Creating a sustainable future in overcoming the economic crisis
Dialogue Seminar "Promoting Solidarity in the current Economic Crisis: The contribution of the Orthodox Church to the European Social Policy"
Brussels, 17 October 2012
Commissioner Maria Damanaki delivered a keynote speech at the dialogue seminar, organised by the Bureau of European Policy Advisers of the European Commission.
Four years have passed since the beginning of the financial crisis which sent shock waves across the world, but which has hit the European continent with particular cruelty. What had started as a subprime bubble on the other side of the Atlantic is now shaking the foundations of the biggest historical achievement Europe has ever seen.
The award of the Nobel Peace Prize to the European Union could not come at a more appropriate moment in time. It is an acknowledgement that reminds us how we Europeans have managed to transform a continent ruined by war and hatred into a haven of peace, solidarity and prosperity. What is more important, the Nobel Prize is also an appeal to continue our efforts to overcome the crisis, which is infecting the values of Europe and is threatening to carve deep divisions inside the European society.
We live in a society, not in an economy. We use economic policy in order to create better living conditions for our society. When the economy breaks down, we can always try to fix it. But, when a society breaks down, it is very hard to restore it. Some times the damage is irreversible. We cannot let this happen. We must resist the temptations of populism, extremism and intolerance in order to keep the European values alive. They will guide us through the path of European integration, which is undeniably the remedy to the multiple crises that we are facing right now (economic, institutional, societal, cultural).
This is why it is so important to mobilise all our efforts in order to overcome the crisis and build a sustainable future for the next generations to come.
It is important to remember that the crisis in the eurozone has three components: a sovereign debt crisis, a banking crisis and a crisis of competitiveness. The last one is very important because it is structural and it cannot be addressed with currency re-adjustments (devaluation) because we are in a monetary union. It is also very important because it increases the economic divergence among member states and fuels the divisions – often based on stereotypes – among the European citizens.
The origins of the crisis are well identified: too much liquidity that was made possible thanks to the low borrowing interest rates in the Euro area; lack of financial supervision; systematic deviation from the discipline of the Economic and Monetary Union's rules; too much emphasis on monetary policy at the expense of a policy of growth. The advent of the Lehman Brothers incident was the spark that ignited the global economic crisis. In the EU, it hit the Eurozone.
How did we react?
We have to admit that the record is somehow mixed. We took far-reaching measures which would have been unimaginable a few years ago. But on some occasions we did too little, too late.
For instance, it took the EU leaders too long to realise how serious the Greek situation was. Until they managed to take action in May 2010 they had lost valuable time. The Greek bail-out was painful. It imposed austerity conditions that put the national economy into distress. Greece's GDP took a steep dive of more than 20 percent. Never had a national economy shrunk so much, except in times of war. The Greek society, in particular the most vulnerable parts of it, paid a high price. Unemployment is rising, economic activity slowed down significantly, poverty is spreading, and extreme ideologies are winning more followers.
But then, we have to recognise that the Eurozone was on fire and in parallel we were discovering its serious construction errors. We had to send in the firemen and the architects at the same time. We set up bail-out mechanisms and raised impressive amounts of money to fund them. In parallel, we redesigned the architecture of the monetary union so as to make the common currency more resilient to shocks. We realised how inter-dependent the economies of the eurozone were and we created a more coordinated economic governance. We found out how poorly regulated the financial services markets were and we established new rules of financial supervision.
We discovered – unfortunately a bit too late – that the real economy had to be kick-started and we are trying to promote growth and employment. We are realising that fiscal consolidation can be spread out over a longer period of time, thus lowering the adjustment risks on the society and the economy.
The European Summit tomorrow will be very important. It will define the way we will address our problems in the years to come. The European construction is at a crossroads. Shall we continue muddling through the crisis or shall we be bold enough to take the EU to the next level of integration?
The way ahead is more Europe. The pathway has already been sketched in four steps: a banking union, a fiscal union, an economic union and finally a political union.
The Commission's proposal of a banking union is already on the table. We hope that the EU governments will endorse our ideas of a fully-fledged banking union which comprises a single supervisory mechanism for all the banks in the EU, a deposit guarantee scheme, common rules for bank resolution and the possibility of direct bank recapitalisation from the European Stability Mechanism.
The Summit tomorrow will examine an interim report prepared by President Van Rompuy with ideas about how to move forward with the fiscal, the economic and the political union.
The key challenge in the long term will be to restore confidence in the capacity of our institutions, national and European, to move the European construction to the next level.
Allow me to conclude by using the words that President Barroso pronounced in his State of the Union address: we need a new Decisive Deal for Europe. A decisive deal to project our values, our freedom and our prosperity into the future. A deal that combines the need to keep our social market economies on one hand and the need to reform them on the other. A deal that will stabilise the Economic and Monetary Union, boost sustainable growth, and restore competitiveness. A deal that will establish a contract of confidence between our countries, between Member States and the European institutions, between social partners, and between the citizens and the European Union.