Ladies and Gentlemen,
Let me begin by thanking the Irish Business and Employers Confederation for inviting me to meet you this morning. The title of today’s event – Navigating Today, Planning for Tomorrow – could hardly be more to the point. Europe today is like a sailing ship in the midst of a storm with many but largely unknown shallows all around and perhaps more dangerous reefs ahead.
In such a situation, navigating is no doubt a difficult and daunting task. And it calls upon those at the helm to be aware of impending dangers and to set clear priorities. That is precisely why Europe has responded to the economic crisis as swiftly, decisively and proactively as it did. And that is why it was so important to stabilise the financial system. This was a major achievement of the EU in the autumn of last year.
Now the time has come to address financial regulation. I shall spell out some of the details in a minute.
But before that, I would like to remind you that the picture evoked by the title of today’s event should draw our attention to yet another feature of Europe’s response: A ship can only steer its course as long as it moves through the water.
That is why Europe’s economy must gather speed again. The financial crisis now has an impact on the real economy. And we must prevent the recession from creating a vicious circle of shattered confidence and gloomy expectations which leaves our economies paralysed and our peoples discouraged.
Thus our response to the crisis should also help us to secure a prosperous, fair and environmentally sustainable future for Europe. It should enable our economies to take advantage of the opportunities offered by globalisation. It should put Europe in a stronger position to cope with demographic changes. In short, it should bring us closer to the goals of the Growth and Jobs Strategy.
The European Recovery Plan is the main response of the EU to deal with the impact of the crisis on the real economy. It is based on two main, mutually reinforcing elements: short-term fiscal measures to boost demand and save jobs, and structural reforms that prepare the ground for higher growth in the long term.
The plan called for a timely, targeted and temporary fiscal stimulus of around €200 billion, or 1.5% of EU GDP. Our forecasts show that this stimulus will alleviate the impact of the crisis. It will, however, not be sufficient to deliver positive growth in 2009. We only expect growth to occur in 2010. Nonetheless, the stimulus will significantly slow down the downward economic spiral and prepare the ground for future growth.
It will be crucial to ensure that the implementation of the fiscal stimulus is speedy and non-bureaucratic. Therefore, the Commission has recently changed the rules forpublic procurement to allow for such a swift implementation.
The main objective of the European Recovery Plan is to provide a co-ordinated policy response across the EU. Co-ordinated does not mean uniform, of course. Every Member State will have to tailor its measures to national needs and circumstances. But without co-ordination, Member States would only do what they perceive to be in their own best interest without taking into account the effects on its neighbours. Such an approach would be short-sighted to say the least.
Let me elaborate a bit on this last point: we are seeing some worrying signs of protectionism both within and outside the EU. Everybody knows the lessons of the 1930s and we must not repeat the mistakes made back then. It is one of Europe’s greatest achievements to have overcome economic nationalism and to have scrapped tariffs and other trade restrictions to create the biggest single market in the world. We should not return to such ideas now when they are less justified than ever.
The fiscal stimuli called for in the European Recovery plan has to respect the different fiscal starting positions of Member States. We have to be aware that in some Member States the fiscal room for manoeuvre is limited and should not be wasted. The money must be used to the best effect, supporting the necessary structural reforms, and speeding up the EU's move towards a knowledge-based low carbon economy.
The Recovery Plan supports this approach with a ten-point action plan that draws heavily on the Lisbon Strategy, and that can be expected to have an immediate positive impact on demand and confidence. Measures include:
– Improving access to finances for business;
– Reducing administrative burden and promoting entrepreneurship;
– Stepping up investments to modernise Europe's infrastructures;
– Increasing investments in R&D, innovation and education;
– Developing clean technologies for cars and construction;
– A high-speed internet for all.
Let me focus on one item from that plan which is close to my heart. I believe that it is now more important than ever to fully exploit the growth potential of small and medium-sized enterprises. SMEs make up 99% of all European enterprises and if we enhance their competitiveness, we can significantly enhance the growth potential of the EU economy.
However, it is not sufficient simply to do more for SMEs. We really need a political commitment that the concerns of SMEs are firmly placed at the centre of political decision-making.
For this we now have a European "Small Business Act”. The SBA is designed to ensure that the "think small first" principle is firmly anchored across the European Union – from local authorities all the way up to the European level.
In parallel, we have proposed in the Small Business Act a number of new legislative measures. For instance, we propose rules for reduced VAT rates in certain labour-intensive sectors. And we have reworked our state aid rules to give national and regional authorities more flexibilities to grant non-distorting state aid.
Furthermore, we have engaged in an extensive exercise to reduce administrative burden for SME's and to simplify decision making. In fact, measures already presented or announced by the Commission represent savings in excess of €30 billion. These significant financial and time savings for European enterprises are particularly important in the context of the current economic downturn. This also means that we are well on track to reach our ambitious target to reduce administrative burdens by 25 % in 2012.
Let me give you a brief outlook of what is ahead of us, in particular as regards financial regulation: the financial and economic crisis is far from being over. We are only about to start to address the most difficult part of the crisis – the regulation of the financial sector. The meeting in Berlin last weekend of European leaders was an important signal towards a common framework of regulating this sector. This is encouraging but much more work on the tricky details will need to be done. The upcoming G-20 meeting in London will hopefully achieve international agreement on core pillars for a future regulation of the financial sector.
We have to take coordinated steps to restore confidence in the financial sector and prevent future crises, including by reinforcing cross-border financial supervision within and beyond Europe. Europe cannot continue to ignore the fact that it is impossible to strive for an integrated financial market where risk is kept under proper control, while holding on to a supervisory structure that is fragmented along national lines.
Integration and globalisation have lead to complex interlinkages and spill-over effects. That is why the De Larosière group has been established. The proposals that this group has submitted yesterday will be a key contribution to addressing these issues.
The Commission is working with Member States on a framework to allow the removal of impaired assets from banks' balance sheets. This will provide flexibility to Member States while preventing discrimination, unfair advantages to some banks and damaging spillover effects from one Member State to another. The most difficult issue is how to put a proper valuation on complex assets. Too high a valuation and the taxpayer could end up footing the bill.
The Commission will also be coming forward this spring with initiatives on executive pay, hedge funds and private equity. Currently an open consultation on hedge funds and a review of national regulation/industry codes for private equity is underway. The review of private equity codes and national regulation is intended to identify any gaps that need to be addressed by EU legislation. On remuneration schemes in the financial sector, perverse incentives and excessive risk-taking must be urgently addressed.
Let me conclude: If the financial and economic crisis has shown one thing then it is that European integration offers a high value for European citizens: without a functioning single market, without a stable EURO, without a co-ordination of policy responses in fiscal and financial matters, Europe would be much worse off these days!
Thank you for your attention.