Olli REHN: Recovery from the crisis – Coherent policies for growth and jobs

Olli REHN – Vice-President of the European Commission and member of the Commission responsible for Economic and Monetary Affairs and the Euro

ILO European Regional Meeting – High-level tripartite ILO/IMF/EC panel discussion – Oslo

Oslo, 10-4-2013 — /europawire.eu/ — Ladies and Gentlemen,

Regrettably, due to unforeseen circumstances and urgent business here in Brussels, I was not able to travel to Oslo as planned. Fortunately – I hope it is mutually fortunate – modern technology enables participation via video-link from the basement of Berlaymont here in Brussels.

I very much appreciate your invitation to speak at the 9th European Regional Meeting of the ILO. Having worked closely with the social partners in the country I know best and in the European context, it is a particular honour for me. And as a resting scholar of European integration and as perhaps the last functionalist in Europe, I want to recall that it was indeed the International Labour Organisation that served as the prototype of (neo) Oslo functionalist integration in the classic of Professor Ernst Haas, ‘Beyond the Nation State’, which essentially described the Monnet method of making Europe in action. So the ILO and the European Union stem very much from the same kind of roots.

Let me start by recalling a basic fact in the making of the European Union. All through the history of European integration, the social partners have played a central role in the construction of our social and economic model. I have no doubt that this will be so also in the future. Social partners have an essential contribution to make to Europe’s joint efforts to overcome the current crisis and to return to sustained recovery.

We all know that Europe is not faring well today. Social effects of the intertwined financial and debt crisis continue be felt by our societies, especially by the most vulnerable. Unemployment has reached an unacceptable level in many countries, especially youth unemployment. My colleague Laszlo Andor yesterday outlined to you the actions the Commission has launched to tackle unemployment and especially to help young people to move from education into work.

Overall, the European economy reflects a dualistic picture today. While the real economy is still in stagnation, the worst market tensions have eased and confidence has been returning. We expect Europe to return to growth gradually in the course of 2013, and the recovery should become more robust as we move into 2014.

So there is certainly no room for complacency. Europe faces profound challenges. The current crisis is not merely a cyclical downswing. It has its origins in the excessive accumulation of both private and public debt over the last decade.

The economic stimulus we pursued with the European Economic Recovery Plan helped to cushion the initial shock after the bubble burst four years ago. But it could not fundamentally remedy the situation.

The crisis exposed past policy failures and laid bare long-standing structural weaknesses. We were not able to detect the worst excesses in time. Our financial regulation and economic governance did not keep pace with economic developments and financial innovation.

Belatedly but decisively, those shortcomings have in the past few years been addressed. Tougher capital requirements are close to being enacted. The single supervisory mechanism for euro area banks should be definitively agreed soon. Important steps have been taken to strengthen policy coordination among the members of the euro area.

The Commission is determined to build on these steps, and to create the deeper and genuine Economic and Monetary Union that we need to deliver greater economic and social welfare for the future.

Ladies and Gentlemen,

These are essential conditions for sustainable growth and job creation, but of course not alone sufficient ones. We also need to address the worrying losses in competitiveness seen in many countries, as reflected in growing structural unemployment and falling global market shares.

We are not sitting idle in the face of those challenges. The rebalancing of the European economy after the credit-fuelled boom experienced in many countries is currently underway. Significant rebalancing has already been made, but the large adjustment needs will still take time to be concluded. They are reflected in the real economy, especially in highly-indebted countries. The relief of the stress in financial markets has not yet fed through to credit growth or to the real economy, and major internal and external growth obstacles are still in place.

As to public finances, fiscal consolidation has reduced the average deficit in the euro area from around 6% of GDP in 2010 to 3.5% in 2012. We forecast a further reduction to below 3% of GDP this year.

Yet, public debt in Europe is expected to stabilise only by 2014 and to do so at above 90% of GDP. Serious empirical research has shown that at such high levels, public debt acts as a permanent drag on growth. If it is not reduced, it will become an ever-heavier burden on our economies, eating resources that could otherwise be channelled into productive investment needed to support job creation.

It is now essential for Europe to restore its competitiveness. This is not limited to its external dimension: it means a sustained rise in welfare, for which productivity growth is the main driver.

And I believe we can succeed in restoring our competitiveness, if we stay the course of reform. Not reform for its own sake, but reform for the sake of sustainable growth and job creation; reform to reinforce the competitiveness of European industry.

To drive job creation and productivity growth, we need to support research and innovation, education and training. We need to stimulate entrepreneurship and private investment.

We need to complete the financial repair to boost the flow of credit to households and SMEs. We also need to support public investment – as we have done by increasing the lending capacity of the European Investment Bank, especially for regions and sectors where financial constraints are the most severe.

Let me give you a current example on Italy. The Commission has reaffirmed its support to the Italian government’s plan to accelerate the liquidation of the large stock of trade debt accumulated by the public administration. This will ease firms’ currently excessive liquidity constraints and thus assist economic recovery.

Given Italy’s considerably improved budgetary situation over the past years, there is scope for a phased liquidation without endangering the sustainable correction of the excessive budget deficit.

We also need to continue reforms in our labour markets: balanced but ambitious reforms that remove obstacles to job creation, and ensure that those who lose their jobs in a downturn get support to help them back into work or retraining. Reforms that respect the principles of collective bargaining, in line with the EU Charter of Fundamental Rights.

This is supported by the Employment Package that sets out ways for Member States to encourage hiring, by supporting business start-ups and reducing taxes on labour. It also tries to identify the areas with the biggest job potential, notably in the green economy, health care and long-term care services and ICT, and puts forward ideas on how to promote labour force mobility, including across borders.

The social consequences of the crisis have made it also clear that we need to modernise our welfare systems. The recently adopted Social Investment Package provides guidance to Member States on reforming their social protection systems to make social protection more efficient, effective and adequate. The EU Funds will play a key role to support Member States in the implementation of these priorities.

Ladies and Gentlemen,

I firmly believe that the reforms Europe needs will be better designed and implemented if they are the outcome of a genuine social dialogue. Constructive social dialogue has been a key factor in the successful management of economic crises and structural change.

To help rebuild competitiveness of the European economy and boost recovery and jobs, we need to maintain our social model and save the industrial base of Europe. We therefore need to adapt our productive economy to face both long-term social and ecological challenges and a rapidly changing economic landscape. That calls for an inclusive dialogue between partners.

Correcting the problems of the past and setting Europe on a path of sustainable growth is a shared responsibility of the Member States, of the social partners and of the EU institutions.

And let me say, last but not least, that we very much welcome the support of the ILO in this difficult task.

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