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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 Speaking Points at the European Semester Press Conference
European Semester Press Conference, Brussels
29 May 2013
Good afternoon. Following what President Barroso just said, it's clear that we must do whatever it takes to overcome the unemployment crisis and return to recovery and growth in Europe. That’s why we are working for two goals in parallel which are reflected in these CSRs: sustainable growth and job creation, and for the gradual consolidation of public finances.
This sets the scene for these Recommendations. The necessary rebalancing of the economy is underway after the accumulation of large and unsustainable economic imbalances over the previous decade. It is essential that this process of rebalancing and reform is pursued with determination in all Member States: those with current account deficits and those with current account surpluses. Our recommendations to Germany today include sustaining the conditions that enable wage growth to support domestic demand. This requires, among other steps, reducing high taxes and social security contributions, especially for low wage earners in Germany.
Staying the course of fiscal consolidation and structural reforms remains necessary in Europe in view of the high levels of public and private debt. The Stability and Growth Pact has proven that it functions as it should, when its rules are followed. It allows the pace of consolidation to be gradually adjusted once there is enough credibility and thus enough confidence in fiscal policy. This has allowed the pace of consolidation to be halved compared to last year, and it to some extent, slow down further.
The rules allow that deadlines can be extended when the structural consolidation effort has been delivered, but when the nominal target could not be reached because of the economic cycle because of weakening of economic growth in some countries. Such extensions were already granted last year to Greece, Spain and Portugal. The Pact therefore is far from being stupid.
In this European Semester we have more explicitly coupled the recommendations on structural reforms with decisions on fiscal consolidation. In particular, all Member States for which we recommend the extension of the correction deadline should use the breathing space thus created to implement the structural reforms to facilitate the on-going adjustment and strengthen the foundation for growth and job creation.
In line with the rules of the Pact, the Commission recommends that Hungary, Italy, Latvia, Lithuania and Romania can exit the excessive deficit procedure, or EDP. But, unfortunately, we also have to recommend the opening of an EDP for Malta, only half a year after its previous EDP was closed.
As a consequence there are likely to be 16 Member States in EDP after this round (which bring the number down from 24 as recently as 2011). So from 24 to 16 in these two years.
For Belgium, the Netherlands and Portugal, we are recommending the extension of the correction deadline by one year. And for France, Poland, Slovenia and Spain we are recommending the extension of the correction deadline by two years.
Let me now say a few words on certain country-specific cases. I will not go into detail or you will miss your deadlines. I will focus on relevant countries in this exercise.
Italy has carried out a large structural adjustment over the past two years. Looking forward, the new government is reversing some of the measures, but has put in place safeguards to make sure that the deficit remains indeed below 3%. This allows us to propose the exit or abrogation of the EDP. Continuing with structural reforms will be the key to recovery in Italy, and paying back commercial debt arrears as the government has agreed with the Commission, should provide the economy with liquidity and assist economic recovery.
For France, we propose a two-year extension to 2015 so form this year 2013 to 2015. The recommended structural fiscal adjustment over 2014 and 2015 is in slightly lower than that being made this year. In return, it is very important that France use this additional time to tackle its underlying problems of economic competitiveness.
As outlined in the CSR, France should further reduce the cost of labour, especially through reducing social security contributions. The business environment and the innovation and export capacity of firms, in particular SMEs and mid-tier companies, need to be significantly improved. There is room to increase competition, particularly in the regulated professions, the retail sector and network industries. The functioning of the labour market can also be made more conducive to growth and job creation. The measures to reform the pension system should be specified by the end of this year, to bring the system durably into balance by 2020.
Turning to Spain, the country has carried out a wave of reforms over the last year, but the debt overhang after the bursting of the bubble and the need for reallocating capital and labour remains a matter of concern. We have been in close contact with Spain on how to address the imbalances we highlighted in April. Now Spain has put forward a convincing National Reform Programme. Our CSRs focus on supporting its timely and rigorous implementation. At the same time, given the economic situation, we are recommending two more years, until 2016, to bring public finances under control.
Slovenia is now decisively addressing the excessive imbalances identified in the in-depth review in April. Slovenia has been able to pre-fund its financing needs in the markets for a certain time. It needs to seize this opportunity to move ahead swiftly with reforms. Indeed, the pace of reforms has been stepped up substantially since April. Committing further to sound public finances, Slovenia has introduced a constitutional balanced budget rule and reformed its constitution in order to restrict recourse to referendums on fiscal policy. The government has taken measures to improve cost-competitiveness and started a determined clean-up of the banking sector. Once fully implemented, the reform strategy spelled out in the NRP and in the letter I received from Minister Çufer should lead to a sustainable correction of imbalances and to an improvement in market sentiment. This should help to end the recession in Slovenia, and as such it is justified to grant Slovenia two additional years to correct its excessive deficit.
Finally, we propose granting an extra year to Belgium in order to correct its excessive deficit. While the present government has stayed the consolidation course, the average structural fiscal effort made over the last three years (namely 2010, 2011 and 2012) has fallen short of the Council recommendation. We had no other choice but to conclude that that Belgium did not take sufficient action to correct its deficit by the deadline of 2012, since it missed both the nominal target and I have to underline, on average, the required structural effort.
In 2012, last year, Belgium did achieve the required structural effort. You might say it was an interim time but Belgium scored in this time. However, there was not enough structural fiscal effort in the years 2010-11 when there was no politically mandated government in this country. As the six-pack legislation of reinforced economic governance entered into force only in mid-December 2011, imposing a fine for the years 2010 or 2011 could go against the principle of non-retroactivity which is essential in European law. In my view therefore, it would be neither fair nor legally sound to apply it retroactively to those years.
Now, looking to the present and the future, we expect Belgium to deliver the budgetary consolidation in structural terms of 1% of GDP this year (2013) and 0.75% of GDP in 2014, leading towards a balanced budget, to which Belgium has committed and communicated to me yesterday by Prime Minister Di Rupo and Finance Minister Geens. We are also calling for a binding fiscal framework between the different levels of government in Belgium and between several reforms to boost Belgium's competitiveness, including on wage-setting mechanism. For these reasons and especially as the present and future policies of Belgium should ensure the sustainability of public finances, I see no case for financial sanctions at this point.
Let me conclude.
Europe is undergoing a profound economic readjustment after the large misallocations of capital in the years before the crisis.
The macroeconomic policies are in place to facilitate economic recovery: Monetary policy remains accommodative, fiscal consolidation has already brought deficits downward, and today the Commission has set out a detailed structural reform agenda for the next 6 to 18 months.
It is indeed now of paramount importance that the breathing room created by the slower pace of consolidation is used by Member States for implementing those structural reforms needed to unleash our growth potential and capacity to create jobs. Such reforms will help debt reduction as well.
This year, our recommendations on structural reforms are more comprehensive, more concrete and more precise than ever before. This reflects the experience – and I dare to say a better collective understanding, of the growth bottlenecks in various countries – accrued over three years of our improved economic governance. Tomorrow the Two-Pack enters into force, which is a further step to better economic policy coordination.
If our recommendations are followed, the prospects for a sustainable economic recovery in 2014 will improve significantly.