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"Europe united, open and stronger: a story of interdependence and resilience"

European Commission - SPEECH/14/537   09/07/2014

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European Commission

[Check Against Delivery]

José Manuel Durão Barroso

President of the European Commission

"Europe united, open and stronger: a story of interdependence and resilience"

OECD

Paris, 9 July 2014

Mr Secretary General, dear Angel,

Ambassadors,

Distinguished Guests,

Ladies and Gentlemen,

First of all let me say how much of a pleasure it is to be here this evening at the OECD, especially in the company of my good friend, Angel Gurría, and also in front of such a distinguished audience. As the Secretary General just said, in fact it's difficult – if not impossible - to find two organisations like the OECD and the European Union, in this case also the European Commission, closer in terms of our goals and missions.

The European Union and the OECD do not coincide of course in membership and their mission is not exactly the same as ours but we both share the goal of contributing to prosperity and lasting peace.

Both the European Union and the OECD were born from the ruins left by the destruction of war; with the hope that we could heal the wounds that had left Europe weaker and more divided than ever; that we could turn our scars into a strength – a strength of character, of resilience; with a determination never to repeat the political, economic, social and moral tragedy of the first half of the 20th Century.

Two weeks ago at the European Council, when I was standing at the very moving ceremony in Ypres, Flanders, as part of a commemoration for the First World War, I could not help but reflect on the path we went through and the progress achieved.

Let's remind ourselves that with European leaders we were discussing our collective future together around the table, whereas leaders precisely one hundred years ago, even seventy years ago for the Second World War, were sending their young men into battle, and - all too often - to their graves. So it was there, where we were meeting, that we've seen some of the worst tragedies in European and indeed world history. And now, even though there are differences sometimes, all the countries of the European Union meet regularly, with the same belief that war among us has become impossible.

Recent events on our own continent show that we cannot ever take peace for granted; unfortunately there are some parts of Europe where peace is not yet guaranteed. And this is one of the reasons why the European Union and the OECD share the same vision of the world. We both know that cooperation, integration and combined development are the best way to ensure lasting peace, as well as prosperity, and deal with our collective challenges of modern society.

Ladies and Gentlemen,

I believe that five years on since I had the privilege to be here, in this same room, to celebrate the five decades of the OECD, a lot has changed - economically and politically; a lot of progress has been made to move out of the financial and economic crisis, to allow us to look forward.

In fact Europe was able not only to overcome the immediate crisis but also to stay united, become stronger and remain open.

Allow me to set out how this was possible.

It is easy to forget that the prophets of doom, those who seem to take pleasure from criticising from the sidelines, predicted that the crisis would pull us apart; that the euro area would collapse; that the European Union would implode. I met with very distinguished economists several times, who - using their vocabulary - were saying that their central scenario was the implosion of the euro.

Well, they were wrong; and we stayed united.

Because whilst the critics were sniping, and the media focused on the areas of disagreement, European leaders and institutions have shown the political will to sort out the immediate crisis together and build on their shared "communauté de destin".

We all knew it would be a long journey; and that we needed to show common resolve and solidarity; and look for compromises in order to reach collective solutions.

The end result has been that rather than seeing the euro area collapse, we have seen Latvia become its 18th member at the start of this year, and Latvia is now joining the OECD; with Lithuania becoming the 19th member at the start of next year, and they will also become a member of the OECD.

And rather than seeing the European Union lose members, it has in fact enlarged, with Croatia joining a year ago, turning our Europe into a Union of 28 today. In your kind remarks before I took the floor, Angel, you mentioned this enlargement. When I took office ten years ago in 2004, we were only 15 countries. Now we are 28. We have almost doubled our membership. And whilst enlarging, assuming the continental scale we have today, it was at the same time possible to take the biggest leap forward in terms of deepening the integration after the creation of the euro.

There is a myth about the crisis and the euro that must be exposed: while it is true that the financial and sovereign crises have highlighted some special difficulties and have posed some specific challenges to the euro area, this was not strictly speaking a euro crisis. This was an opinion that was popularised by the media and even by academia, but it was not, as such, a euro crisis. Firstly because it did not only affect the euro area, far from that. It didn't start in Europe. And in Europe it contaminated many countries that were not in the euro area, because the euro was not the cause.

In fact, the euro remained strong and stable and protected its members against huge currency fluctuations, against rising interest rates, external shocks and currency speculations. The euro remained one of the two strongest reserve currencies in the world.

But the crisis did expose structural weaknesses in Europe. Until the crisis we lived in a world where financial risks seemed to be absent. This allowed the accumulation of large budgetary and economic imbalances, in particular in many euro area countries, but, once again, not only in the euro area countries. As you have seen, the problems of Iceland cannot be attributed to the euro area. Addressing those imbalances and weaknesses required our urgent attention; and that focused our minds, making us stronger: stronger structurally, stronger politically and stronger economically.

Stronger structurally because we overhauled our economic governance system introducing new budgetary rules, and improved coordination of our economic policies and put it in coherent framework which we call the European Semester. It's the first time in European Union history that you have, not only at the expert level, not only at Finance Ministers level when they meet in the Eurogroup or Ecofin, but also at Heads of State and Government level when we meet in the European Council, an open discussion on economic policies and the impact, the spill over effects, of a decision on another country.

Before we introduced the European Semester, there was never a proper discussion at European level of our national economic policies. I remember well the European Council in 1992 - at that time the Foreign Ministers were members of the European Council – we were 12 members: my predecessor Jacques Delors, who was the President of the Commission, Helmut Kohl, François Mitterrand, Felipe González and many others. At that time we never discussed this specific situation. We discussed global competitiveness reports, at that time the comparison was between Europe and the United States, Japan and the so called South Asia tigers. At that time nobody was speaking about China, which is quite interesting. But the level of integration didn't allow us to go deep into the competitiveness of each country. It was about aggregated figures and data.

And now, and that's the fundamental change, in Europe and the European Union there is no longer, in many areas, a division between the national and European, because the same leaders discuss what is happening in, for instance, labour market reforms in this or that country, or the social security reforms, or the retirement age, or collective bargaining. This is completely new. And I don't know any group of countries in the world that can collectively discuss in detail what before were considered strictly national policies. By the way, according to the Lisbon Treaty, national economic policy is not only national; it's a matter of common European concern. We have to understand that from this point of view the crisis has highlighted this truth and has made us stronger in terms of the way we discuss and try to react to those challenges. There was never a realisation of the level of interdependence of our economies, as we have today.

Instead, today, heads of government across the European Union now discuss and provide guidance on each other’s economic policies; on how budget deficits are being corrected; on how structural reforms geared towards competitiveness are being implemented; and mutually agreeing each other’s annual country specific recommendations.

Here, once again, contrary to what the public perception is sometimes, it's not the European Commission that imposes the country-specific recommendations. The European Commission proposes but at the end the recommendations made are adopted by the Council. It's a collective exercise where the governments themselves say to each other what they should do. It's the concept of shared sovereignty, which of course could not be the concept of abandoning national sovereignty to some kind of technocratic level. And this is one of the fields where the OECD and the European Commission cooperate already, we cooperate a lot on structural reforms.

By the way I'd like to congratulate you, Secretary General, for the very successful visit you have paid yesterday to Portugal. It's a very good example of how the OECD can cooperate with a country, helping with the analysis of structural reforms the country has made, and also on what the country still has to do, very much in line with the country-specific recommendations we have decided at a European level, where of course our teams and experts cooperate. This is a good example of our shared mission and leverage effect of the analysis we can provide, working with the Member States of the European Union.

And now all this is happening, from the north to the south, in big and small states, old and new Member States.

The end result is that we are now on the way to rebalancing our economies and the euro area budgets. We are - for the first time since the crisis - collectively under the 3% of GDP deficit rule. The number of countries with an excessive government deficit has now dropped from 24 in 2011 to 11 this year. Structural reforms are now definitely embedded in Member States’ economic policies. There are different rhythms, different levels of enthusiasm or commitment, but I think structural reform is now the name of the game. I don't know any government in Europe that does not care about the need to make some reforms to increase its competitiveness.

And we are stronger politically because we created, as a matter of urgency, mechanisms to provide financial assistance to support Euro area Member States in distress. Such mechanisms allowed assistance to be provided to Greece, Ireland, Portugal, Cyprus and Spain, for the banking sector of this country.

It showed both the solidarity within the European Union and the resilience of our system. Because despite concerns by certain Member States and national courts, this led - eventually – to the European Stability Mechanism, finally established in the autumn of last year with firepower of 500 billion euros. This would have been considered unimaginable before the crisis. No one could predict this, that the euro area countries would be able to accept a kind of European monetary fund, or Financial Stability fund, of 500 billion euros.

And I believe that this was one of the real turning points; and one that gave me an opportunity to experience personally what Jean Monnet, one of our founding fathers, meant when he said that ‘l'Europe se fera par les crises’. It's true: it's in times of crisis that leaders can focus their minds and take decisions that would be considered unthinkable some time ago. The reality is, once again, and something that analysts are not considering enough in my opinion, that a crisis has made us very much in favour of more integration. It was impossible before the crisis to conceive or accept the idea of a European Central Bank supervising national banks. It would have been impossible to accept that the European Commission could – as it now can - make assessments, ex ante, of national budgets. And all this has been accepted now, precisely because of the spill over effects of the crisis and the need to increase integration, at least in the euro area.

But we have also become stronger economically because we fundamentally reformed our financial system, showing global leadership, doing more than any other G20 partner to recapitalise our banks, protect our taxpayers and prevent irresponsible risk.

More recently, we launched – a proposal of the European Commission from 2012 - the Banking Union, which includes a Single Supervisory Mechanism and a Single Resolution Mechanism expected to be fully operational from 2016.

The Banking Union – which was agreed in a short space of time - is a major sea change for the operation of the banking system in the euro area and probably the most important step since the adoption of the euro. Moreover, the Banking Union is a crucial sign of our commitment, at a European level, that the Economic and Monetary Union is here to stay and is going to be completed; it offered confidence and stability in the financial markets, helping to restore badly needed lending to the economy; and it showed the resilience of our European decision-making process; and the political determination of leaders.

So we turned a page, and started a new chapter.

While we should be proud of these achievements we also have to say that there is still no room for complacency. We have to do more, in particular because the level of unemployment is still too high. For me what is really interesting is that we have seen this movement for more integration precisely at a time when the public opinion was, and still is, really sceptical and critical regarding European integration. And we have to take this on board. We cannot think our work is concluded, we cannot say this is not the case.

Despite the crisis, we can say we have avoided a debate in Europe in favour of protectionism. We were able to resist the kinds of strong protectionism that we have seen in the past, namely after the crisis of the 30s in the last century. I still believe being open is the best way to grasp the opportunities, and deal with the challenges, of globalisation.

Being confident, advocating reform, challenging the status quo, making progress, pushing for excellence, in Europe and across the world – this is why the European Union can look to the future with confidence, as the biggest trade bloc in the world. This is what our values are about.

We should not be defensive, closed or protectionist; and I know the OECD shares that view.

That is why, at the same time as making these structural changes, we have been pushing forward our philosophy of an open Europe, both internally through the single market and internationally through trade opening.

The single market, and the four freedoms that underpin it, are the cornerstone of prosperity and peace in Europe.

We just have to look at the economic performance of the newer Member States, those who joined 10 years ago, whose economies have more than doubled as a percentage of the European GDP average, between the mid-1990s and today. That’s a higher standard of living, better jobs, better education, as well as the possibility to live in democratic, free societies for their citizens; and a new market for their European partners, leading to collective growth and jobs.

Indeed, that is why the Commission has continued, under the Single Market Acts 1 and 2, to deepen our single market; and why we are pushing for a digital single market, the energy market, telecoms and transport, as well as better implementation of our services sector.

But just as we need a properly functioning market within the European Union, we also need open markets, less regulation, less red tape, fewer barriers, less corruption and greater transparency globally.

Excessive regulation can be an obstacle for the internal market. Fighting this has been something I have been pushing for a while. Under our programme of smart and better regulation, which I launched back in 2005, the European Commission has already presented 660 initiatives for simplification; and it has cut the administrative burden by over 25% and has repealed more than 5590 legal acts.

Two years ago, we set up our Regulatory Fitness and Performance Programme (REFIT), aimed at making European law lighter, simpler, and less costly. We wanted to stick to our objectives, creating the conditions for growth and jobs, but constantly rethink the means to achieve them. This included the willingness to withdraw pending laws, sometimes suggested by individual Member States, and repeal existing legislation.

That is why, this year, we have formally approved the withdrawal of 53 more proposals, making it 293 since 2006. So not just recently. Now it has become fashionable to speak about less red tape, better regulation, but in fact the programme was launched already in 2005.

Which Member State, if I may ask, can boast such a track record? Because the problem of democracy is not just at European level, it's also at national level.

But the European Union also must keep open, and open further, to the outside world.

We are still the largest trading bloc in the world with over 20% of world GDP. But with 90% of growth outside Europe in the next 15 years, and free trade worth another 2% of GDP and 2 million new jobs, we need to continue to promote international trade, and deliver on our international commitment on trade facilitation at Bali last year.

That is why this Commission has pursued the most ambitious free trade agenda in its history, from the Americas to Asia, and with signature only twelve days ago of our Association Agreements, including Deep and Comprehensive Free Trade Agreements, with Ukraine, Georgia and the Republic of Moldova.

Europe’s relationship with the United States is already the strongest in the world, representing nearly half of the global GDP and almost a third of world trade. A phenomenal 2.7 billion dollars’ worth of trade flows between the two continents every day. Over 3.7 trillion dollars is invested here, creating incomparable business and job opportunities.

The prospect of an agreement can unleash this potential further, helping jobs and growth on both sides of the Atlantic and across the rest of the world. And it can help us shape globalisation, rather than be shaped by it, through a common set of rules, less red tape on our businesses, and high environmental and social standards.

But we are not focused only on the United States. We are about to formally conclude the negotiations with Canada and negotiations with Japan are progressing as planned. We have also launched important negotiations for an investment agreement with China.

I'm firmly convinced that international trade is an engine for reform and growth, in particular in the current juncture.

Having said this, I should not hide from you that these are difficult times for the supporters of trade opening. Being against international trade can easily become a populist cause, as was the case for the eurosceptics in the last European Parliament elections.

So those political leaders, not only in Europe, who are in favour of opening up to trade should come out loud and clear to defend it!

This is what the OECD has been doing, including its impressive work on Global Value Chains. Let me praise the Organisation and its Secretary General for that, for everything you have been doing in terms of trade opening.

Ladies and Gentlemen,

This has been the story of our increasing interdependence and resilience. And I use the word resilience advisedly. Not simply because of the excellent work by the OECD on the issue, but because resilience is about not only resisting and recovering from adverse shocks, but also about being able to bounce back stronger than before and learn from experience.

As Nelson Mandela used to say: “The greatest glory in living lies not in never falling, but in rising every time we fall”. I completely agree with this.

Our interdependence, a reality in an age of globalisation and free trade, has united our markets and fundamentally changed the way we work, and think. Technology is changing the way we live and do business; the world has got smaller, with travel across continents as quick and easy today as it was within one country twenty years ago; and financial integration has progressed on an unforeseen scale.

This is the new reality that the financial crisis brought to light; and we have had to act upon it, and seize this opportunity.

And our resilience has required - and will continue to require – more investment to secure sustainable growth. The European Union is contributing significantly to this, through its budget for 2014-2020. It is a real post-crisis programme of investment; a one trillion euro programme for investment for seven years to boost jobs and growth.

Research and innovation will benefit from 80 billion euros under Horizon 2020 – almost a 30% increase from the previous programme, making it one of the biggest research programmes in the world. Close work has also been done with the OECD on an innovation indicator, which the Commission adopted last year and which was endorsed by European leaders at their Summit last October. And infrastructure will also benefit by boosting pan-European transport, energy and digital networks through the new connecting Europe Facility that I'm proud to have proposed as one of the innovations of the new financial framework.

But the key to this is delivery, because some Member States depend on this programme as they lack the margin of investment in their domestic budget, with our European structural and investment funds representing over 80% of the overall public investment in some of our Member States.

They need to focus on the areas to improve their competitiveness and productivity, which is why we have reformed the European budget, with greater focus on efficiency; and making it more results-driven, so that it rewards those with a greater return on our collective investment.

Only through this targeted approach to jobs and growth can we sustainably and inclusively reshape our social market economies.

That is why we have led the way – using the budget – on youth unemployment, our greatest challenge today. The Youth Guarantee, guaranteeing a job, apprenticeship or education for our young citizens, is part of our targeted response, and it is one of the best ways to tackle the social challenges that have inevitably followed the economic and financial crisis.

Similarly, we need to bring about a more just society, by looking again at the way we approach taxation, with the recent country-specific recommendations highlighting in some countries, in line with our Europe 2020 targets, the need to shift taxation away from labour to property, consumption and the environment.

So it's true that this crisis has highlighted and put a much greater emphasis on the need for more equitable policies.

The way to meet our objectives and to move from a post-crisis period to a smart and sustainable period of growth is by showing that this crisis has increased further our political will, and our political determination, even when times seem better.

Because whilst we had no choice to act in the crisis, we cannot afford to take our foot off the gas now that the situation seems less critical. And I must insist on this point. We must step up our efforts, and have collective ownership.

Ahead of the European elections, I called for the three European institutions, the European Parliament, the Council and the Commission to agree, for the next five-year period, a shared vision, with a stronger sense of collective responsibility and loyalty; a greater sense of political interdependence.

I was delighted therefore that two weeks ago at the European Council, we agreed on a set of strategic priorities for the next five years. They are fully consistent with the guidelines I set out at the start of my second mandate, and with my desire to be big on the big things and smaller on the smaller things; what we want to do together, what is best achieved at a European level together, what we can and want to achieve together; and what we do not need to do at European level.

So I very much hope that, during the transition over these coming months, as you know we are now in a transition period in the European Union with a new Parliament and with the election of a new President of the European Commission and a new Commission, and of course with a new President of the European Council, I believe that during these coming months there can be a clear agreement between the institutions and Member States, an agreement that is visible and understandable to European citizens, to give a sense of what Europe should and should not do; because in politics it is often harder to decide not to act, than to be seen to act.

That way – through clear ownership - we can bridge the delivery gap that exists between decisions made by leaders in Brussels and implementation in our Member States; and start to rebuild the confidence and trust of our citizens in our European, national and local levels of government.

Ladies and Gentlemen,

In a post-crisis period, now is not the time for complacency; weakening our efforts for reform is indeed a real risk.

Now is the time to deliver, and continue to reform;

To make sure that we build on the foundations that we have already strengthened, and ensure that we don’t neglect our European home, but rather make it modern, comfortable, and up to date, as well as attractive and welcoming to our neighbours;

And we will come to realise – in this age of globalisation – that we need to continue to do this together, in times of recession and growth;

Because our co-operation is a prerequisite for our development and growth.

That is the ethos – the ethos of cooperation – that we share with the OECD.

Thank you for your kind attention.


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