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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

Speech at the Parliament of the Republic of Portugal

Parliament of the Republic of Portugal

Lisbon, 15 March 2012

Dear Ms President of the Assembly of the Republic,

Honourable Members of Parliament,

Ladies and gentlemen,

It is a great honour for me to be invited to the Assembly of the Republic. Thank you very much for giving me this opportunity.

As you know my visit to Lisbon takes place just a few weeks after the third review mission of the European Commission, the European Central Bank and the International Monetary Fund to assess compliance with the terms and conditions of the Economic Adjustment Programme. I am pleased that the mission has found that the implementation of the programme is progressing at a good pace. This is a matter of satisfaction, not only for Portugal but also for its Euro area partners. I can assure you that this was the wide-spread feeling in the Eurogroup of Monday in Brussels.

Resolving the current crisis requires not only the efforts of the Portuguese population, and of those of other countries in difficulty, but also actions at the EU level. The ongoing overhaul of the EU economic governance framework is in fact aimed at ensuring that the reform process is irreversible, including a strong focus on macroeconomic imbalances, which are at the root of the economic challenges Portugal is currently facing. The Fiscal Compact Treaty strengthens the architecture of the Economic and Monetary Union to prevent an economic and financial crisis such as the one we are facing today. A strong and deep legal basis for the golden rule in Portugal will provide a strong signal to financial markets on the sustainability of public finance.

At the same time we are strengthening the financial firewalls. The establishment of the European Stabilisation Mechanism (ESM) is accelerated by one year to July 2012 and the overall capacity of the firewalls will be reassessed by the end of the month.

We are making good progress towards a sustainable solution for Greece, based on the implementation of an ambitious second programme.

We also need to reinvigorate European efforts to spur growth. The European Council confirmed the policy priorities set out by the Commission in its Annual Growth Survey of last November. In particular, the completion of the Single Market 20 years after its foundation will be the main engine for growth. This is especially important for Portugal, as its economy is reorienting from the non-tradables to the tradables sector.

Honourable Members of Parliament,

The meetings which I had yesterday and today here in Lisbon have re-confirmed my positive assessment of progress in Portugal. On the fiscal side, the structural adjustment is remarkable by any standards. The stabilisation of the financial sector is evolving in an overall orderly fashion. Reforms in labour and product markets aimed at improving competitiveness, growth, and job creation are generally progressing well and framework conditions for investing and doing business are being improved.

There are encouraging signs that these policies are bearing fruit. The external adjustment of the economy has been faster than expected. Reversing a decade-long trend, Portuguese exports have recently gained market shares, particularly outside the EU, while imports are falling. As a result, the current account balance is expected to improve strongly in the period 2011-2012. The rebalancing towards export-driven growth that is necessary to bring the Portuguese economy back on a sustainable and balanced growth path is set in motion.

These are good news. They are testimony of the strong programme implementation but also of the wider efforts undertaken by the Portuguese government. It is comforting that the programme continues to enjoy broad support in the Parliament. I welcome the great responsibility that the Portuguese Parliament has demonstrated in supporting many, often difficult, legislative proposals. The broad political and social support is key to the success of the programme going forward, in particular as major challenges are still lying ahead.

Let me briefly mention some of these challenges.

First, the economic situation remains difficult. We have seen a strong loss in the growth momentum in the EU towards the end of 2011.

Second, developments in financial markets have to be kept under close review. The adjustment of banks' balance sheets is inevitable as Portugal seeks to correct the large debts accumulated in the past. But credit to viable companies needs to be available. I am conscious of the fact that access to credit for households and small and medium-sized enterprises is currently difficult, even though the recent decisions by the ECB have helped to ease banks’ liquidity constraints.

Third, despite the achievements so far, the necessary fiscal adjustment is not yet accomplished.

Fourth, while the ongoing external adjustment is good news, the country will need to run a current account surplus in the future, given its substantial external debt. Well-functioning and flexible labour, product and services markets have to be in place to ensure that resources can be shifted to the export-oriented sectors of the economy. The ambitious agenda of structural reforms is a cornerstone of the programme and the only viable path towards growth and employment.

In this regard, I am talking for instance about the network industries, sheltered services and the regulated professions. The government will hopefully adopt soon the regulatory amendments necessary to transpose the Services Directive and the liberalisation of regulated professions. Swift progress is also required in finding a resolution for the long-lasting problem of the electricity tariff deficit.

I trust that the honourable Members of Parliament will fully support the elimination of barriers to competition and of the associated excessive rents that stifle economic dynamism in Portugal. Opening up these markets will reduce input costs for other sectors, making them more competitive, and reduce prices for consumers.

Speaking of consumers' welfare, honourable Members of Parliament, I believe that the programme is overall socially balanced and tries to protect the most vulnerable groups of the society. A number of measures have taken social aspects explicitly into account, such as the cuts in public wages and pensions where lowest income categories were exempted; the shortening of the minimum employment period necessary to be eligible for unemployment benefits; the substantial reduction in tax exemptions affects lower income categories to a lesser extent; and the forthcoming urban lease reform contains social safeguards. It remains crucial to cater for the most vulnerable in a targeted and cost-efficient way, avoid general distortions of policies.

Honourable Members of Parliament, the implementation of the Economic Adjustment Programme in Portugal is on track. The distance covered since the start of the programme is encouraging. But challenges remain, both internal and external. The commitment observed in implementing the Programme and the broad political and social consensus must be maintained.

That said, I am mindful of the sacrifices some of these reforms imply for the Portuguese population in the short term. But as Fernando Pessoa has written into the logbook of the Portuguese nation of seafarers: "There are ships sailing to many ports, but not a single one goes where life is not painful.” It is essential that the momentum is maintained. Moreover, ownership is important: the programme is a joint task not only of the Government but also of this honourable Parliament and the whole Portuguese society. Europe is here to help you in this endeavour.

Thank you very much.

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