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European Commission

José Manuel Durão Barroso

President of the European Commission

Closing remarks by President Barroso following the debate on the conclusions of the European Council meeting of 18-19 October 2012

Plenary session of the European Parliament/Strasbourg

23 October 2012

Regarding the assessment of this European Council, some of you have probably noted that in my initial statement I mentioned three European Council Summits and I made it on purpose, because this Summit was important in terms of confirming some early decisions and this was already some progress because the reality is that unfortunately there were some doubts about the commitment of some governments regarding the decisions they have taken themselves before. But in fact the final decisions on some of those most important matters will come later, namely regarding the EMU, in December, and regarding the MFF, hopefully in November. So my assessment of this European Council is that it was certainly a progress in terms of the confirmation of previous decisions, but it was not yet the needed comprehensive response for the current challenges in the euro area and in the European Union and I think this is a fair assessment of the results if this European Council.

Of course, we have to know that we are working on extremely sensitive matters where, to be frank, the initial positions of our Member States are very diverse and where the interest of all the European institutions is to create the right conditions for consensus and operational decisions.

One point where there was some progress was on the Single Supervisory Mechanism. I am also glad that today this debate has shown a broad degree of consensus on the principles set out in the Commission proposals and reflected in the European Council conclusions including, most importantly, that the SSM should cover all banks, that there needs to be openness to have as full as possible participation by non-euro member states who so wish and that the SSM is a key element in improving the European Union's capacity to move forward to restore confidence, to deepen the EMU and to open up the way to decisions on bank recapitalisation by the ESM.

I particularly welcome the determination expressed by the European Parliament, namely by the rapporteur Ms Tyson, to advance the SSM work so that we can reach a quality result by the end of 2012. The Commission will work closely with you to further improve the SSM proposals and open the way for an operational phasing in of the system in 2013, as it has been proposed by the Commission, starting with systemic banks and eventually extending to all banks in the euro area and participating non-euro area Member States.

Another important issue that was mentioned here, I think it was a question of Mr Mauro, was the sense of urgency. I want to tell you that I made clear that point of urgency. The reality once again, if we want to be honest in our assessment, is that not all Member States feel the same degree of urgency which probably is due to the fact they are in different financial and fiscal positions. But I believe it is important for the credibility of our response that this response is of course properly prepared, some of these issues are extremely difficult from a political and technical point of view, but the decisions should be as urgent as possible.

Another issue that was raised was regarding a social pact for Europe. How can we complement some of these decisions with proper consideration of the social dimension? There are some proposals on the social pact which are to a large degree already reflected in the Europe 2020 strategy, which is a strategy for inclusive growth. In fact, during the second European semester the macro economic imbalances procedure has been an integral part of the implementation of this strategy. This has implied a number of new challenges for all of us, notably in terms of ensuring that labour market and social issues are adequately reflected and assessed within this new framework.

This integration results from the fact that economic growth and employment and social aspects are the two sides of the same coin. It is interesting to see the debate. Many people are speaking about having a real Minister for Finance in Europe. We probably should think to have also a real Minister for the Economy in Europe so that we complete the work on financial stability with commitment to growth and sustainable growth and also the economic and social dimension. Employment and social cohesion are not just an outcome of economic growth but are also an important determinant.

The Commission strongly believes that our values of social justice, solidarity and equal opportunities must remain at the heart of the European construction and continue to be understood as prerequisites for our future economic prosperity, for the wellbeing of the European citizens and for European cohesion. They must also underpin European Union's growth agenda.

In the beginning of 2013 the Commission will present social investment for growth and cohesion package that will also address various aspects mentioned under what some of you have mentioned as "social pact". So the message I want to convey to you is: yes, we are doing everything we can with the tools and the instruments available at European level to inject this economic and social dimension in the broader response to the current crisis in the economic situation of the EU.

Now regarding the future responses on mutualisation of debt, you know what our position is, the Commission has stated it and we will address this issue also in the blueprint I have mentioned. One point I want to make clear is that I do not agree with the position of those who say that they are in favour of the content of the Two-pack - they are in favour of more integration of the supervision of the budgetary policy, they are in favour of reinforcing the competence of the Commission in terms of European institutions, the community method in terms of economic governance - but they will not support it, they will not approve it before there are decision on other issues like the redemption fund.

I think it is a mistake. It is a mistake because if you make dependent one very important progress in EU on other issues you know very well that there is not yet agreement between our Member States in fact you are paralysing the progress in the economic governance in the Euro area.

That is a choice for you to make but my strong advice to all the Pro-European forces is to support everything that enable us to put as much as possible under the community method and the European institutions, and certainly this is the case of the Two-pack proposals.

Now other issue that was mentioned to you was the situation regarding some statements made by the IMF. I want to be clear on this aspect as well. The reason why we have this crisis today, differently from what some euro-sceptics suggest, is not because of the Euro area. We have crisis today in the EU economy because of excessive debt created by national governments and because of irresponsible financial behaviour in some sectors including outside of Europe.

So Europe was not the cause of the problem: Europe is indeed the victim of the problem and is now trying to be part of the solution. This is the reality.

It was irresponsible behaviour in terms of excessive debt of public authorities and sometimes completely irresponsible behaviour of some actors in financial sector that created the problem. The proof of this that it is not a problem of the Euro is that for instance, Mr Farage, your own country that in not a member of the Euro is implementing a very difficult austerity package. And the British people are suffering the consequences of past mistakes. It was not Euro that created the problems of Britain.

So it is intellectually, I repeat, it is politically and intellectually dishonest to pretend that the Euro is the cause of our problems. And indeed it is the EU that is part of the solution because some of our Member States without the support of other countries of the Euro area would not have the necessary financing to keep their states running, to keep their social services, to keep their national health systems, to keep their public education. This is the reality.

So Europe is part of the solution and now we have to do everything we can to stabilise the Euro area and to create conditions for growth. But what growth? Sustainable growth! Not the growth from the past. The growth fuelled up by excessive debt is not sustainable. The growth fuelled up by irresponsible private credit is not sustainable as you have seen. We have to come back to the conditions of growth that is sustainable.

This is why the IMF, like the European Commission, like the ECB, is in favour of fiscal consolidation. What the IMF said – and we completely agree – is that the situation are different in some Member States, and so those countries that have the margin to promote growth, in terms of internal demand, they can do it. And in some cases there can be fine-tuning of the objectives. Indeed – I want to make it very clear – it was the European Commission that proposed (and we were supported by the IMF but it was the European Commission that proposed) for Portugal and for Spain one more year to reach the target in terms of the budget consolidation. It was our proposal, not IMF's proposal.

So, first for Spain and then for Portugal, the Commission recommended to the Council the extension by one year of the deadline for the correction of the extensive deficit. Our fiscal rules, the revised Stability and Growth Pact, allow for this when the economic situation turns out to be worse than expected. And the reduction of the deficit in structural terms is taking place, and the extension of the period to correct the nominal deficit can be granted.

This is not automatic. The situation will have to be assessed on a case-by-case basis. This was also the position of madame Lagarde when she said "quand c'est nécessaire et possible", which means in English "when it is needed and possible". And this is exactly the position taken by the institutions that are monitoring the situation in some of our countries. In particular, in the case of countries under financial assistance, namely Greece, Ireland and Portugal, one must assess the consequences of a possible prolongation of the adjustment period on debt sustainability. Prolonging the adjustment period can delay reversing the increase in the government debt ratio and put it on a declining trend. These in turn delay the return of those countries to the market, eventually requiring extra financing, and then the question comes: are the other Euro Area countries – because decisions are taken by the governments at the end; the Commission makes the proposal, but I want to make it clear: decisions are taken at the end by the governments – are the Euro Area countries ready to provide extra financing? This is an important issue. This means that for program countries the possible prolongation of the program is subject to the severe constraint stemming from high levels of debt. And these, in fact, are the views also of the IMF.

Now, one thing is important to note, and people have not paid sufficient attention to it, is that some of those that are now saying that we should be more, let's say, flexible in terms of the fiscal targets, are exactly the same that are proposing hard restructuring of debt; are exactly the same that believe that the Euro Area is too big, that in fact the South of Europe should not be in the Euro Area, that it was a mistake to have those countries in the Euro Area. And this is exactly the point I want to make: we do not agree. We believe we should do everything we can to keep the integrity of the Euro Area, because when you accept more flexibility in terms of the fiscal adjustment, you have to think what are the consequences in terms of the debt sustainability, and how can we keep those countries going to the market as soon as possible so that they can finance their own state.

This is very important to understand. This is why, in fact, I wanted to respond to those direct questions of you, saying that a lot remains to be done, a lot remains to be done, but I believe this European Council was an important moment for discussing in a relatively open manner the difficulties. I am not at all underestimating the difficulties and the challenges ahead. I think we are now coming to a moment where probably – because there is less pressure coming from the markets – the sense of urgency in all of our capitals is not the same. That is why I expect the Parliament, the Commission, as European institutions that keep the agenda very strongly, to understand that without a complete comprehensive response to the Euro Area governance we will not have the necessary conditions of confidence, and confidence is critically important to restore investment and growth and jobs.

This is our final and ultimate goal: growth and jobs – but I repeat: sustainable growth for sustainable jobs.

I thank you for your attention.

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