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European Commission

Michel BARNIER

Member of the European Commission responsible for the Internal Market and Services

Financial regulation, growth, competitiveness, integration: Europe at a crossroads

18th International Economic Forum of the Americas

Montreal, 11 June 2012

Ladies and gentlemen,

I would like to begin by thanking the International Economic Forum of the Americas and the organisers of the Montreal Conference.

Thanks also to the Autorité des marchés financiers (AMF), which is co-organising this inaugural session.

I had the pleasure of attending the Montreal Conference last year, where I outlined Europe's response to the crisis.

So where are we one year on? Three developments should be highlighted.

I –Europe has been faced with new challenges which it has met head on.

1. For the last year, Europe has been faced with a major new challenge.

While other parts of the world were moving steadily towards recovery, in the summer of 2011 the euro zone was hit by the sovereign debt crisis.

This latest crisis is related to the previous crises (financial, then economic and social), which required significant recovery plans from European governments.

But the debt crisis was also caused by endogenous factors. In several countries it is the result of years of budget deficits, thus essentially shifting the cost of our current way of life onto future generations. And our collective vigilance has not been sufficient to counter this.

In addition, our internal governance mechanisms have been unable to prevent the accumulation of economic imbalances.

All European countries are facing these challenges, even if some are more affected than others. I am of course referring to Greece, to countries which receive international aid, such as Ireland or Portugal, and also to Spain, which is facing a serious crisis in its property sector and in relation to some of its banks.

These doubts about the EU's ability to overcome the crisis, in Greece and elsewhere, have led to gloomier prospects: growth in the euro zone is expected to be only 0.9% in 2013, compared to 2.6% here in Canada.

Those are the facts.

2. Faced with this challenge, and contrary to what I sometimes read, the EU has not stood idly by.

We have taken the necessary urgent decisions. For example by showing our solidarity with Greece. The two successive rescue packages which we adopted are for a total of 240 billion euros, and the private sector has also provided almost 100 billion euros.

It is now up to the Greek people to decide their fate at the elections on 17 June. Never before has so much been asked of Greece, but I firmly believe that by choosing Europe it will get back on its feet.

The programmes under way in Portugal and Ireland are starting to yield results.

In addition, all European countries have made valiant efforts to reduce their deficits – across the EU, deficits have been declining for two years and are expected to fall from 4.5% in 2011 to 3.5% of GDP in 2012 – and undertake structural reforms.

Ladies and gentlemen,

II – In addition to these emergency measures, we have also continued our core work to make the financial sector more robust and help it serve the real economy.

1. We are on course: all of the joint commitments made at G20 level have now been the subject of proposals by the European Commission.

For example, last Wednesday I proposed a European framework for the prevention and management of banking crises, which should in future help ensure that taxpayers are not called upon again to rescue banks that are considered too big to fail. I would remind you that, between 2008 and 2011, the aid and guarantees awarded to banks by European countries came to a total of 4 500 billion euros.

In concrete terms, our proposal highlights the importance of preparation and prevention, requiring banks and authorities to draw up plans for recovery and for banking crisis resolution.

We also want to allow the authorities to take early action, as soon as a bank circumvents capital requirements, for example by changing the management or implementing recovery plans.

Finally, in cases where a bank's financial health can no longer be restored, we will provide the authorities with a "toolbox" comprising the sale of the bank to a viable competitor, the separation of good and bad assets, and the recapitalisation of the bank by writing down its debt ("bail-in" mechanism). In this case it will be the bank's creditors and shareholders who have to pick up the bill, rather than the taxpayers.

2. This European framework for the prevention and management of banking crises is an integral part of the proposed ‘banking union’, on which we started work two and a half years ago.

The aim is simple: to increase financial integration in the European Union with a view to strengthening the safeguards and the guarantee enjoyed by the people of Europe. In practice this involves several instruments:

  • more integrated European supervision. We began to develop this with the three European supervisory authorities, which have been operational since 1 January 2011;

  • common rules for all European banks. The idea is not to refuse to take national characteristics into account but to ensure that there is a core of common rules and that flexibility is used within a coordinated European framework;

  • and a European system for protecting depositors: national deposit guarantee schemes (up to 100 000 euros) already exist in all Member States. We need to pool these systems and form a network in order to strengthen the guarantees offered to all Europeans.

We are not starting from scratch in creating this banking union, but we do need to go further, for example by means of much more integrated supervision of banking institutions at European level and by pooling resolution funds at European level.

III – Our further financial integration efforts must be backed up by an effective European economic strategy.

1. We now have tools that are essential in shaping this joint strategy.

In budget terms, alongside ongoing consolidation efforts, on 30 January 25 European countries agreed to a new ‘fiscal compact’ which will involve very strict budget deficit rules. Specifically, Member States will be required to ensure that national budgets are in balance, failing which automatic correction mechanisms will be triggered.

This fiscal compact will be supported by a European Stabilisation Mechanism, which will be able to assist Member States in difficulty and will come into effect in July 2012.

The Member States have also agreed to very close coordination of their national economic policies, via the ‘European Semester’, which involves a detailed analysis of each Member State's imbalances by the European Commission and targeted recommendations for each country. These recommendations, which were published ten days ago, are not ideological: they are based on observations of the reality at national level. Nor are they merely indicative: once adopted by the Council, Member States will have to comply with them.

2. We now have to put these tools to use towards a joint strategy.

a) In the short term, we are in the process of putting in place a balanced policy mix comprising three components:

  • budgetary consolidation, which I have already discussed.

  • Structural reforms at national level, with for example labour market reforms in several countries, and also at European level, thanks to modernisation of our internal market. The Single Market Act, adopted by the Commission in April 2011, sets out around 50 proposals to make life easier for our 500 million consumers and 23 million companies. Examples include simplification of the public procurement rules, especially for SMEs, and the creation of the unitary European patent, which would lead to a seven-fold reduction in the cost of protecting innovation in Europe. All of these measures should enter into force by the end of 2012. And we are already working on new measures for the autumn.

  • The third component is: activation of drivers for growth. There is an emerging consensus on increasing the financial capacity of the European Investment Bank, which lent 61 billion euros and supported 120 000 SMEs in 2011. We have also just launched the pilot phase of the project bond initiative with a view to financing transport, energy and telecommunications infrastructure. For 2012 and 2013, we will raise 230 million euros, which, thanks to the leverage of the EIB and the private sector, should allow up to 4.6 billion euros to be invested.

b) In the medium term, we need to create an effective competitiveness strategy for Europe.

If we want to counter the decline of industry, we need a European industrial strategy and a European vision.

Sixty years after the beginnings of European integration, which started with the pooling of coal and steel, it is time to think about new common investments, which should be targeted this time at information technologies, biotechnologies, transport and clean energy.

To this end we need to create the right conditions for innovation. I have already mentioned the unitary European patent. In December 2011 I also proposed the creation of a European framework for venture capital funds which invest in innovative SMEs.

We also need to invest resolutely in research. It is not inevitable that young researchers who have qualified at European universities will leave Europe.

And we need to give our firms the resources they need in order to invest in the development of prototypes, if necessary by means of targeted assistance.

Ladies and gentlemen,

Europe is at a crossroads. If we want to avoid the temptation of populism and disintegration, we have no choice but to move increasingly towards common goals, policies and rules.

In some ways this is an opportunity for Europe, as the crisis is forcing it towards greater integration. But it is also an opportunity for the world.

Our partners around the world have a strong interest in a return to economic and financial stability in Europe, which would call for – and I mention this only in passing – prompt and comprehensive implementation of the G20 commitments, particularly on both sides of the Atlantic.

Europe, too, needs to be a strong trading partner, with relationships built on confidence and reciprocity.

It also needs to be assertive in the diplomatic and military fields, and play a full role in the multipolar world of tomorrow.

It is this new Europe which we must continue to build, step by step, to bring sustainable growth back to our continent and to be able to continue to defend our values and interests in the international arena.

Thank you.


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