Download Speech - Council of the European Union

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EUROPEA COUCIL
THE PRESIDET
Cernobbio, 7 September 2013
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PRESSE 364
PR PCE 157
"Sources of economic growth and jobs"
Speech by President of the European Council
Herman Van Rompuy
at the Ambrosetti Forum in Cernobbio
It is a pleasure to join you this morning, here in Cernobbio. And I would like to take this
opportunity to salute former prime minister Monti, without whom Italy and the eurozone
would have gone through a dramatic situation. On this, I know history will be clear and
fair.
I have flown to Italy from the G20 meeting that just took place in Saint Petersburg. This
G20 – my fourth – was rather different from the previous ones, even if there is still much
uncertainty in the world economy. This time, the slowdown and structural problems in
emerging markets, US monetary policy decisions, and "Abenomics" in Japan helped take
the spotlight away from Europe.
Whereas our situation was at the centre of attention for the last three years at every G8 and
G20, it is less the case today. This is good news, but did not come out of the blue. Europe
has been responding actively to the crisis. Bold national efforts – not least here in Italy –,
our collective work, our patience and tenacity have helped strengthen our credibility, and
are starting to bring about concrete results. Though they may have often underestimated it,
our partners across the globe (along with the markets), now know well that we stand by the
euro and the Union.
PRESS
Dirk De Backer - Spokesperson of the President - ( +32 (0)2 281 9768 - +32 (0)497 59 99 19
Preben Aamann - Deputy Spokesperson of the President - ( +32 (0)2 281 2060 - +32 (0)476 85 05 43
[email protected] http://www.european-council.europa.eu/the-president
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It helps that recent weeks have brought a trickle of positive economic news. Modest,
uneven, perhaps fragile, yet nonetheless positive. Growth figures have slightly improved
for certain countries, not least Portugal, which had the strongest quarterly growth in the
Union. Here in Italy, confidence of consumers and businesses is cautiously on the rise.
These are green shoots. But like all green shoots, they should be cared for and nurtured. A
nascent recovery, in short: but one that doesn't allow us at all to lose focus and
determination. We must remain alert, continue with current reforms, and above all,
implement rapidly and thoroughly what we have already decided. Because we are still very
far from where we want to be. Especially when it comes to winning the battle for jobs.
Our continent is going through a transformative phase. By nature, economic contractions
hurt. So the issue is how to smoothen the adjustment, while at the same time keeping the
focus on the long-term goals: better lives for our citizens, an economy ready for the
challenges of the 21st century. So we need to think more strategically about the
foundations of future growth in Europe, and that's the issue I would like to address with
you today: Sources of growth and jobs in Europe.
As a matter of fact, European structural growth rates started to slow down long before the
crisis. In the previous decade, we compensated-and-hid this by allowing a rapid
accumulation of both public and private debt. Financial bubbles and excesses left us with
bloated public sectors, vulnerable banks and overstretched companies and households.
Clearly, our future must look different.
What can we change to bring structural growth back to Europe? How can we make sure
we'll be making our money in twenty or fifty years' time, sustainably? To answer these
questions, I propose to revisit some economic fundamentals. In my remarks I will look in
turn at the basic terms of supply and demand. And as you will see, improving the
governance of the euro area is also a key part of our growth strategy.
Let's start by looking at the supply side. Put simply, to be able to consume, in the first
place an economy needs to have the ability-to-produce (a good working motor if you will),
and then it needs top quality fuel. In other words, we understand growth as a function of
productivity ('total factor productivity'; our engine), and fuel, in the form of labour and of
capital. As European Union, we are working on all three.
Let me start with productivity, our engine. This is the key. This is where innovation and
technological progress, the flexibility and efficiency of our markets, and our
entrepreneurial spirit play their part.
Getting the engine right depends on many factors, an alchemy that economists can only
imperfectly put down in equations. But there are concrete aspects, on which we in Europe
must – and do – focus.
Investing in innovation, in human capital, by supporting R&D and patents, also through
education, apprenticeships and training....: this was a top priority for European leaders
when earlier this year they negotiated our EU budget for the coming seven years. All those
items are growing with 40%, in a slightly smaller budget.
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Even with tight budgets, investing for future growth remains absolutely central! Certainly
for the EU; and I know many national governments work hard towards this too. Less red
tape for companies and efficiency gains in the public sector mean more resources freed up
to invest in the future!
Take infrastructure and technology investments, for instance in ICT. To put it bluntly:
we're still lagging behind our global competitors. On fibre networks. Or on 4G technology.
Imagine: right now, the United States, Japan and Korea hold almost 90% of the world's 4G
subscriptions, compared to only 6% for Europe. (I certainly have no 4G coverage back
home in Belgium! Whereas not so long ago, as inventors of GSM, we Europeans used to
lead this field!). For businesses, catching up would be a huge boost.
So seven weeks from now, I have convened a European Council so leaders can look at how
to make that digital catch-up happen. With productivity gains, consumers rights and job
opportunities in mind. Indeed: jobs! With huge unemployment, yet up to 900.000 unfilled
vacancies for ICT specialists, it's not hard to do the maths.
Beyond investing at home, opening markets abroad plays a key role. In the margins of the
G8 last June, we launched the free trade negotiations with the United States – a promising
and powerful enterprise, also for businesses.
But our best bet to increase productivity remains our European single market, which we
can still further exploit. Not least in services; or on energy. Compared to US competitors,
European industry pays today twice as much for electricity, and four times as much for
gas. Our companies are much better at saving energy (high bills are a high incentive to
green production). But because of high bills, they don't get the rewards for being more
efficient. That's why last May, the European Council took decisions to bring down energy
barriers and widen our energy choices, to make energy more affordable for companies and
households.
After productivity: labour. Without labour, no growth of course. Here the crucial
observation is that we are an ageing continent. Life expectancy in Europe goes up by three
months every year. In 2013, for the first time since World War II, our working-age
population of just above 300 million has started to shrink. Meanwhile, the number of older
people keeps rising. As a result, whereas we now roughly have three pensioners for ten
workers, in 2060 that will be six to ten. A colossal challenge for our social market
economies. But let's also rejoice that we are all living longer !
Because of our ageing and shrinking workforce, without efforts to increase labour
participation – in particular of young adults, women, seniors, and minorities –, inevitably
this will result in lower levels of growth and welfare. It is an arithmetical truth, one which
should lead us to think hard about at least four issues, all of them delicate in their own
way:
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- first: the reform of pension systems – a lot of our member states are embarked on pension
reform;
- second: making it more attractive for companies to hire – meaning, essentially, shifting
taxes away from labour;
- thirdly: policies to bring more women, and older people into work;
- And finally: thinking carefully about our immigration policies for the next twenty years,
since one obvious way to close the gaps created by our shrinking workforce is through
migration. (Or more babies!)
In terms of policies, all four topics are mainly national competencies. But with the
financial crisis, it has become more and more clear that what happens (or not) in one
country can impact all the others. So we have already built deeper dialogue and
coordination on a wider range of policy areas, and need more – perhaps also through more
binding mutual engagements on structural reforms. I hope that before the end of my
mandate we can achievement agreement on these reform contracts, as a major piece of the
new Economic and Monetary Union.
I have spoken about productivity and labour, let me now turn to this other essential factor:
capital. The funding of new investments can come from a company's profits, when
corporate balance sheets are healthy. But in many parts of Europe, corporations are
struggling with legacy debt and restructuring. So right now European industrial investment
is low.
There are ways in which the public sector can help. Not by picking winners, but by
providing industry with a policy framework, to help it modernise and compete better. This
is why I put Industry on the agenda of upcoming European Council meetings in October
and February – around concrete ideas put forward by the Commission.
Beyond industrial investments, this is about our global competitiveness, our spirit of
enterprise. On all sides it is dawning that a sector like manufacturing, worth 37 million
jobs and three quarters of EU exports, is not something of the past – it's also for the future.
And in Italy too! You are the masters of making solidly seducing things!
But back to capital. Alongside the funds provided by companies themselves (thanks to
healthy balance sheets), a sound financial sector is key. In Europe, the banking sector plays
a huge part in making sure money reaches businesses and households to finance their
projects.
Now, the Economic and Monetary Union was originally built on the premise that financial
integration would improve this financial intermediation, and that that in turn would help
fuel growth (and indeed it did). But the reverse is also true – as we found out the hard way
in recent years, with financial fragmentation bringing our economies apart.
That is the lesson we are now taking into account in working on a genuine Economic and
Monetary Union, and in particular in building a banking union – in terms of making the
eurozone fit for the future, perhaps the great break-through of last year. With single
supervision for all eurozone banks (soon up and running), and single resolution, our new
banking union will be the cornerstone of our financial architecture.
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Let me remind you: in June 2012 we decided to establish a single supervisory mechanism
for the end of the year, which is a massive change, and already in December 2012 there
indeed was agreement on its shape. Just as leaders kept this promise for the supervision, so
we will for the single resolution mechanism: I have no doubt on this.
In the meantime, to overcome the immediate credit crunch, the European Central Bank has
stepped up to the challenge of spreading liquidity throughout the banking system. And
European leaders decided in June on a massive investment plan for distressed regions,
financed with the Union's budget and the European Investment Bank.
All of this is taking place, I am aware of that, while the entire financial eco-system is and
will be undergoing extraordinary transformations in the decade ahead; to safer banks (and
perhaps smaller banks), and hopefully also to more non-bank funding. These changes will
have to be properly managed, since they are critical for the financing of our economy – for
the adequate fuelling of our engine.
Ladies and Gentlemen, even when it is well-fuelled, and has top-of-the-range features, to
be put to work, an engine requires a purpose. And a well-supplied economy requires
Demand. Demand now, but also: the perspective of sustainable demand in the medium and
long run. For that, maintaining confidence is essential. To avoid boom-and-bust,
exuberance and depression, and the uncertainties that come with erratic policy-making…
prudence is of the essence. In Europe's approach to the crisis, restoring trust and
confidence – for consumers and investors – has been key.
We always knew, after the double shock involving first the banks and then the currency
zone, that it would take time. As a Dutch proverb says: "Confidence leaves on horseback,
and returns on foot." Indeed. But even on foot, it is coming back now. And we must be
mindful not to squander that by backpedalling on domestic and European reforms!
These last years, we experienced again that when confidence is lost, when demand is in
free fall, governments become the spender of last resort. In 2008, Americans and
Europeans applied the lessons of the New Deal of the 1930s, with a huge fiscal stimulus
(worth 1,5% of EU GDP), which helped us avoid the worst.
Clearly, the flipside of being able to intervene with force in stormy weather, is to build up
the fiscal space to do so while the weather is fair. We know the damage that comes with
unsustainable debt. This is why fiscal consolidation is such an important element of
Europe's strategy.
To reach sound public finances, for each country the challenge is finding the right pace, the
right balance, also between short- and long-term. For instance moving faster on the
reforms with the biggest immediate impact on growth. Or being mindful to lighten the
weight of public spending, rather than increase the tax burden.
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The flexibility in our common fiscal rules allows precisely such choices. Before the
summer we've shown, for instance in Portugal, in Ireland, that we can be flexible on
nominal targets as long as structural efforts are there. Other countries, like France, in
exchange for more structural reforms, have also been given extra time – time that should
not be wasted, but used.
This should also leave space for targeted short-term support to growth and jobs. This is
something which the European Council has asserted many times, from the June 2012
Growth Compact to our latest summit before the summer, where we pushed for instance
for ambitious initiatives against Youth Unemployment and for easier credit access for
SMEs. It's key to maintain social cohesion and stability.
Beyond these measures, reinforcing the foundations of the monetary union is a key part of
our growth strategy. It means more financial, economic and budgetary integration –
significant steps also politically, as leaders are well aware.
This was at the heart of my reflection on the way towards a genuine economic and
monetary union, in the Reports I presented last year to the European Council. For a
stronger eurozone, I will make sure this work moves forward.
To conclude, Europe can find and nurture sources of growth and jobs – new ones,
sustainable ones, for young people, for the next generation. And we should not forget some
fundamentals. Europe is a unique continent, privileged in the world. An alchemy to be
treasured: our prosperity, freedom and security, and the solidarity embodied in our social
models. It’s a proud achievement, one that can motivate us to renew and adapt, remaining
true to ourselves in the new world.
I know the European idea is under pressure in a lot of our countries, if not all. For the very
first time, we need to defend Europe, politically and at all levels, to really convince public
opinion. But we will finally convince people, not with rhetoric and words alone (even if
words are needed), but with results, with growth, with jobs.
In the past few years, we have weathered a storm by thinking ahead. It is true for most
member states and for us collectively, as a Union. In all the immediate action for
‘survival’, we never lost sight of the long-term. See our efforts to build a stronger
monetary union, see our insistence on structural economic reforms, see how we carefully
avoided to fight this crisis by sowing the seeds for the next one.
We will come out of this more resilient. It is not an easy road, but one that will reward us
in time. If not yet by next year's voters, then surely by later ones, and in any case by future
historians! Because, one thing is for sure: Europe can make it – we've done it in the past,
we will do so in the future. Grazie.
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