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Vice-President of the European Commission and member of the Commission responsible for Economic and Monetary Affairs and the Euro
Press Conference by Vice-President Rehn on the Annual Growth Survey and the Alert Mechanism Report 2013
Press Conference on the AGS and AMR/Brussels
28 November 2012
Today we launch the third European Semester of economic governance. What was just the germ of an idea when this College took office has become a key fixture in the EU's calendar, and an essential tool for more effective policy coordination.
The package we are presenting today is weighty and the procedures are certainly complex. But our message is very simple: sustainable growth and job creation are our absolute priorities.
This week, an important milestone has been reached with the agreement in the Eurogroup on Greece. This is a major step towards ending the uncertainty that has been hanging over Greece for too long.
It is no coincidence that while we are actively pursuing crisis management, we are also taking a long-term view with our proposals for the rebuilding of EMU. Both short-term and long-term measures need to be pursued with the same determination in order to continue to restore confidence, and stimulate investment and growth for our citizens.
I would like to focus on three of the key areas highlighted in our 2013 Annual Growth Survey, before saying a word on the Alert Mechanism Report.
First, we need to complete the repair and reform of the financial sector. This is not about ‘bailing out bankers’: it is about ensuring access to finance for the businesses that make up the real economy, especially SMEs. Improved access to financing for our companies, wherever they are located, is essential to strengthen the foundations of exports and industrial production.
We especially need to boost productive investment, both public and private, to get the wheels of the European economy rolling again. With the financial sector still not functioning as it should, public banks can play an especially important role. That is why the European Council agreed to increase the paid-in capital of the European Investment Bank by €10bn, which will already be reflected in the EIB's lending programme for 2013. This should support total investment in the range of €180 billion over three years in the areas of innovation and skills, SME access to finance, resource efficiency and strategic infrastructure.
The EIB is also at an advanced stage of preparing projects for financing via project bonds, which would allow capital market investors, such as insurance companies and pension funds, to invest long-term in key European infrastructure.
These initiatives would further receive support from the EU budget, which will increasingly be used to mobilise private funding to the EU policy goals, thereby maximising the impact of the EU budget as an engine for growth.
The Commission is also working to improve significantly the regulatory environment for SMEs, by fostering their direct access to venture capital, reducing costs and cutting red tape.
Second, we need to press on with structural reforms. There is indeed a wave of reforms underway in Europe. Since the start of the crisis, many EU member states have taken great strides to clear the long backlog of legal and regulatory obstacles to a more dynamic economy. This momentum must be maintained and where necessary stepped up.
More must be done to improve the business environment, to make it easier for entrepreneurs to start new businesses and grow existing ones. The performance of education systems and overall skills levels needs to be raised, because we need to invest in Europe’s brains if we are to compete on the global scene. And barriers to competition in services and energy need to be decisively addressed.
When it comes to unemployment, we need to take action commensurate to the scale of the problem. Unemployment in the EU now stands at 25 million, and is increasingly long-term in nature. This situation is unacceptable by any measure.
In some of the EU member states where unemployment is highest and where labour markets are most segmented, bold and very significant reforms have been adopted over the past eighteen months. These reforms have been controversial, but they represent important steps towards improving the functioning of labour markets. It is essential that they are effectively implemented and built upon where necessary.
Companies have to feel able to create permanent positions, especially for young people. Those who lose their jobs have to be able to count effective, tailored support services to help them back into employment. Mobility needs to be facilitated, as do flexible working arrangements.
Third, we need to ensure the sustainability of our public finances, with fiscal consolidation carried out in a smart way – preserving investment in areas essential to future growth, such as research and innovation, education and energy.
The reinforced economic governance continues to provide the right framework for bring public finances back to sustainable levels and allows taking into account country-specific circumstances. What is most important is that the structural deficit – which irons out the impact of one-off measures and of the economic cycle – should be kept on a steady downward path. That is why the Commission focuses first and foremost on the structural fiscal effort made when assessing each country’s compliance with its commitments under the Stability and Growth Pact.
Sound public finances are a prerequisite for sustainable growth. Fiscal consolidation can have a negative impact on growth in the short-term, but the impact of running unsustainable deficits over time is far worse: this crisis has provided ample evidence of that.
The Commission will explore further ways within the existing rules of the preventive arm of the Pact to accommodate investment programmes in the assessment of Stability and Convergence Programmes. Specifically, under certain conditions, non-recurrent, public investment programmes with a proven impact on the sustainability of public finances could qualify for a temporary deviation from the medium-term budgetary objective or the adjustment path towards it. This could apply, for example, for government investment projects co-financed with the EU, consistently with the framework of macro-conditionality.
We should be clear that a specific treatment of public investment should only lead to a temporary deviation from adjustment path towards the medium term budgetary objective. In other words, specific provisions for investment projects should not be confused with a so-called 'golden rule' to allow a permanent exception for all public investment. Such an indiscriminate approach could easily put in danger the prime objective of the Pact by undermining the sustainability of government debt.]
I will conclude with a few words on the second Alert Mechanism Report, which is the starting point for the Macroeconomic Imbalance Procedure created with the 'six-pack' legislation last year. The AMR is essentially a screening device identifying those Member States that appear to be experiencing imbalances. It is a pre-emptive tool for macroeconomic stability, which is a necessary condition for sustained growth and job creation.
It is in the second step, the forthcoming in-depth reviews where we will analyse in depth whether the identified issues are benign or problematic. If they are unproblematic, then no further steps are needed – there is no 'presumption of guilt'. The macroeconomic imbalances analysis is a way to deepen our dialogue in economic policy making with the Member States, as a new kind of partnership of providing relevant policy advice.
As was the case last time, all Member States except for the 4 programme countries, Greece, Ireland, Portugal and Romania have been examined.
Many Member States face large deleveraging needs, often linked to the unsustainable build-up of credit-fuelled expenditure before the crisis. Deleveraging implies that previous spending levels cannot no longer be financed, which unfortunately but inevitably reduces domestic demand. The good news is that economic adjustment within the euro area is progressing. The difficult reforms being implemented, mainly in the most vulnerable countries, are starting to bear fruit. The large internal and external imbalances that built up before the crisis are now diminishing.
Today's report lists the 12 countries for which an imbalance under the preventive arm of the MIP was identified in May this year following the in-depth reviews. While there is clearly a correction of internal and external imbalances underway in several countries, we should carefully scrutinise developments before concluding that an imbalance has been resolved.
To this group of 12 countries we have added two additional countries, namely the Netherlands and Malta. Both countries were basically borderline already last year and now we think it is to look at some of the developments more in depth before concluding whether there is an imbalance, and to better illuminate possible recommendations in the European Semester package in May next year.
Finally, as promised in the AMR of February, I can confirm that the Commission will in the coming weeks present a study on the role and nature of current account surpluses in the EU and the euro area. This will further help in understanding the driving forces and requirements behind the ongoing rebalancing.