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European Commission

José Manuel Durão Barroso

President of the European Commission

Speech by President Barroso "Europe as Solution: Facts and Myths"

Ambassador's seminar/Lisbon

3 January 2013

Minister for Foreign Affairs, State Secretaries,

Secretary-General, President of the Champalimaud Foundation,

Ambassadors, Heads of Mission,

Dear friends,

It is a great pleasure for me to be associated with this initiative of the Ministry of Foreign Affairs where, as the Minister for Foreign Affairs has said, I too spent a part of my life which I consider an important part of my political and public career, where I still have many friends and where I had the privilege to witness the great quality, professionalism and patriotism of Portuguese diplomatic officials.

I am also especially pleased to participate in the Diplomatic Seminar, an event which, as Minister for Foreign Affairs, I launched exactly 20 years ago, in 1993. I therefore wish to thank the Minister for the invitation which enables me to mark this occasion with you.

Twenty years is a considerable period in our lifetimes but barely a fraction of a second in the history of the world or of a nation as ancient as Portugal.

These two decades were not just any 20 years, however. In that time we saw the turn of a century and profound transformations in Europe and in the world.

Twenty years ago Portugal had just successfully taken on its first Presidency of the Council of the European Community. The country was growing economically and socially (4.6% a year in the first five months after joining the EEC) thanks to the opening up of the Portuguese economy, but also thanks to the First Community Support Framework. In Europe, the Single European Market was born and the Maastricht Treaty came into force, creating the European Union. In the world, George Bush and Boris Yeltsin signed the second Strategic Arms Reduction Treaty (START II) and Yitzhak Rabin and Yasser Arafat concluded the Oslo Peace Accords.

How remote these events now seem! One might say, 'The past is a foreign country' (L.P. Hartley).

Nowadays, history no longer moves at the leisurely rate of the days when news from the world came by diplomatic telegram and the CIFRA operator set the pace.

History has sped up, and that acceleration has brought profound changes to the world.

In the twentieth century, economic output multiplied 40-fold and the world's population quadrupled. It took many thousands of years, from prehistory to 1960, for humanity to number 3 billion. But the 39 years up to 1999 were enough to add the next 3 billion. And then, in only 12 years, our numbers increased from 6 to 7 billion people. The United Kingdom took 155 years to double its per capita GDP; but 50 years were enough for the United States to do the same; China did it in 15.

These examples are a good illustration of the scale and the speed of the changes we are facing and which oblige us to rethink our models and our policies.

The current crisis is just one result of these structural changes in global geo-politics and geo-economics. That is why the responses also need to be structural, and in many cases that implies a paradigm shift. Where the countries of Europe are concerned, such responses also need to be articulated over a broader area than the traditional borders of the nation-state.

That is why I sincerely believe that, in spite of the difficult economic situation we are experiencing, we Europeans and we Portuguese have the means to confidently rise to the challenges of globalisation, because, among other reasons, we have an instrument that is essential to that end in the process of regional integration which is currently coming to fruition in the European Union.

And that is what I want to talk to you about today: the European Union as a solution to the problems which our continent and our country are going through. The need to make this case is all the more pressing at times like the present, when many are seizing on this crisis to call the European project into question and some are even predicting its end.

That is why it is worthwhile beginning by giving the lie to some of the myths in circulation that portray Europe as a problem, and then setting out some facts on Europe as a solution.

Let us look at the myths first:

Myth number 1: Europe and the European Union caused this crisis. Not so. The crisis was born on the far side of the Atlantic, caused by practices in the financial sector that were irresponsible – in some cases even criminal – which in a second stage spread to Europe by virtue of the global nature of the banking and financial system. And what started as a problem of the high-risk subprime sector degenerated into a crisis for the real economy that then exposed the various weaknesses of the banking system and of some European countries' economies and in particular the intolerable excessive indebtedness and their lack of competitiveness.

Myth number 2: Europe is the 'sick man' of the global economy. Not so. If we look at the debt-to-GDP ratio, the European average (of 82.5% in spite of all this crisis) is decidedly better than the United States' (almost 103%) or Japan's (almost 230% of GDP).

Something which fewer may know is that, for the first decade of the twenty-first century, in spite of the redistribution of power and the emergence of extremely competitive new economies, Europe's share of the world market remained stable at 20%, while the USA's and Japan's recorded significant falls, to 13% and 9.5% respectively.

Myth number 3: The euro caused the crisis. Not so. Our currency did not cause the crisis. I remind you, moreover, that the European country in which the financial crisis took on the greatest proportions from the outset was Iceland, which is not even a member of the European Union (although it is currently a candidate for membership). The euro has remained strong and stable and is still a reference currency globally.

The so-called euro crisis should not be confused with what is in fact certain Member States' sovereign debt crisis. The euro is, I repeat, a stable, strong, credible currency.

Myth number 4: The European institutions did not act in time. Not so. There should be no confusion regarding the role of the European Institutions, which is to propose solutions, with the role of the Member States with which the final decision on these very matters lies. So one of the problems that this crisis revealed and which we are now seeking to correct was precisely the lack of powers at European level to correct the imbalances which began to emerge.

Let us remember that banking supervision was conducted at national level and that there were no powers at European level. Let us remember that the mechanisms for applying the Stability and Growth Pact were weak, particularly the preventive part. And, should we wish for a more specific example, let us recall that the Member States did not approve a Commission proposal, made at the very start of my first term of office, to give Eurostat additional powers to investigate and collect data directly, without going through the national statistical bodies, which would for example have permitted us to identify serious irregularities in the Greek accounts.

Myth number 5: Europe has not shown solidarity with the countries in crisis or, in another common variant, 'We need a new Marshall Plan'. Not so. If we take the example of Greece, even excluding the new plan recently approved for the country, the total European and international assistance (including loans, private debt write-offs and funds from the Community budget) amounts to 380 billion euros. That is the equivalent of 177% of Greek GDP, or around 34 000 euros per Greek citizen. The Marshall Plan corresponded to some 2.1% of the GDP of the countries it supported, and was therefore on an entirely different scale to the 177% of Greek GDP.

Myth number 6: The European Union – or membership of the euro – is imposing austerity on the Member States and their citizens. Not so. Policies to reduce public deficits are inevitable and have to be pursued regardless of whether countries are in the euro zone or not, although their rhythm will obviously depend on each country's economic and financial health. Even the countries which do not belong to the euro and are not bound to balance their budgets by the recent Treaty on Stability, Coordination and Governance in the MEU are following similar policies. This is yet further proof that the problem is not specific to the euro. Take the example of the United Kingdom, which recently approved one of the most rigorous budgets in its history. That is what would normally be called a real austerity budget. And, let me say it again, it has nothing to do with either the financial assistance programme or belonging to the euro.

And I could go on. These explanations are needed because it seems to me that there is very often a lack of awareness and poor information: in some cases one might even say that there is a degree of intellectual dishonesty in many of the comments and analyses - more comments than analyses - being made concerning the current situation.

This does not mean that developments at European level have not also revealed shortcomings in the management of the crisis; they most certainly have revealed shortcomings, some of which are serious. On top of the structural imbalances that persisted for far too long – particularly where the deficit is concerned – the financial crisis has laid bare the inadequacies in the design of the economic and monetary union.

It became clear that it was an imperfect construction; that while we had a shared currency, we did not have any truly coordinated economic policies; and that we did not have the necessary tools to deal with situations of financial instability. In other words, we had a ship that was fit for calm waters, but proved far too fragile when the storm came. Fundamentally speaking we had - and still have - a system where the Member States are no longer able to take autonomous action to resolve their problems on their own and where Europe as a whole is still not fully equipped to address the same problems effectively.

This is the state of flux in which we currently find ourselves and which explains many of today’s anxieties.

The response currently being given at European level is intended to make good these shortcomings: we are building a ship with greater capacity and power in the middle of the storm. And I think we can all agree that it is no easy task to build a ship in the middle of a storm.

Therefore, if we wish to return to sustainable growth, I would reiterate what I have stated many times: the solution lies in growth itself. If we wish to return to sustainable growth it is essential that we take action on no fewer than three distinct fronts: in the Member States, by making structural reforms that will enable them to balance their public accounts and increase the competitiveness of their economies; in the eurozone, by taking specific measures that will make it possible to improve the governance, action and effectiveness of the budgetary policies of the various countries; and in the 27/28 Member States, by reinforcing the accountability and solidarity mechanisms, which will include a deepening of the Economic and Monetary Union as well as progress towards a political union, with heightened scrutiny and democratic control of the new functions attributed at European level.

Even though the pace of the decisions is slower and their ambitions lower than the Commission would like – and I would note here that I am the first person in the European Council to point out the urgency of taking action and the need for a greater community spirit, greater ambition and greater solidarity, we must also note that democracies operate at an entirely different rhythm from the markets. Take the recent example of the protracted debates about the fiscal cliff in the USA. It was demonstrated once again that discussions of expenditure and revenue, redistribution and restraint are never easy, even within a single country. This has also become clear from the debates ongoing in some European countries concerning intra-regional solidarity and transfers from and to central governments. It is interesting to note that, in some cases, the ones who call for more solidarity from Brussels are not prepared to practise this same solidarity within their own countries.

Here, as on European level, greater consistency in discussions of specific forms of solidarity would certainly be most beneficial.

But despite a slow start — as it was necessary to consolidate the idea that the solution would only be possible with responsibility and solidarity policies — European determination is beginning to produce results. It is thus important not to devalue what has already been done and the significant steps that have been taken. Financial assistance programmes were approved for three countries: Greece, Ireland and Portugal. And a specific programme was approved for the banking sector in Spain.

An Assistance Fund was created in the shape of the European Stability Mechanism. The financial capability of this fund for intervention in the eurozone is no less than the IMF’s total financial capacity for the entire world (approximately one trillion dollars if we include the funds coming through the EFSF). Significant legislation was adopted to reinforce the powers of the European instances — and of the Commission in particular — when it comes to budgetary control at national level. And the new Treaty reinforcing budgetary discipline came into force two days ago. The foundations are being laid for the essential banking union which — for some time now — both I personally and the Commission have been calling for. The adoption of the Commission’s proposal for a common supervisor of the eurozone financial system was, in fact, of great importance here. This essential agreement not only enabled us to resolve one of the issues that the “markets” considered most important, but also set a pattern for future decisions with a view to taking concrete action reflecting the need to deepen the integration of the eurozone while maintaining the integrity of a European Union with 27 or 28 Member States.

The European Central Bank announced its programme – Outright Monetary Transactions – providing for unlimited intervention in the secondary sovereign debt market, wherever necessary, under specific conditions. And we are taking steps to deepen the Economic and Monetary Union in line with what is known as the “report of the four Presidents” (the President of the European Council, the President of the European Commission, the President of the Eurogroup and the President of the European Central Bank), an exercise to which the European Commission contributed its own ideas and proposals in greater detail in the “blueprint” adopted in November last year.

And the more vulnerable States are also continuing to roll out their adjustment programmes with some encouraging results, although a few cases still give cause for concern. Greece is now taking decisive action to implement its reforms, and funding for the second programme has now been released. I would emphasise this point because, as you are no doubt aware, the vast majority of analysts and commentators were predicting that Greece would not only default but would leave the euro during 2012. They were wrong, and should at least concede that they were wrong.

In Ireland, long and short-term interest rates are now lower than those of countries that did not require assistance programmes. The Irish economy will show positive growth this year. The unemployment rate remains high, but the country now has a current account surplus.

In Portugal’s case, short- and long-term interest rates on debt have fallen significantly. For instance, long-term interest rates on debt fell from around 20% to below 7%. The current account is gradually becoming balanced (according to figures from the Banco de Portugal and from the INE the country has, for the first time in many years, achieved trade balance). And the reforms and these positive results have been recognised by the outside world, contributing to the country’s credibility at European and global level. For example, in the latest World Bank Doing Business Report, Portugal has risen from 48th to 30th position.

However, it is true that, both in Portugal and in other countries, these results and efforts do not immediately translate into improvements to the daily lives of the man and woman on the street. This year, Europe’s GDP is expected to contract by 0.3%, and for [next] year the European Commission forecasts that it will rise slightly, by 0.4%. As you are aware, it is difficult to make correct predictions during times of great financial instability, but they have been made nonetheless.

Levels of unemployment will, unfortunately, remain high. It was inevitable that consolidation measures would result in the economy contracting. Adjustment programmes have a recessionary effect in the short term but create the conditions for more solid, sustainable growth in the medium and long term. Not artificial growth, like that we experienced for a long time, stimulated by the issue of public debt and easy credit, but growth rooted in a solid foundation. Growth in the framework of a more competitive economy. And regaining confidence is truly essential. Without it, there can be no possibility of investment, and without investment growth will be no more than a mirage.

It is true that this situation manifests very differently from one Member State to another. And in some, such as Portugal, we must call it as we see it: there is a genuine social emergency. It is therefore vital that we manage the costs of the economic downturn, in particular its impact on people, in a sociably responsible manner. Because this, as well as the social imperatives, is also important for the success and acceptability of any adjustment programme. We must invest selectively in a range of sectors of the economy, shoulder the burden equally, and adopt a policy to combat the scourge of unemployment — all of which are also European priorities. The European Commission is of course willing to analyse the completion of programmes and to make the adjustments and fine-tuning necessary to minimise social costs. I would recall here that the country has already been given an additional year to achieve its deficit-reduction objectives, thereby slowing the pace of adjustment for 2012 and 2013.

There is also an additional key political issue. For adjustment programmes to be successful, they require sustainable political and social conditions and, in turn, prudence is needed in political decision-making and in the way that those decisions are communicated. Such prudence can and must go hand in hand with determination.

Where necessary, compromises must be made and consensus must be sought at all times – either between the main institutions and the politicians or among the social partners. I repeat, the key conditions for ultimate success are political and social conditions.

Such an approach is of paramount importance if the programmes are to be successful, along with speedy implementation. The 'front loading' of adjustment offers a greater chance of success than delayed implementation.

Let us take Greece, for example, which is heading into its sixth year of recession. The problems were caused by the programme's implementation, which was tentative, piecemeal or, sometimes, non-existent. For example, in terms of structural reforms and privatisation there was no implementation at the start of the programme, the Greek authorities focused solely on the budgetary side. In addition we were faced with a long-standing political crisis, the threat of a referendum on the euro, two general elections and highly unstable coalitions. It is only with the current government, in place since the summer, that Greece is starting to regain the partners' trust.

On a broader European level, our objective is to reform the social market economy in order more effectively to protect it and to meet the demands of a new, far more competitive, world. There are those who say that the European social model is dead. This is not our opinion. This is not my opinion.

I feel we must do all we can to maintain our social market economy whilst acknowledging that, in a much more competitive context, reforms are required if we want to maintain the 'social State', a vital component, especially at a time of great social tension. I also feel that the reforms and the shouldering of responsibility that we have seen at national level must be mirrored by greater solidarity at European level. Responsibility and solidarity are two sides of the same coin. This is what I have been fighting for at European level: for a project of reform and solidarity. This is the European Commission's policy, a policy of solidarity.

This solidarity must be reflected in aid programmes for countries in difficulty; it must also, in a financial framework, foster greater investment in the areas of the future such as science, education and research (at this point, I would make special mention of the fact that this is my first time in this magnificent auditorium of the Champalimaud Foundation, a Portuguese science and research institute that has garnered well-deserved European and worldwide recognition in a short space of time) and investment in social and territorial cohesion as one of the cornerstones of our Union. It must be solidarity that underpins the programmes launched by the Commission such as the European Globalisation Adjustment Fund (which I had the honour of launching), which helps workers who have been made redundant find new jobs, the Food Aid Programme for the most disadvantaged, which has been a major source of support for national food banks – unfortunately under threat from some governments – and the 'Youth Guarantee', which will seek to ensure that all young people up to the age of 25 are offered jobs, or the opportunity for further study, apprenticeships or work placements within four months of completing their education or becoming unemployed, partly financed by the European Social Fund.

It is true that there are times when I do not see such a commitment on the part of European governments, a vital commitment to this dimension of solidarity and to supporting investment for growth. This was demonstrated in the recent discussion on the future EU multiannual financial framework. We cannot argue in favour of growth and at the same time hinder the chances of such growth with an unambitious budget that actually limits public development. In terms of the powers that have been conferred on the Community, there is in reality an imbalance between control and discipline mechanisms and cohesion and solidarity instruments. These must also be strengthened at European level if Europe itself is to maintain vital support. European leaders cannot be surprised to see a decline in support for the European project if all they are seen to be doing is imposing discipline and inflicting punishment, or if they continue to project the idea that any successes are national and any failures European. Europe – as I have said on countless occasions – means all of us, not just Brussels or Strasbourg.

Ladies and gentlemen, dear friends,

Despite the criticism and despite its shortfalls, Europe has been an anchor of stability and cohesion. And the task of building a closer Europe needs to continue. I say this not just out of a sense of duty or because of my personal beliefs; I am saying it because I am convinced that the European project is the solution to many of the problems facing our societies and countries today. I say this on the basis of analysis of the facts, and observation of trends and realities. Let us move on to the facts and realities of Europe as a solution.

Fact number 1: Interdependence between European Union Member States is very strong. The internal market is one of the biggest assets of each country of the European Union. To give some examples: before the crisis Spain exported to Portugal more than double of what it sold to all Latin American countries together. The United Kingdom exports more to Ireland than to all the BRIC countries. I mention this because sometimes journalists, particularly from outside of Europe, tend to underestimate the level of interdependence in the European Union. This may be the reason for the errors of analysis made by some.

Fact number 2: In a world of giants, size matters. The European Union as a whole has the biggest economy in the world with 26% of global GDP, followed by the US with 23% and China with 9% (although the Chinese economy is growing rapidly). However, if considered separately, Germany as the largest European economy merely comes in fourth place. And in 2050, judging by the growth rates in recent years, no single individual European economy will be among the top ten world economies. It seems obvious to me that we must work together as one.

Fact number 3: As power is dispersed between States and regions of the world, it is more necessary than ever to have a European pole in the multipolar international system of the future. This necessity becomes clear when we talk to our partners in Asia, Africa and Latin America who are asking for more, not less, Europe.

Fact number 4: Power is currently shifting not only between States, but also over and above those States. The internationalisation of the financial sector, for example, shows that only supra-national regulation (which for Europe would be through the EU) can restore real decision-making power to European citizens. The key is to exchange formal sovereignty for real influence. Those who believe that democracy can only work at national level have not grasped that we are now in the 21st century. Nor do they realise that national democracies alone do not possess the necessary tools to regulate the international financial system, for example.

Fact number 5: As I mentioned, many of the great challenges of the 21st century are not confined to national level. Climate change, energy security, scarcity of natural resources – all these issues can be tackled more effectively at continental or global level. On the other hand, only the critical mass that the European Union gives each of its Member States can make the difference in multilateral negotiations, whether it be on financial regulation issues in the G20, trade issues in the WTO, or environmental and climate change concerns in the context of UN conferences.

Fact number 6: Other continents are seeking to develop regional integration projects, although without the depth and breadth of the European project. From CELAC and UNASUR in the Americas to ASEAN in South-East Asia, from regional economic African communities to the African Union, the other regions of the world too are forming regional and even continent-wide projects in order to overcome many national limitations.

I could continue to list individual arguments, but it is more important not to lose sight of the fact that the European Union is a project of peace, freedom and democracy. Which makes it an irreplaceable project. This is what the Nobel Committee noted on awarding the 2012 Nobel Peace Prize to the European Union. The 60 years of peace, reunification of the continent and promotion of values such as freedom and democracy which continue to reverberate throughout our southern and eastern neighbourhoods. Despite all of the difficulties, the European Union is still a beacon of freedom and prosperity, whose light shines far beyond our borders.

I would therefore like to take this opportunity to thank Portugal and the Portuguese diplomatic corps for their steadfast commitment to the project of European integration and to the concept of an open Europe of solidarity and responsibility.

Portugal has contributed greatly to Europe and I would like to acknowledge this here publicly in my capacity as President of the European Commission. It is not just with regard to the European project as such, to its essential values; Portugal has also given the EU a greater strategic dimension and depth through its special relationships with Africa and Latin America.

This depth, which is largely due to Portugal's Atlantic dimension, has been institutionalised with support from the European Commission and now also from the European External Action Service in the framework of a strategic partnership with Brazil, a special partnership with Cape Verde and privileged relationships with Angola and Mozambique. I am proud to have contributed personally in this regard and feel that it is important to highlight the major role that the European Commission has played in these actions. The fact that Portuguese citizens are the heads of delegation in some of the main strategic partnerships, for example with the United States, Brazil and India, is testament not only to the high standard of Portuguese officials and diplomats, but also to the role that the country is able to play in building a stronger, more cohesive and ambitious European foreign policy.

I am convinced that the Atlantic corridor – North and South – must maintain a central strategic position in the global power structures of the future and Portugal will certainly have a say in this regard.

Portugal's universal vocation has been reinforced and consolidated with the European project. The European Union, as an open and cosmopolitan project, has specifically broadened its universal nature as attested by Portugal's election to the UN Security Council and the work carried out therein over the last two years.

Ladies and gentlemen,

I would like to conclude by saying that 2012 ended on a positive note for the euro area and, consequently, for the European Union as a whole. I believe it is fair to say that there is no longer a perception of the risk that the euro area will fall apart. Once and for all, and not before time, investors have realised that when European leaders say that they will do everything possible to safeguard the integrity of the euro they mean it. Does this mean that the problems have been overcome and that we can rest on our laurels? No! Far from it. Reforms and adjustment must be pursued with determination, without overlooking the important aspect of social justice.

We must rebalance policies of responsibility with mechanisms and measures of solidarity. It is necessary to have balanced public accounts and to consolidate reforms in order to ensure competitiveness. But in order to attain sustainable economic growth it is also necessary to invest in the sectors that will allow us to rise to the challenge of globalisation.

History belongs to those who advance it with the conviction of the decisions made in the present day and not to those who nostalgically hold on to it, often idealising the past and almost always giving up on the future. I would therefore like to finish by saying that I am counting on Portugal, on its government and on its diplomatic corps to continue to advance European history, the best chapters of which, I am convinced, are yet to be written.

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