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Vice-President of the European Commission and member of the Commission responsible for Economic and Monetary Affairs and the Euro
Speech: Ten Years on, where is the Euro headed? The economic and political future of the European Union
European Economic and Social Committee public hearing/Brussels
19 February 2013
Ladies and Gentlemen,
Thank you for this opportunity to return to the European Economic and Social Committee to discuss the future of the euro and the future of Europe. I believe that Europe's success can only be built on a foundation of solidarity among our citizens, where the role of our social partners is crucial.
In the political debate dominated by federalists and rejectionists, my kind of Third Way may not always be the most popular road, but in the end, it does help Europe move forward. So I am glad that you are willing to listen to the "last functionalist" in Europe and to what I have to say about the future of our European Project.
The euro is one of the greatest accomplishments of European integration. It has a very tangible impact on the lives of Europeans, something that was summarised by Romano Prodi, when he said: "The euro is your money, it is our money. It's our future. It is a piece of Europe in our hands."
However, few great achievements are flawless. The first years of the euro concealed underlying weaknesses and shortcomings that were exposed as the financial crisis hit and evolved. Addressing these weaknesses and shortcomings has required considerable effort and political will by the leaders and peoples of the eurozone.
Thanks to that effort and will, Europe has in recent years taken significant and far-reaching steps to overcome the financial and debt crisis. The framework of economic governance has been substantially strengthened through the European Semester and the six-pack which facilitates more effective policy coordination.
The European Stability Mechanism has been created to support Member States under severe market pressure. The European Central Bank has taken important measures through the SMP and OMT programmes as well as the long-term refinancing operations. The regulation of financial markets has been improved and we are moving towards a European Banking Union through the creation of the Single Supervisory Mechanism, which we will soon complement with a proposal for a Common Resolution Mechanism.
Many of these achievements were unthinkable before the crisis. When looking to the future, we must not tie ourselves to the past and only think of what is possible and what is not. Instead, we should focus on what the long-term perspective of the euro ought to be, and what concrete steps should be taken to help us get there.
What is our goal, then? We cannot and must not limit the debate on the future of Europe only to institutional issues – no matter how important they are – but at least equally important is to focus on the competitiveness of our industry, saving our industrial base and on the foundation of sustainable growth and job creation. I want to see a competitive and inclusive economy that enables us to achieve sustainable growth and job creation, while maintaining our social model and ensuring a sustained rise in welfare.
But we face three main challenges. First, we need to find a solution to the challenge of sustainable growth. Second, we need to continue with ongoing efforts to meet the challenge of fiscal sustainability. Third, we have to meet the challenge of rebuilding the Economic and Monetary Union.
The first challenge, sustainable growth, calls for us to reverse the trend of European losses in global competitiveness. We need to ask ourselves: what more can we do to create jobs? What more can we do to improve productivity?
Most of all, Europe needs more entrepreneurs. And especially, we need businesses that are hungry and able to grow. This implies tackling bottlenecks to growth by creating a flourishing entrepreneur-friendly business environment with better access to finance and leaner and more efficient business administration.
We need to keep focus on boosting productive investment - both public and private. At a time when the financial sector is still not functioning as it should, public banks such as the European Investment Bank have an important role to play. The increase in the EIB's capital agreed last year is a very concrete example of this.
At the same time, we must not forget that private investment is the prime driver of growth and jobs. To unblock private investment, we must complete the repair of the financial sector to restore the flow of credit to households and business. It is not about "bailing out bankers". It is about growth and jobs. Public and private investments are not contradictory, both are crucial in order to restore growth.
We must also look beyond our borders for growth, by embracing a forward-looking and proactive trade policy. In Europe, about 30 million jobs, or more than 10 % of the total workforce, depend on sales to the rest of the world. The decision last week by the US and the EU to initiate procedures to launch negotiations on a ground-breaking, comprehensive and deep free trade agreement – the Transatlantic Trade and Investment Partnership – is of enormous importance in this respect.
Successfully facing the sustainable growth challenge is critical if we are to raise living standards and service the debts that we hand down to future generations, as well to safeguard social cohesion within and between countries. With the future in mind, growth must indeed be sustainable, not only in economic terms but also in terms of the impact on the environment and climate. Green growth has great potential both in environmental and economic terms and therefore needs to remain a top priority.
The second challenge, fiscal sustainability, requires staying the course of reform and growth-friendly fiscal consolidation. Public debt in the EU has risen from around 60% of GDP before the crisis to around 90% of GDP now. On the basis of extensive economic research, we know that when public debt rises above 90% it tends to have a negative impact on economic dynamism, which translates into low growth for many years.
Nevertheless, public finances in the EU are gradually improving thanks to, on the one hand, enhanced EU governance tools, and on the other hand, determined effort by governments. This is mirrored by an increase in markets' confidence in the actions being taken by EU governments. Deficits halved between 2010 and 2012, coming down from above 6% to just above 3% of GDP, and we expect a further fall to well below 3% this year.
The situation does, however, vary substantially among Member States, which is why we apply a differentiated approach to consolidation, taking into account the specific challenges of each and every Member State when determining the structural fiscal adjustment effort needed. If growth deteriorates in an unexpected manner, a country may receive extra time to correct its excessive deficit, provided it has delivered the agreed structural fiscal effort and does the necessary structural reforms to underpin medium-term stability and growth.
Finally, our third challenge is rebuilding the Economic and Monetary Union. At the end of last year, the Commission presented a blueprint setting out its vision for a deep and genuine EMU.
In setting out a roadmap with actions necessary in the short-, medium- and long term to bring about a genuine EMU, the blueprint balances both increased responsibility and increased solidarity within the eurozone.
For the short term (6 to 18 months), we foresee several concrete proposals within the current Treaties, starting with the banking union. The agreement on the Single Supervisory Mechanism reached in December was an important step. But we must limit taxpayers' exposure to the banking system. Thus developing a European Resolution Mechanism is a key priority for this year. A resolution fund should build on contributions from the financial industry itself.
In the medium-term (18 months to 5 years), we could envisage further integration involving Treaty changes. Our guiding principle is that any steps towards increased solidarity and mutualisation of risk would have to be combined with increased responsibility; that is, with further sharing of budgetary sovereignty and deeper integration of decision-making.
But a deal on the so-called “Two-Pack” reform to further reinforce economic governance remains a necessary condition for any real progress toward an EMU 2.0. That's why I am glad that we have in recent days seen serious progress within the European Parliament towards an agreement on the matter. I look forward to continue building on this agreement. This is a test of Europe's credibility on our road towards a stability union of both responsibility and solidarity.
Ladies and Gentlemen,
Let me conclude: To deliver the sustainable growth we need to maintain our social model, our productive economy must adapt. It must adapt so that it can face the challenges of long-term factors like population ageing and climate change. And it must adapt in a way that respects the key tenets of our cherished economic and social model, with its essential combination of entrepreneurial drive and social justice.
I am very much looking forward to hearing your views about the role of social partners in this time of such profound economic change – and about how the Commission can better support this essential partnership.