Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
SPEECH/07/74 Joaquín Almunia European Commissioner for Economic and Monetary Affairs The EU Economy and the Lisbon Strategy for Growth and Jobs Business Community in Land Nord-Rhein Westfalen Mullheim, 9 February 2007 Ladies and Gentlemen, First let me thank the organisers of this event for their invitation to speak to you today. As the most important industrial centre in Germany, I very much welcome the opportunity to meet the business community of this region. The small to medium sized enterprises that many among you represent form the backbone of the European economy and are therefore vital to our quest for sustained growth and higher employment. It is for this reason that I will to focus my presentation today on the European Union's Strategy for Growth and Jobs. As a fundamental strategy to secure a stable and prosperous future for Europe, one of its most important building blocks is improving the competitiveness of SMEs and enhancing the EU's business environment. Before I discuss this issue in some detail, let me first give a brief overview of the macro-economic situation in the EU. Overview of the EU economy and benefits brought by the euro The EU economy is currently enjoying a robust recovery. Growth is buoyant, with GDP growth accelerating to 2.8% in the EU and 2.6% in the euro area last year. This represents the strongest growth performance since 2000 and is driven largely by domestic demand. This strong growth rate is coupled with macroeconomic stability and low inflation. Inflation stands at just above 2%, the lowest average since the 1970s and a considerable achievement when compared to the inflation rates regularly experienced during the 1980s and 1990s. As a result of low inflation, both short term, and more importantly for businesses, long term interest rates are at historically low levels, even by Germany's standards. These benefits are in large part due to the euro and the stability oriented policies of EMU. This week marked the 15th anniversary of the signing of the Maastricht Treaty and the effective launch of the EMU. Today, 316 million people can share the macro-economic stability brought about by the euro in terms of low inflation, favourable financing conditions for businesses and reduced vulnerability to external shocks. The euro has also brought about significant improvements in the labour market. At 7.5%, unemployment stands at a record low in the euro area and over two million new jobs were created last year. In fact, employment creation is one of the lesser known successes of the euro and the accompanying Growth and Jobs Strategy. 12 million jobs have been created in the euro area since the introduction of the euro in 1999. Contrast this with the 3 million jobs created in the 8 years preceding the single currency and I think you'll agree this is quite an accomplishment. Overall, it is clear that we are enjoying a period of strong economic recovery and we have good reason to believe that this upturn will last. The current favourable economic climate is the result of cyclical factors. Yet the upturn is also to a lesser extent the result of past structural reforms that are beginning to influence growth. This is welcome news but does not imply that we can now rest on our laurels. If we are to sustain growth and job creation we will need to respond to globalisation and prepare for an ageing society. Globalisation is an opportunity for Europe. Trade liberalisation and global economic integration are beneficial for all trading partners, improving the use of resources and allowing goods and services to be produced more efficiently. 2 Moreover, as our trading partners grow wealthier, globalisation brings increased business opportunities for EU firms in their home markets. Indeed, EU exports are increasing and the euro area's external trade surplus reached three billion euros in November last year. Over time, China has become a major trading partner. EU exports to China have increased by 14% on average over the last five years whereas US exports to China have decreased in the same period. Nevertheless, preserving Europe's competitiveness will require further structural changes that make our labour and product markets more flexible while ensuring that we remain at the forefront of technology and innovation. While structural reform is needed to seize the opportunities of global developments, it is also required to tackle the challenge of population ageing in Europe. We know that the shrinking of Europe's working age population will have severe consequences for productivity and economic growth. Indeed, current projections estimate that unless action is taken, the EU growth rate will more than halve by 2050. At the same time, public spending for pensions and health care is projected to soar, with government debt in the EU forecast to increase to 200% as opposed to today's 63%. While this assessment may sound alarming, Europe's leaders have set out, and embarked upon, a comprehensive strategy that aims to reap the rewards of globalisation while addressing the challenge of demographic change as well as the issue of energy and climate change. Indeed, energy is becoming an increasingly important issue in a context characterised by lasting high oil prices and concerns about long term security of supply. The question of climate change is closely linked: half of the emissions of green house gases come from the energy sector. The Commission has therefore recently proposed a comprehensive package aiming at: - improving the security of supply, through a triple diversification of our sources of energy, our suppliers and our infrastructures and a renewed effort to increase our energy efficiency; - fighting climate change by setting new targets for the post Kyoto period, promoting decarbonised energies and trying to convince other parts of the world to join the effort; - and improving the functioning of the internal market of gas and electricity, through for instance increased interconnections of the national networks and an improved regulatory framework. The re-launched Growth and Jobs Strategy puts boosting productivity and raising employment rates into sharp focus while simultaneously fostering innovation and addressing the issue of energy. Meeting the goals of this strategy would enable us to turn global developments to our advantage and preserve the living standards and social welfare of European citizens. Progress under the Strategy for Growth and Jobs The Lisbon Strategy was originally conceived one year after the launch of the single currency and it was designed to complement EMU's framework for stability and growth. In 2005, Lisbon was renewed, drawing on the lessons of the first five years in practice and focusing on increasing partnership between the EU and Member States. 3 Since the launch of Lisbon, the strategy has been instrumental in focusing minds of governments and stakeholders on the need for reform. Let me elaborate in detail just some of the key reforms already implemented by Member States: - Firstly, across the EU governments have introduced tax cuts and changes to the benefit system in order to 'make work pay.' For example, countries such as Belgium and Finland have introduced tax measures that target low wage earners while France, Germany, Belgium and others have established systems for the early activation of the unemployed. - Member States have also introduced reforms to their healthcare and public pension systems. Indeed, pension reforms coupled with changes to early retirement rules have already increased the employment rate of older workers and have raised the retirement age by one year. - In addition, a host of initiatives are underway to foster research and the diffusion of new technologies. These include the use of targeted investment, support for start-up companies and a higher availability of risk capital. Current targets aim to increase R&D expenditure from 1.9% to 2.8% of GDP by 2010. I am pleased to report that past reforms are already beginning to produce results. While it is true that the current economic upturn is to a large extent due to cyclical developments, evidence is accumulating of important benefits stemming from structural changes. For example, resilient employment growth, especially among women and older workers, coupled with the rapid decline in unemployment suggest that structural improvements have taken place in the labour market. It is a little known fact that despite the sluggish growth during the first half of this decade, Europe has been creating more jobs than the US. Indeed, it is estimated that reforms in areas such as unemployment benefits, taxes and the ease of entry for new firms have reduced the structural unemployment rate by almost 1.1% and have boosted GDP in the euro area by 1.7% since 1995. On top of this, labour productivity is increasing in the first three quarters by an annualised 2.5% compared to an average growth of 0.8% a year between 1995 and 2006. Research indicates that part of this pick up is structural and reflects reforms made in recent years. The progress made thus far may be modest in some respects but it illustrates the real benefits that can be achieved if the EU presses ahead with its structural reform agenda. While past measures are commendable, they do not go far enough. Above all, now is the time to accelerate reforms when economic conditions provide us with a 'window of opportunity'. To relax efforts now could prove a historic mistake. Macro-economic stability and microeconomic reform in Germany I have outlined a positive picture overall for the EU economy. Within this wider framework of strong growth and macro-economic stability, Germany's case is particularly striking. Since the early 90s, Germany suffered from sluggish growth, high unemployment and low competitiveness. Now, all the signs indicate that the German economy's period of stagnation has been firmly consigned to the past. Germany has overcome the impact of re-unification, and is recovering its economic dynamism. 4 Growth has accelerated, reaching 2.4% of GDP in 2006, a considerable improvement compared with 2005 when growth was less than 1%. Despite the VAT increase at the beginning of January, all indications point to Germany remaining on a solid growth path. Competitiveness has been restored, with German exports increasing by 10.1% in 2006. Moreover, indicators suggest that the business climate has also improved in the fields of construction, retailing and wholesale. The situation of the German labour market is also looking considerably brighter and unemployment has decreased substantially. Against the background of this recovery, Germany is successfully managing to achieve sound public finances, a central tenet of macro-economic stability. The German government has placed fiscal consolidation at the heart of its policy approach. Indeed, as a result of measures taken to correct the government deficit, the excessive deficit procedure against Germany is expected to be abrogated in June. Nevertheless, the Commission's recent assessment of Germany's Stability programme for 2007 shows that improvement is still needed, especially given that next year will see risks stemming from social expenditure and the planned company tax reform. The German government should hasten the pace towards the medium term objective in 2008 by maintaining tight control over expenditures and by ensuring that the announced reform of the corporate tax system does not jeopardise fiscal consolidation. While this country has accomplished an impressive recovery, keeping to the path of economic growth will also depend on the structural reforms Germany makes to ensure its position as a strong and competitive EU leader. Thus far, Germany has shown a strong commitment to structural reforms and last year took important initiatives to improve its structural strength. Several measures in particular deserve a mention: The government has brought the decline in working hours to a halt and has introduced reforms to the pension system aimed at reversing the trend to early retirement. Indeed, the government has decided to raise the retirement age to 67 while establishing a framework for privately funded pension schemes. At the same time, labour market reforms have provided for more flexibility. Germany has liberalised employment protection legislation for temporary contracts while making the organisation of work more accommodating for employees through flexible working hours and part time jobs. Moreover, there has been a considerable degree of wage moderation in Germany. Without a doubt the progressive decline in unit labour costs has helped restore the competitive edge that Germany lost during the unification boom. 5 Although public attention usually focuses on reforms linked to labour markets and welfare systems, today I would also like to mention reforms in the microeconomic sphere, which are of particular relevance for SMEs: - Firstly, Germany has introduced a systematic and ongoing simplification programme to reduce the administrative burden. Plans are underway to reduce the reporting requirements on companies. - Important progress has been made towards reducing the costs of starting a new business and Germany has taken measures to increase the share of risk financing. Steps are being taken that target the internationalisation of SMEs. - Germany has recognised the need for a highly educated workforce and has taken various measures to upgrade the quality of general education as well as promoting excellence through initiatives targeting top universities. These include measures that aim to improve the output of academic research. - Finally, Germany has also set an ambitious target to increase expenditures in R&D from 2.5% in 2004 to 3% by 2010. As a prime location for high technology and research, no doubt this region will be at the cutting edge of new R&D schemes. Overall, I am encouraged to see that the strength of the German reform efforts embodies a determination to raise the country's innovative capacity. Unfortunately, there exist important weaknesses in the German Reform Programme which need to be tackled. - Firstly, more ambitious reforms are needed to strengthen competition in product and service markets. Germany should continue to relax restrictive rules governing many liberal professions. There is also a need to remove barriers to competition in the gas and electricity networks where unbundling has so far been ineffective. - Second, implementing the health care reform and strengthening efficiency in the health sector will help ensure the long term sustainability of public finances. - Thirdly, Germany needs to do more to tackle unemployment. Efforts should focus on integrating the low skilled into the labour market through better access to qualifications and by providing more effective employment services for the long term unemployed and young people out of work. Therefore despite progress, important obstacles remain, and it is clear that this country needs more structural change, not less. Conclusion Ladies and Gentlemen, Let me conclude by emphasising once again the strong position in which both the EU and Germany now find themselves. Thanks to our stable and growing economies, we are in an ideal position to prepare Europe for future challenges and opportunities. This year Germany took over the European Presidency. It is significant that a key theme of the Presidency's work programme is the continuation of EU reform and the implementation of the Lisbon Strategy for Growth and Jobs. We know that reforms deliver results, and we have identified the work that remains to be done. Now is the time to pick up the pace and press ahead with the reform effort to secure Europe's future for its citizens. 6