely to enable this prior coordination, and it is because of this that your early involvement and participation is so very important.

Ladies and Gentlemen,

The European Semester of 2012 is the first one with the so-called six-pack of legislation in force. This important new set of rules allows both fiscal and macro-economic imbalances of Member States to be identified and tackled much earlier than has previously been the case.

The new tools include also enforcement mechanisms in case a euro area Member State would not follow EU recommendations to bring its policies back in line the obligations of the EU Treaties. We cannot afford breaches of jointly-agreed rules by anyone anymore. We have seen, only too well, that this happens at the cost of other Member States.

In particular in the euro-area, the economic and financial interlinkages between member states are so deep, and consequences of one member state's decisions to others so direct, that an even deeper integration for a smooth functioning of the economic and monetary union is necessary.

We therefore made in November two further legislative proposals on budgetary monitoring and enhanced surveillance for euro area member states. The first provides for aligning calendars for preparing national budgets and their assessment at European level before their final approval. The second provides for enhanced surveillance of member states at risk to its own and thereby also other euro area member states financial stability.

It is clear that with these proposals we are suggesting rather far-reaching European level coordination of national policies. The proposal on budgetary monitoring includes even a possibility for the Commission to ask for a revised draft budgetary plan from a member state in case of a particularly serious non-compliance with the budgetary policy obligations of the EU Treaties and its Stability and Growth Pact in particular.

I am deeply convinced that such level of integration is necessary for the Economic and Monetary Union, in order to finally become robust enough to prevent and withstand economic and financial crisis, such as the one we have experienced recently.

The agreement and forthcoming signature by 25 Heads of State or Government of the Fiscal Compact Treaty is evidence of most Member States' leaders agreeing with this direction and commitment, as well.

Yet, as mentioned already, such deepening of economic and fiscal policy coordination and surveillance will only become legitimate and effective with a close involvement of the elected representatives of the European citizens at national and European levels. It will require much closer interaction between the European institutions, national governments and parliaments than has been the case until now.

Ladies and Gentlemen,

Rules and requirements are obviously not objectives themselves. They are only instruments for ensuring that policies aiming at achieving growth, employment, stability and social progress can be implemented. It is the substance of our policies that matters most, and on which I would want to focus the rest of my intervention.

Past weekend we met with the G20 Finance Ministers and Central Bank Governors in Mexico City to address ongoing economic and financial challenges. We took stock on developments since the Cannes G20 Summit and prepared the way forward to the Los Cabos Summit in June. This time I sensed a more positive atmosphere among our partners.

In the meeting I presented the EU economic outlook based on the Commission interim forecast and reported on the implementation of our comprehensive crisis response.

It was important that the G20 recognised the progress made by Europe in recent months to strengthen fiscal positions, adopt measures to reduce financial stress, build stronger institutions, implement growth enhancing structural measures and to put Greece on a sustainable path. With this statement the G20 partners expressed strong support to our determination to overcome the crisis.

We had important discussions on strengthening the European and global firewalls. Even if we did not discuss concrete numbers, we all agreed that there is a global financing gap which needs to be addressed. We expect this spring a decision on increasing IMF resources, preferably at the IMF Spring Meetings in April.

Our Annual Growth Survey for 2012 that launched the current European Semester made clear that differentiated and growth-friendly fiscal consolidation is a necessary precondition for restoring confidence. And confidence of households and investors will be key to triggering growth.

However, even growth-friendly consolidation alone will not as such boost our growth potential. Therefore, structural reforms to raise growth potential are an essential element of Europe's economic strategy and crisis response.

At the EU level, we need to utilise the Single Market as an engine for growth. In particular, completing the internal market in services and building the EU digital single market have significant growth potential.

In the Member States, the biggest boost for growth needs to come from ambitious structural reforms in product and labour markets and from making the public sector more effective and efficient. Such reforms will allow resources to be used in the best possible way, they will harness entrepreneurial energy and provide consumers with lower prices and better products. The European Semester and the 6-Pack legislation can provide the framework to support this: but taking action is principally for national governments and requires the support of national parliaments.

In addition, funds available in the EU budget could be better used to underpin growth-boosting investment. The Commission has already made two proposals in this area, one looking to increase co-financing rates for programme countries to facilitate investment, and the other proposing project bonds to stimulate private financing of key infrastructure projects.

Ladies and Gentlemen,

Achieving growth and creating jobs is a tough challenge in a time of tight and necessary constraints on public expenditure. But there are many examples where Member States have overcome a severe crisis through determined action. Just think of the reforms and adjustment in Denmark and the Netherlands in the 80's, in Sweden and Finland in the 90's, or Germany during the previous decade. Ireland and Latvia are most recent examples of what can be achieved even in the toughest conditions.

There is no reason why such achievements would not be possible in other EU member states as well, including the programme countries.

Today more than ever, we will swim or sink together. The crisis has demonstrated to all of us, how much policy decisions in one country can influence the situation in all others. Whilst economic policies are a matter of common concern, many of the levers of economic policy remain, properly, in the hands of national governments. And that is why we need more than ever to ensure that national parliaments are completely involved in the whole cycle of economic policy making at the European level. We need ownership and democratic accountability at the national level if we are to succeed at the European level.

Under the new six-pack framework, national governments are now required to report on how national parliaments have been involved in the development of the national reform programmes and stability or convergence programmes. This is a positive step forward, and I hope that all national parliaments – and other stakeholders - are being actively involved in developing these programmes, which are central to our overall reform effort.

I think that this forum is an excellent means of exchanging not only information, but also best practice. By doing so, we can improve the level of public support for the reforms, which are so vital to us emerging successfully from this crisis. That's what our citizens expect from us.

Even if Europe is undergoing a mild recession for now, we can see signs of stabilisation. We need further decisive action to lock in this trend of stabilisation. Thus, we have a great chance to turn the corner from stabilisation to sustainable growth and job creation.

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