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European Commission

Olli REHN

Vice-President of the European Commission and member of the Commission responsible for Economic and Monetary Affairs and the Euro

European Semester 2013

Opening Plenary Session Parliamentary Week/Brussels

29 January 2013

Honourable Members of Parliaments, Ladies and Gentlemen

It is a great pleasure for me to address this plenary session of this year's European Parliamentary Week on the European Semester.

This conference, which brings together representatives from national Parliaments and the European Parliament for a debate on economic policy coordination under the European Semester, is a clear and visible step towards the emergence of a more European political space.

It is also a very timely step, as we are right now in the middle of the preparations of this year's European Semester, based on the Europe 2020 strategy, the Annual Growth Survey and as reflected in Member States' Social Policy Guidelines and National Reform Programmes. As the debate on deepening the Economic and Monetary Union and on changing its institutional architecture has started, this brings the issue of democratic legitimacy and accountability to centre stage.

Parliaments are where legitimacy and accountability of policy decisions vis-à-vis the citizen are realised. It is to you that citizens turn for answers. This great responsibility requires finding the best way forward through an open debate and discussion. That is why I would like to present to you at the beginning of this debate the views of the European Commission for the policy priorities for this year. However, before that, I would like to recall where we stood one year ago, and look at where we stand today.

One year ago, there was profound uncertainty over Greece. There was serious concern over Italy and Spain. The effects of the ECB's liquidity operations were yet to be fully felt in the real economy. And countless doomsday prophets were predicting the break-up of the eurozone.

But 2012 turned out to be a decisive year in which the eurozone proved its political resilience and took a great number of necessary bold decisions to ensure the unity and the sustainability of the euro.

Despite this progress, in the face of grave challenges such as high unemployment and sluggish growth, there is no room for complacency. We need determination and sustained action in order to succeed. If not, future generations will have to foot the bill. We must therefore work hard to ensure that the people of Europe know why these measures are required in order to stabilise the economy. Democratic legitimacy is key for this ambitious policy agenda.

Ladies and Gentlemen,

Our joint efforts are all about reforming and improving the European model of social market economy. They are about ensuring our citizens welfare, perspectives for the future, stability and security. From this vantage point, let me focus on the three work-streams for economic policy, growth and jobs that together form our comprehensive policy response.

First, we need to maintain the pace of economic reform to support the rebalancing of the eurozone.

This rebalancing is underway, as seen most clearly in the turnaround in countries with current account deficits. In Ireland, exports are growing and companies are creating jobs. In Spain, exports are increasing as well. And in Greece, the competitiveness losses over the past decade are being recouped.

Surplus countries also contribute to re-balancing, for example through opening up services markets, increasing the labour market participation of women, and encouraging wages to develop in line with productivity growth. This is what we recommended last year to Germany.

But the rebalancing cannot occur in isolation from the world economy. The European economy must remain globally competitive and we cannot afford the kind of losses in global market shares that we have seen in France and Finland.

The crisis exposed past policy failures and laid bare long-standing structural weaknesses. We were not able to detect the worst excesses in time. Financial regulation and supervision did not keep pace with economic developments and financial innovation.

Belatedly but decisively, those shortcomings are now being addressed. Tougher capital requirements are close to being enacted. The single supervisory mechanism for euro area banks should be agreed soon. Important steps have been taken to strengthen policy coordination among the Member States of the euro area.

The Commission is determined to build on these steps, and to create the deeper and genuine Economic and Monetary Union that we need to deliver greater economic and social welfare for the future. And consistent action is being taken to ensure the soundness of public finances.

Ladies and gentlemen,

That is why we need to restore and reinforce the competitiveness of the European industry, manufacturing and services. These are essential conditions for sustainable growth and job creation, but of course not alone sufficient ones. This was a key concern yesterday at the ETUC debate in Madrid that I participated in. This is my second point, we need to address these worrying losses in competitiveness, as seen in many countries and as reflected in growing structural unemployment and falling global market shares.

The figures speak for themselves: between 2000 and 2011, altogether 2.5 million manufacturing jobs were lost in Germany, France, Italy and Spain (570 000 in Germany, 750 000 in France, 370 000 in Italy and 750 000 in Spain). When you add to this trend the high debt levels, the rapid population ageing and the fact that more than half of social spending of the whole world today takes place in Europe, you get the picture of the burden that the European productive economy has to carry in order to sustain our social model – our way of living.

We need to reverse this trend. Europe has to restore its competitiveness. It is not limited to its external dimension: it means a sustained rise in welfare, for which productivity growth is the main driver.

And I believe we can reverse the trend of deteriorating competitiveness, if we stay on the course of reform. Not for its own sake, but reform for the sake of sustainable growth and job creation, and to reform and reinforce the competitiveness of European industry.

To drive job creation and productivity, we need to support research and innovation, education and training. We need to stimulate entrepreneurship and private investment. We need to complete the financial repair to boost the flow of credit to households and SMEs. We need to support public investment, as with the capital increase of the European Investment Bank. We need to design smart regulation that achieves societal and environmental goals without hampering job creation and competitiveness.

And we also need to continue reforms in our labour markets: balanced but ambitious reforms that remove obstacles to job creation, facilitate the creation of permanent contracts, ensure that those who lose their jobs in a downturn can count on real support to help them back into work or retraining. Reforms that respect the relevance of collective bargaining, as enshrined in the EU's Charter on Fundamental Rights. All of these elements will be reflected in the country-specific guidelines of this year's European Semester.

Third, we need to pursue consistent fiscal consolidation. It is however important that fiscal consolidation is also clearly differentiated across countries, according to their fiscal space and growth outlook.

Public debt in the European Union has risen from around 60% of GDP before the crisis to around 90%. Levels of public debt become a drag on growth if they rise to about 90%, as they are now. Thus, there is no alternative to pursuing fiscal smart and consistent consolidation.

Public finances in the EU are gradually improving, and so is confidence in governments’ action in this area. We can see the impact of the 6-pack, the reinforced economic governance framework. In 2009 and 2010, fiscal deficits in the euro area were above 6% of GDP. For 2012 they are expected to be somewhat above 3% of GDP, which is a welcome improvement. We expect a further decline this year.

Finally, in order to restore confidence and get Europe back on track, we must re-build our EMU. To this end, the Commission has put forward a “Blueprint towards a deeper and genuine Economic and Monetary Union”. Its proposals have also been reflected in President Van Rompuy's paper on the same subject.

The Blueprint provides a sequenced plan for completing the construction. For the short term (6 to 18 months), we foresee several concrete proposals within the current Treaties, starting with the banking union. The next step, developing a European Resolution Mechanism, is a key priority for this year. A resolution fund should build on contributions from the financial sector.

Structural reforms and fiscal consolidation require a great deal of efforts, and it is precisely for these reasons that we, in our Blueprint, propose the creation of a Convergence and Competitiveness Instrument.

Its objective would be to effectively support Member States' economic reforms for rebalancing and competitiveness. The Competitiveness and Convergence Instrument would combine a binding commitment by a Member State to a particular reform with European financial support for its implementation. The Instrument would thus serve as an incentive for necessary reforms and help address the short-term costs of such reforms.

In the medium-term (18 months to 5 years), we could envisage further integration involving Treaty changes. In our view the guiding principle for any steps towards more solidarity and mutualisation of risk would have to be combined with increased responsibility and further sharing of budgetary sovereignty. That implies deeper integration of decision-making, as well as commensurate steps towards a political union and increased democratic accountability.

We are fully aware of the variety of views on the matter in the EU Member States and Parliaments. Therefore we look forward to an open and democratic debate on the future direction.

Honourable Members,

Let me conclude. The EU has jointly made significant strides in 2012. Our policy agenda for the present year 2013 is also ambitious. Making it happen requires teamplay and responsibility from all of us, so that we can restore confidence in a lasting manner and return over time to a solid path of sustainable growth and job creation.

Our joint efforts are all about reforming and modernising the European model of social market economy. They are about ensuring our citizens welfare, perspectives for the future, stability and security.

Making real and substantial progress on this policy agenda this year and this year's European Semester will be an essential test of Europe's credibility on our road towards a stability union of both responsibility and solidarity. We need to succeed in this test and together get Europe back on track.

Thank you.


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