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Vice-President of the European Commission and member of the Commission responsible for Economic and Monetary Affairs and the Euro
Mr. Olli Rehn at the ECON Committee Hearing on the Troika Report
ECON Committee Hearing
Strasbourg, 13 January 2014
Madame Chair, Honourable Members,
First of all, I want to wish you all the best for the New Year, which has started with a string of encouraging news concerning the European economy, relevant to tonight's discussion.
The latest auctions of Irish, Portuguese and Spanish bonds have seen yields drop very significantly. Economic sentiment indicators in the euro area have now returned to their long-term average, with positive contributions from the vulnerable countries. Forecasts across the board now clearly point to a strengthening recovery.
At the same time, major challenges remain. Unemployment is unbearably high in a number of Member States, even if there are signs of a turning point. Persistent reform efforts continue to be necessary for growth and jobs; there is no room for complacency.
This applies to all Member States alike. But today we focus on the euro area programme countries. This includes the former programme country Ireland, which successfully concluded its programme in December and last week demonstrated that the programme's goal to regain market access has been reached.
Our meeting here today to discuss together the workings of the Troika is very important. I hope that you found our written replies to the questionnaire valuable, and I am looking forward to receiving your views and responding to your further questions.
First of all, we need to recall that the roots of the crisis lie in macroeconomic imbalances that were built up over the previous decade. The macroeconomic adjustment programmes did not mark the beginning of the crisis, but a start of its resolution. The programmes prevented disorderly defaults with all the devastating economic and social consequences that would have entailed.
You may recall that the EAMS were initially reluctant to set up any stability mechanism. The Commission actively persuaded them of the need to do that to avoid a collapse of the eurozone.
The European strategy has followed the approach of extending solidarity in return for solidity. This principle has remained, while the structures have substantially evolved since the weekend of the 9-10 May 2010 when they had to be created in dramatic circumstances and under terrible time pressure.
Everyone may have had a first best solution in mind. The Commission certainly favoured a Community solution. We made a legislative proposal to that effect, which led to the creation of the Community instrument EFSM, while concerning the larger EFSF, the EAMS opted for an intergovernmental arrangement.
But in the heat of the crisis and with the urgency to prevent an economic free fall, compromises had to be made. Recall that the unanimity rule prevailed, and each EAMS had a right to veto. The situation was such that Europe had to rapidly create structures that were not foreseen ― for a crisis that was not foreseen, either.
The Troika came into being under extreme political and time pressure to avert an immediate default by Greece on its obligations ― which by the way include the welfare benefits of Greek citizens and the wages of its public employees.
These structures have over time been developed through democratic processes in the Member States and at the European level. With the set-up of the European Stability Mechanism, it was recognised that a permanent firewall was necessary, in the form of a capital-based international financial institution. In this framework, the final decision and responsibility on granting financial assistance lies with the euro area Member States. They face their own constraints, both political and financial ones.
The role of the Troika has been formalised in the ESM Treaty. And it has also been formalised through co-decision in the two-pack, which lays down the rules on transparency and accountability of the Commission in its role as a member of the Troika. In this respect, the Commission has also been engaging in dialogue with social partners in the programme countries.
Each of the Troika institutions acts within its own constitutional and legal responsibilities. The Troika model has allowed us to draw on the combined experience and expertise of the three institutions.
That said, the ownership of the programme by the beneficiary Member State is always key for a successful economic turnaround.
The policies that led to the accumulation of macroeconomic imbalances fall under national responsibility. Key factors included rigid market structures, often dominated by powerful organised interest groups, as well as oversized and inefficient public sectors. While sometimes requiring difficult decisions for particular groups, structural reforms help to spread the benefits from growth across society.
Social fairness must go hand-in-hand with sound public finances. For instance, a more efficient tax system with fewer exemptions or loopholes to prevent tax avoidance can contribute to both efficiency and fairness.
In the healthcare sector, reforms can lead to significant savings and more cost-effective provision of patient care. Much has been done in this sense in Greece, for example by streamlining the social security funds, introducing e-prescriptions, pushing generic medicinal products, and reorganising hospital capacity.
There is no doubt that the structural adjustment from accumulated macroeconomic imbalances to sustainable economic development involves difficult and often painful choices. Here the responsibility must in the first place be carried by those who let these imbalances accumulate, with all their social consequences.
In this respect it is first and foremost for the relevant Member State to put forward the measures or decisions needed to correct the imbalances, while prioritising social fairness and in dialogue with the Troika partners.
Democratic accountability of our crisis resolution strategy and of its success is crucially predicated on wide acceptance of the need for reform in the beneficiary country. Ireland and Portugal illustrate this well. So do Spain and Slovenia, where the strong commitment to reforms avoided the need for a macroeconomic adjustment programme.
In contrast, political turbulence largely derailed progress in Greece from spring 2010 to summer 2012.
The purpose of macroeconomic adjustment programmes is to remedy an emergency situation in a sustainable manner. This requires taking determined action under enormous time pressure and in very difficult conditions.
To restore economic confidence, programmes have a beginning and an end. Once the emergency is over, the reform process is continued under the normal procedures of economic governance.
Madame Chair, Honourable Members,
I welcome that the Committee's draft report acknowledges the immense challenges the Troika faced given the scope of the crisis, by taking into account the specific situation in different Member States, the limited tool kit available at the time and the extreme time pressure under which decisions had to be taken.
This has also been acknowledged by the authorities in the beneficiary Member States in their replies.
Under the current circumstances, the view of all Troika partners is that the Troika functions reasonably well in difficult circumstances and the institutions concerned should continue their joint work for the foreseeable future.
The Commission is determined to keep up its constructive cooperation with the ECON committee. My Deputy Director-General Servaas Deroose appeared before this committee recently and I will be meeting the ECON chair and vice-chairs next week for a confidential oral briefing, as foreseen in the two-pack.
I expect that the future and governance of the Troika will become part of the wider institutional discussions in the process of deepening EMU. Realistically, a deeper fiscal union will not be achieved overnight: for the Commission, the guiding principle is that stronger solidarity can only be pursued in return for stronger responsibility ̶ and it can only emerge in a profoundly democratic process. The European Parliament is at the core of this debate.
I am now ready to answer your questions.