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European Commission

José Manuel Durão Barroso

President of the European Commission

Statement by President Barroso on the European Semester 2014

Press conference/Brussels

13 November 2013

Good afternoon ladies and gentlemen,

Today, we kick off the fourth European Semester of economic governance.

With the adoption of our Annual Growth Survey, the European Commission is setting the top five economic priorities that should guide Member States when they design their budgets and economic reform plans over the next year.

But this year is also different. This year, budgetary coordination in the euro area has gone to a new level. This year, for the first time, Member States have sent us their draft budget plans before they are adopted. On Friday, we will publish our opinions on them, and Vice-President Rehn will present them to you. This is a step change in economic governance.

This year, for the first time also, the social dimension of the Economic and Monetary Union is addressed in our economic policy-coordination along the lines of the communication we presented last month, so as to give us a better understanding of what the situation is in the Member States. Commissioner Andor will explain in further detail later on.

Ladies and gentlemen,

The fundamental difference in the European Union this year, I am pleased to say, is that the economy is now reaching a turning point:

Growth is gradually returning;

Financial markets are stabilizing;

Consumers and businesses are more confident about the future;

And two of our member states - Ireland and Spain – are successfully concluding their respective programmes. Other countries still under a programme of financial assistance have also been making notable progress, namely correcting their external imbalances.

We have come a long way since the start of the crisis and many of our citizens have had to make huge sacrifices to get us to this point. And thanks to the efforts they have made, we have now entered a recovery phase.

What we need to do now is keep our eyes on the prize and make sure that we sustain and strengthen the recovery that is underway.

We must ensure that our efforts translate into stronger growth that generates jobs. The best way – I would say the only way - to do that is to pursue our reform efforts, avoiding reform fatigue. We must not put into jeopardy what has been achieved so far. This will be the way to address in a sustainable manner the biggest problem we are still facing: unemployment, especially of the young.

The return of growth shows that our policies are working. That is why, in this year’s Annual Growth Survey, we keep the same five priorities as we had last year, but shift our focus to take account of the specific challenges we face at this stage of recovery:

Budget deficits have fallen by half since their peak, allowing us to slow the pace of fiscal consolidation and focus now on quality over quantity - for example, we have seen the tax burden rising during the crisis when what we need is to make tax systems more growth-friendly by switching from income to consumption, to property or pollution taxes.

Second, we need to secure a proper financing of the economy. The Annual Growth Survey points, among other points, to the need to develop alternative sources of finance, such as corporate bond markets or venture capital. And we also need to tackle as a matter of urgency the fragmentation of the financial markets, especially through completion of the banking union, because as you know, there are very different lending conditions to companies that very often are not linked to the health of those companies but with the country where they are operating.

Thirdly, improving competitiveness is a major priority for growth, in all our economies. Countries with current account deficits have done a lot to reform their economies and stimulate exports. It is also up to surplus countries to do their bit by opening up their markets to spur investment and domestic demand.

Fourth, while unemployment is stabilising, it continues to be at unacceptable levels, politically, morally, socially. I was in Paris yesterday for a summit on this very issue, and I was encouraged by the Heads of State and Government of all the European Union countries' strong commitment to implementing policies to get people back to work - including the Youth Guarantee proposed by the Commission this year. Heads of State and Government committed very clearly to give the Commission their national plans by December. This is critically important so that we can launch as soon as possible, on the ground, this very ambitious programme of Youth Guarantees.

Fifth, more needs to be done to reform our public administrations, including by reducing administrative burden on businesses, especially on SMEs.

But apart from the priorities of the Annual Growth Survey, that I mentioned very briefly, we need to look now at the Alert Mechanism Report. With the Alert Mechanism Report, we make every year an objective analysis of the competitiveness of Member States' economies and their macro-economic imbalances.

We look at both deficit and surplus countries. This year shows that progress is being made by several Member States to reduce their current account deficits and reverse the losses in competitiveness. This has helped to rebalance the European Union's economy.

However, the AMR, Alert Mechanism Report, also shows that further progress is needed in the deficit countries, but also in the surplus countries.

We have decided today to prepare In-Depth Reviews on 16 countries. For 3 of them, this will be the first time: for Germany, Luxembourg and Croatia. These reviews will allow us to conclude whether imbalances exist or not, and whether they are excessive or not.

Vice-President Rehn will go into more detail on these developments in a moment, but I would like to say a word about the biggest economies of the Euro Area. By virtue of their size in the European economy, Germany and France have a special responsibility to contribute to the recovery in the rest of the euro area.

Today, the Commission has decided to launch an In-Depth Review on Germany.

The figures show that Germany has posted a high and persistent current account surplus, even if it is true that most of this current account surplus is not with European countries, not with the euro area countries. A high surplus does not necessarily mean that there is an imbalance. But we do need to examine this further and understand whether the high surplus in Germany is something that is affecting the functioning of the European economy as a whole. This is not about questioning Germany’s competitiveness, no, because I want to make it clear: the real problem for Europe is not that Germany is very competitive, this is indeed a major asset for the economy of Europe as a whole. The problem is much more that others are still far away from that level of competitiveness. So as I was saying, our problem is, of course it could never be the German competitiveness, but whether Germany, the European Union's economic powerhouse, could do more to help the rebalancing of the European Union economy. That is why we have been recommending, already for several years, that Germany supports the domestic demand and investment, for example by opening up its service sector.

Turning now to France, the Commission concluded in April this year that it was experiencing macro-economic imbalances and indicated the need for decisive policy action. France has seen sustained losses of competitiveness over the last 10 years and more efforts are needed to remedy this. In May, France was granted extra time to correct its excessive deficit, and it should use this time to tackle unemployment and to improve its business environment along the lines we have been recommending. Such as: making public spending more efficient, simplifying regulations for businesses and ensuring the tax system is as growth-friendly as possible. So today, we have decided to launch an In-Depth Review, which should allow us to assess in detail whether imbalances persist.

Let me also say a word on Italy. I believe it is essential that Italy remains on the reform path, that political instability does not put at risk the progress achieved and that there is no complacency regarding the challenges ahead, namely the necessary completion of the reforms promised by the government.

We will now start the In-Depth Reviews for all 16 Member States. The results will be presented in spring next year and will inform our country-specific recommendations.

Ladies and gentlemen,

Today's package shows the extent to which we have Europeanised economic policy coordination.

And in the Euro Area in particular, as I mentioned before, we have made a genuine leap forward in terms of budgetary coordination. Today it is possible to discuss among us -, in the European Council but also in the different Council formations - to discuss among us the reforms of France, the surplus of Germany, the financial sectors in Spain or Slovenia, the specific problems of the programme countries. This is a major change; it was simply not possible some years ago.

Now we have to consolidate this process, because like that we are indeed putting in practice what is stated in our treaties, namely that today in the European Union - specifically in the euro area- economic policies are no longer a matter of national responsibility only, it is also a matter of European concern.

Yes, first of all there is a national responsibility. For instance, employment policies are mainly a national responsibility and we should underline that. The Member States have the instruments, most of the instruments, in the their hands, but at the same time, the crisis has shown very clearly to us, we have to accept that in an integrated economy, especially in the euro area, there are spillover effects, positive or negative, and that economic policy now has to be done, apart from the national level, also at European level.

And this is precisely what is translated in the documents that we are presenting to you today and next Friday.

Once again, this is not about the Commission trying to run national economies in place of governments. No. This is developing a European economic governance that respects fully the national level of governance. It is also about ensuring that what is good for individual member states is good for the European Union as a whole.

I think it is important, when we have seen the extremely high levels of interdependence, that this interdependence is now translated politically in the common will to deepen our system of economic governance.

The European Semester helps us focus on the bigger picture so that we can leave this crisis behind us stronger than we entered it. We believe that the European economy will get out of this crisis much stronger than before, much more resilient, as you have already seen, but also more competitive. We believe this is a track in which we are now committed to go. Our European semester also points out where we need to be bolder to tackle reforms that are needed to build a lasting and job-rich recovery. Indeed, job-rich growth and competitiveness are the overarching priority of all our action.

I will now hand over to Vice-President Rehn, who will go into more detail about the Alert Mechanism Report.

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