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European Commission - Speech - [Check Against Delivery]

Keynote Speech of Vice-President Valdis Dombrovskis to the Economic Club of New York

New York, 11 April 2019

Honour Mr O'Neil,

Ladies and Gentlemen,

First of all, I would like to thank the Economic Club of New York for this invitation and for the possibility to speak here.

For decades, we have taken the multilateral system for granted. But now we have to ask the question: can this system withstand pressure from isolationism, protectionism and from economic nationalism?

There are new uncertainties stemming from Brexit, trade tensions, geopolitical developments, and climate change. For example, trade tensions put the architecture of multilateral cooperation in question.

Yet, these tensions are merely a fever signalling a deeper trouble, which is that not everyone has benefited from globalisation. Many people feel left behind. This societal malaise is something that we are seeing in many countries across the world.

Probably, the most visible symptom of this sentiment in Europe is Brexit. I think that that Brexit for Europe.

First, it is a loss from a geopolitical point of view. We share joint history. I know this as a Latvian. Exactly one century ago, British navy ships helped secure my country's independence.

Today, we share foreign policy, defence and security interests. Brexit, hopefully, won't change that. But, in practical terms, it could change the way we take action, or share intelligence in a timely manner.

Second, Brexit is a loss for EU policy-making. Not everyone in Europe shares this point of view. But I believe the UK's support for free-market economic principles have helped to strike the right balance on economic policy in Europe.

Third, the European Union is losing the City of London, our largest financial centre. It's like New York leaving the US and taking Wall Street with it.

Last night EU leaders, including Theresa May, avoided the most disruptive of all scenarios – no deal Brexit. No deal Brexit would have had a considerable negative impact on people and economies, notably in the UK, but also in the rest of the EU.

This is why achieving a flexible extension until 31 October 2019 was so important. It gives six months for the UK government to decide on their preferred scenario. And it gives the European Union possibility to focus on our priorities.

Brexit has also shown us the real value of what the UK is walking away from. By this I mean our biggest asset – the Single Market. It accounts for over 500 million consumers, 22 million businesses, and a GDP of over EUR 15 trillion. This makes it the world's second largest economy, after the US.

The size of this market also helps us negotiate beneficial trade deals worldwide:

  •        We have recently used it to strike broad trade agreements with Japan, Canada and Singapore.  
  •        We have a deal in principle with Mexico.
  •        And negotiations are ongoing with Mercosur, Australia, New Zealand, and others.

In addition, the Single Market is an asset for upholding our continent's values and influence in the world - values such as respect for human rights, the sustainable management of resources, fair working conditions, and multilateral cooperation. And let me be clear: this will not change, whatever comes out of Brexit.

Because, Ladies and Gentlemen,

International rules are not a constraint, but a safeguard for everyone. Moreover, we need them to tackle threats and challenges such as climate change, terrorism, or cross-border crime. 

This is why the EU is firmly committed to keeping the global economy open and rules-based. We support an inclusive multilateral trading system, with the World Trade Organisation at its centre. And we strongly support the WTO reform agreed by the G20 in Buenos Aires.

As regards the international financial architecture, let us also stress that we continue to see a central role for the Bretton Woods institutions. We need an adequately resourced International Monetary Fund. Its role in global financial stabilisation cannot be overestimated. And we need to implement the capital increase of the World Bank, as decided last year.

This brings me to my area of responsibility - the financial sector.

I can say with pride that EU and US regulators fully share the vision that global financial markets require global cooperation.

In the wake of the crisis, Europe worked hard and well with the US and other major economies to overhaul the international regulatory architecture.

In the context of Brexit, preserving financial stability remains a shared objective for the EU and the UK. And both of us have already acted to minimise financial stability risks. But although we are well prepared, we cannot fully mitigate the negative economic effects of Brexit.Especially in the case of a no-deal scenario.  

Leaving the EU, the Customs Union and the Single Market would mean no automatic market access for UK firms. And no passporting rights. In our future relations, each side will set their own regulatory standards.

That is probably what the Brexiteers meant when they were talking about ‘taking back control'.

Nevertheless, the UK and the EU financial systems will remain interconnected. We will need to cooperate closely on regulatory and supervisory issues.

So the question is: what is the best way forward on this?

If approved by the UK parliament, the Withdrawal Agreement and the Political Declaration foresee for our  future relations to use equivalence.

This means that if UK rules and supervisory practice stay very close to ours and achieve equivalent outcomes, then we will rely on them and the UK will rely on our system. We will assess this sector by sector, law by law.

It must be said the EU's current system for equivalence is one of the most developed in the world.

It is tested, operational and respects democratic accountability. And as the UK is leaving, it will be even more important for the remaining 27 EU members to combine their national markets into one single capital market.

In the past months and years, we have laid the basis for this. The EU has adopted 11 out of 13 legislative proposals that the Commission has put on the table to develop the Capital Markets Union.  

Deeper and more liquid capital markets will provide European businesses with more choice on how they raise funds, and give new opportunities for savers and investors.

A single market for capital does not mean that we replace London with just another European city. In fact, we are combining and linking a number of financial centres to form a joint and integrated capital market, based on passporting, a single rulebook, and a close convergence of supervisory practices.

For example, we see trading venues relocated to the Netherlands; repo clearing moved to Paris, and some asset managers and insurers have moved to Belgium, Luxembourg and Ireland.

With the Capital Markets Union, we are building preconditions for financial markets to prosper in their new destinations.

Ladies and gentlemen,

Surprisingly, the biggest threat to multilateralism is its own success.

By this I mean that some of the big winners of global trade – countries like China – are flexing their muscles.

This challenges the way global institutions work. In the past, America was the world's economic watchdog. Today we see multi-polarity, in the form of increasingly competitive global players.

In this context, the US and the EU have shared interests. To start with, there is the volume of trade that crosses the Atlantic.  The EU and US together account for about halfof global GDP and for nearly a third of world trade flows.

For example, last year, the US exported well over USD 300 billion in goods to the EU.

And the EU is the largest source of foreign direct investment in the US, which means millions of jobs.

This makes it clear that measures, which would target certain European goods, such as the often-mentioned German cars, would not only violate international trade rules. They would also hurt US consumers, and cost American jobs. The EU will stand strong against such measures, which certainly cannot be justified on the grounds of national security.

But the EU and US have a strategic partnership that goes further than trade. This partnership has ensured stability and certainty for decades. And it gives us a competitive advantage to address the challenges of tomorrow.

On the economic side, one of our shared challenges is maintaining high levels of productivity growth. This is necessary to continue to compete globally, and ensure prosperity for our citizens. Yet productivity growth in both the US and EU has slowed down in recent years, especially since the financial crisis. At the same time, many emerging markets – most notably China – continue to enjoy rapid productivity gains. They are driving their economies towards higher value activities.

Population aging is another important challenge that we share. It poses risks for the sustainability of our public finances. In the EU, pension spending amounts to 11% of GDP, while in the US it is 7%. In Europe, many countries have undertaken major reforms of pension system. But we still need to do more to ensure the sustainability of our pension, healthcare and long-term care systems.

Then there is the challenge of climate change. A recent study found that investors are underestimating the risks to their portfolios of extreme weather events, such as hurricanes or wildfires. For example, the city of Miami has already lost 1% of its potential GDP due to climate change during the past decades.

This means that reaching the Paris Climate Agreement targets matters not only for our Blue Marble, but also for the economy. The EU wants to be a global leader when it comes to climate action.

But we also wish to give EU companies a head-start in the race to invest in climate-neutral solutions of tomorrow. So we recently proposed a strategy for the transition to a climate neutral economy by 2050. But for this, trillions of euros of investment are needed for new technologies.

Let us take just one example: electric batteries, which is a strategic sector where EU must step up investment and innovation. Today, the European share of global cell manufacturing is just 3 per cent, while Asia amounts to 85 per cent. Yet demand for electric batteries is set to grow rapidly. And the European market potential could be worth up to 250 billion euros annually from 2025 onwards.

But the scale of investment needed to spread this and other technologies cannot be covered only by public money.

So private investors have to engage fully. That is why, as part of my portfolio, I have strongly promoted a sustainable finance agenda.

In Europe, we have already adopted an Action Plan and three legal proposals to create more opportunitiesfor green investment and to make investors more aware of the risks of climate change.

But we need to do more to match the growing demand for climate-friendly investments with a supply of green financial products. And because financial markets are global, also on this file we wish to work together with other international partners.

The EU is already working closely with China, India, Japan, Canada and other jurisdictions to align their approaches on sustainable finance.

Yesterday, I had a meeting with Mike Bloomberg, who is mobilising cities and private players in this country.

And I believe that also the US government will eventually need to reconsider their position on climate change.

The evidence is piling up.     

Ladies and Gentlemen,

This morning, I have made a case for multilateralism.

Ever since the beginning of the EU, European countries have defended their national interests, not in spite of multilateralism but thanks to it. Cooperation, structured dialogue, compromise - these are all the ingredients of a successful multilateral approach.

Thanks to this multilateral approach the European Union has delivered on the most important deliverable there is – peace. A strong and resilient EU will certainly continue to champion the multilateral cooperation.

There is a saying:

If you want to go fast, go alone.

If you want to go far, go together.    

So we invite the US – our strategic partner – to stay with us in the effort to uphold a rules-based international order.

Thank you.

 

 

 

SPEECH/19/2116

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