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Member of the European Commission responsible for Internal Market and Services

Competitiveness — the key to growth in a strong Europe

Ceremony to award the Charlemagne Prize to Wolfgang Schäuble

Aachen, 16 May 2012

Ladies and Gentlemen,

May I start by thanking the Foundation of the International Charlemagne Prize and its Chairman, Michael Jansen, and the Mayor of Aachen, Marcel Philipp, for this invitation.

I would also like to tell you that I am delighted to be addressing you today at the ceremony to award the Charlemagne Prize to Wolfgang Schäuble, whose determined action and deep commitment to Europe I have appreciated in the difficult times that we have gone through and that we are still experiencing.

I talked about these difficult times almost exactly one year ago, on 9 May 2011, when giving a speech to the students of the Humboldt university in Berlin, in which I mentioned the rise in populist movements throughout Europe which are pressing for a retreat behind national borders, in other words the end of the European project.

One year later, the recent elections in Greece and, to a lesser extent, in France, seem to confirm this trend.

I am convinced that we cannot combat the ideas of these movements if we show contempt for the people who vote for them. On the contrary, we must answer their questions and respond to their concerns by offering them a genuine plan.

Not by giving them less Europe, which is what the populists would like to see, but by giving them more Europe. A Europe which is bolder, more democratic and more human.

What are these voters telling us?

First of all, that their personal situation, or their prospects, have deteriorated considerably since the onset of the crisis. The figures are bleak:

  • there is expected to be zero growth in Europe in 2012, and the euro zone is even expected to experience a mild recession of -0.3 % of GDP;

  • the unemployment rate is rising, now exceeds 10 % on average in the Union, is sometimes much higher amongst young people, and is as high as 24.1 % in Spain;

  • SMEs are still having trouble filling their order books and finding funds to launch new projects.

And yet this diagnosis is not enough in itself to explain why Europe and the governments in office are being rejected. We have to acknowledge that what has increased Greek or French voters' support for more extremist parties is doubt about the European response to the crisis. We have managed to avoid collapse through bold, strong measures, but citizens are finding it hard to understand what we intend to do in order to restore employment, growth and prosperity.

They wonder what the European economic strategy is in a world where the situation is improving in the USA and the emerging countries still have astonishingly high growth rates.

If we provide no convincing answer to this question, the temptation to retreat behind national borders and to resort to disunity will become stronger all the time. The single market will be populism's main victim, even though it is our greatest strength in a competitive world and our main asset for emerging from the crisis.

I would like to try to reply today to this question about the European economic strategy by setting out some ideas on what form our action could take. You will appreciate that these are my personal thoughts which do not commit the college of Commissioners.

In the short term, we must continue to repair our public finances and use all available levers to boost growth.

Sometimes consolidating public finances and boosting growth are viewed as opposites, and yet there is no contradiction between the two. Who can reasonably expect to produce growth through debt over the long term? And, conversely, who can expect to bring about a lasting improvement in public finances without strong and lasting growth?

The consolidation of public finances is a priority. In the space of a few months we managed to define our course and adopt common rules which we must definitely keep and apply resolutely.

The new 'fiscal compact', which was patiently negotiated by 25 Member States, and the financial stability mechanism, which will become operational in July 2012, are essential steps for restoring stability and confidence. The unwavering commitment of the German government to support the Commission's proposals in this area has been essential.

But there can be no lasting fiscal consolidation without growth. And together with growth, the confidence of citizens.

That is why our common strategy of fiscal consolidation must go hand in hand with a genuine European growth initiative. Under the leadership of José-Manuel Barroso, the Commission has been working on this for several months.

This initiative would involve using all the growth levers at our disposal.

We must commit to structural reforms to assist enterprises and citizens in order to make our economies more dynamic. This is a pre-condition for growth in the medium term.

The efforts that many countries are making in order to modernise their economies, for example the decisions taken by Mario Monti over recent months, and the efforts to modernise the labour market, with a move towards more flexibility in order to adapt to economic conditions, but also towards more security for workers, must be encouraged. And, as these efforts bring upheavals that can weaken standards and social structures in a period that is already fraught with difficulty, citizens must be brought on board, especially through the social dialogue. We also need to maintain basic public services which create a social bond and spread competitiveness.

These national efforts must go hand in hand with European reforms to make life easier for the 500 million consumers in Europe and to enhance the competitiveness of the 22 million enterprises that operate on our large market. This is the objective of our Single Market Act of April 2011, with the simplification of the public procurement rules, especially for SMEs, the creation of the European patent, which would lead to a seven-fold reduction in the costs of protecting innovation in Europe, or the full application of the Services Directive, which could produce an extra 1.5 percentage points of growth in Europe by 2020.

The second growth lever consists of directing the savings of Europeans towards productive investment. We have been less successful in this area than our partners despite the fact that we have genuine assets, in particular the savings surplus in certain countries.

That is why I have made a priority of strengthening the single market in financial services. This is a genuine potential source of economic growth.

The new European authorities now in charge of the supervision of banks, financial markets and insurance companies and our forthcoming proposals to improve the information and protection provided to individual investors can help to improve the allocation of capital between European countries.

But this is not enough. In addition to financial regulation, we must do our utmost to direct savings towards the financing of productive investments. For example, on 7 December 2011 I proposed European passports for funds that invest in young innovative SMEs and in social enterprises, and we are working on a European framework for venture capital. Another idea that could be explored is the creation throughout Europe of a European savings account for individuals with a guaranteed rate of interest, which would be used to finance loans to European SMEs.

Finally, the third growth lever, which we have been talking about for the past few months, is that we must use the full potential of the European public financing at our disposal, especially the following three options:

  • the determined action of the European Central Bank, which is helping to gradually restore confidence on the financial markets;

  • loans from the European Investment Bank, which accounted for 72 billion euros in 2010, which could be increased and which must be targeted even more towards the financing of innovative SMEs;

  • and our proposal for project bonds, which are designed to finance transport, energy and telecommunications infrastructure projects.

Ladies and Gentlemen,

This pragmatic growth initiative that I have just outlined is a mixture of short-term and medium-term levers, financing measures and structural reforms, national measures and European proposals.

All these measures are within our reach. I believe that they could all be rapidly endorsed.

Nevertheless, I would like to state clearly that this European growth initiative for the short and medium term, necessary as it is, will not be enough to put Europe back on the path to lasting growth, and to enable it to cope with the competition from China, India and Brazil, which are now almost continents in their own right.

Ladies and Gentlemen,

We need to put in place right now the policies that will take control in the long term.

First of all, we need to tackle the question of competitiveness, which is the condition for a strong Europe in the world and also for lasting growth that is balanced between the countries of Europe.

In Europe, in order to reduce the gaps in competitiveness, economic governance needs to be even more integrated.

The assessment that Europe is in a position of relative decline in the world is nothing new. The same assessment was made when the Lisbon Strategy was launched over ten years ago. And when we adopted Europe 2020 two years ago.

But we are also faced with a new challenge: the challenge of widening gaps in competitiveness between Member States.

To take just one example, according to Eurostat, average labour costs in France are now 12% higher than in Germany. Over the past ten years, average labour costs have risen by about 40% in France, compared with 18% in Germany.

Some people might think these gaps in competitiveness are acceptable: they might not see them as a problem, especially for Germany, whose rising exports translated into growth of 3% in 2011 and an unemployment rate of just 5.6 %.

Let me be quite clear: anyone who thinks that is misguided. In fact, such gaps in competitiveness are quite simply unsustainable in a monetary union. We form one and the same team, and if the difficulties faced by certain members are not dealt with rapidly, they cannot fail to affect the other members. Including Germany, which is intrinsically linked to the 16 other Member States of the euro zone, and 60% of whose exports go to the other Member States of the EU.

So how can our gaps in competitiveness be reduced?

Certainly not by hampering our most competitive economies, as it is Europe as a whole which, would in this case, lose competitiveness. On the contrary, we should benefit collectively from our best practices and make progress by allowing each one to find its specific sectoral position.

By putting in place enhanced European economic governance alongside the budgetary governance.

First of all, I believe that is vital for us to give thought to the relative competitive position of each of the European economies. What are the sectors in which each country has competitive advantages and added value? What are the promising areas in which each of them wishes to invest? These questions have to be answered from the outset.

Secondly, we must fully exploit the existing framework, especially the new economic governance tools, such as the 'European semester' of coordination, and the national reform programmes, in order to help each country to develop the sectors in which it considers itself to be competitive.

We must also make better use of the other policies, especially cohesion policy. By reducing the gaps in our competitiveness, we shall increase our social and territorial cohesion. If we count the European funding and the national co-financing, we are talking about an average of 65 billion euros of investment per year. In many Member States, especially those that joined the EU in 2004, that means more than half of all public investment!

Since the start of the crisis, 17 billion euros of this funding have been redirected towards sectors such as research and innovation, SMEs and labour market policies for the most vulnerable people. We must maintain our efforts and use the Structural Funds to consolidate comparative advantages, especially by investing in infrastructure and by training workers for the sectors that are considered to be the most promising.

Lastly, if economic governance is to be effective and is to reduce gaps in competitiveness, it must be based on the solid foundation of an effective single market. We need to deepen our internal market. Concrete proposals have been made in the "Single Market Act". On the invitation of the European Council, we are preparing new ones.

I am referring, in particular, to the need to develop a genuine digital single market, and to our E‑commerce Action Plan of 11 January 2012. We also need to improve occupational mobility between the Member States by improving the recognition of professional qualifications, especially by establishing a European professional card.

Ladies and Gentlemen,

The deepening of our internal market, the mobility of workers and, above all, the introduction of genuine European economic governance, should make it possible for us to reduce the gaps in competitiveness between our countries.

But we must also tackle the shared problem of our competitiveness in relation to the rest of the world. It will be hard for us to adjust our costs in order to compete with countries such as China or India. But we can remain, or become once again, an area of production if we focus on innovation.

If Europe is to be strong in the world, we need to develop a long-term competitiveness strategy.

In certain countries of Europe, fortunately not all of them – and especially not Germany – industry is declining, not just traditional industries such as textiles and steel, but also, increasingly, the high-tech sectors.

For example, whereas the telecommunications industry was still dominated by European and US firms ten years ago, only four of the eight main Western firms of ten years ago still exist1. Over the same period, two Chinese firms, Huawei and ZTE, have become global champions.

This does not have to be the case! If we wish to continue to be a major player with a seat at the top table where decisions are taken, we need a common vision and strategy for our position in the new world that is emerging. This strategy then needs to inform all our policies, at national and Community level. This strategy must take the form of a modern industrial policy for Europe. If we don't do this, Europe's destiny will be decided on Wall Street or in Beijing. And we will be condemned to become subcontractors or consumers of products produced by others.

Let us not forget that Europe was created out of an industrial policy! By proposing the pooling of coal and steel, Jean Monnet and Robert Schuman had an intuition that these common industries would make another war impossible. But also that they would create an unbreakable bond between Europeans. And that the common interest in being together would make people want to be together.

A few years later, we found the will to create a common food and agriculture policy which today generates more jobs than the automobile sector.

60 years after the beginnings of European integration, I think that the time has come to think about new common investments, which should be targeted at the new information technologies, biotechnologies, transport and clean energy.

In order to do so, we have identified, under the leadership of Antonio Tajani, key enabling technologies (KETs), such as nanotechnologies, micro- and nano-electronics, advanced materials or industrial biotechnology.

These technologies are known as 'systemic' because they can be used to develop new goods and services. For example, in order to produce electric cars, it is necessary to invest in advanced materials for batteries, photonics for low-energy lighting or industrial biotechnologies to reduce tyre resistance.

How can we promote these technologies?

In my view, we need to tackle the issue in four ways at the same time:

First of all, we need to create the right conditions for innovation. In 2009, 135,000 patents were submitted to the European Patents Office, compared with 161,000 in Korea, 315,000 in China, 348,000 in Japan and 459,000 in the United States. We need to promote innovation in Europe! I referred earlier to our proposal for a European passport and our determination to create a European framework for venture capital, which will make it possible to direct resources towards innovative SMEs. I also hope that we shall reach final agreement in the next few weeks on the single European patent.

We also need to invest resolutely in research. It is not inevitable that young researchers who have qualified at European universities will leave Europe. We must tackle this problem by giving our universities the resources they need and, in certain cases, greater autonomy.

Thirdly, we must give our firms the resources they need in order to invest in research and development and in the development of prototypes:

  • We can do this by borrowing, which is legitimate provided that it is targeted at sectors that improve our competitiveness and that directly benefit future generations. This is the logic behind project bonds.

  • We can also do this by targeted public funding in areas that are identified as being of strategic importance. In the outside world, the United States, China and Korea invest heavily in order to support certain of their strategic sectors, and even go as far as to grant subsidies to European firms to set up production plants on their territory.

As already initiated by Joaquin Almunia, we must adapt our rules on State aid so that they continue to play their role of ensuring fairness between Member States, while making it possible to conduct strong policies for providing State support to underpin the guidelines that we adopt together. For example, by raising the notification thresholds, speeding up procedures and making more frequent use of the derogations that can be applied to aid designed to promote major projects in the common European interest.

Lastly, in the area of trade policy, we must show openness but must not be naive. We cannot accept the fact that the EU is one of the most open trading areas in the world while our firms have difficulty entering other countries' markets. We are open, in our own interests, but we are not naïve.

That is why my colleague Karel de Gucht and I proposed, on 21 March 2012, a regulation which makes it possible to impose reciprocity in public procurement on any countries that do not already practise this principle.

Ladies and Gentlemen,

All the points that I have mentioned should make it possible for us to build a strong Europe that can compete economically with tomorrow's giant powers.

However — and I shall conclude on this point — this strong Europe that we need cannot be restricted to the economic sphere. European leaders and the European Parliament must now have the courage and the boldness required to integrate the economic, industrial and budgetary progress achieved in the perspective of a political union, just as Angela Merkel has suggested. This will require, first of all, a shared vision between European leaders, and especially, but not exclusively, between the leaders of Germany and France.

But a strong Europe will also, and above all, need more input from citizens, who often see Europe as a democracy "out there", far removed from their concerns. It is up to us to bring this democracy back to earth and to make it relevant to people's lives.

In order to achieve this, we need more grassroots democracy, especially through greater involvement of regional and local authorities in European decision-making and through the proper functioning of the new European Citizens’ initiative, which since 1 April 2012 has allowed citizens to submit a legislative proposal to the Commission if it has the support of one million citizens. But we must bring this grassroots democracy alive through debate, especially using the new mass interactive communication tools offered by the Internet.

And we shall also need more democracy at the top, which will eventually take the form of a president of the European Union who is both president of the European Council and president of the Commission.

This is how we shall build a Europe that is strong in economic and political terms. And it is how we shall show those voters who are tempted to vote for populist and anti-European parties that a retreat behind national borders would lead us nowhere and that is through Europe alone that we can continue to defend our positions and values in tomorrow's world.

Thank you.

1 :

Point made by Olivier Coste in his article 'Industrie des télécoms : l'inquiétant déclin de l'Europe' (Worrying decline of Europe in the telecommunications industry), published in the newspaper Les Echos on 17 January 2012.

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