Lezing van voorzitter Eurogroep, Jeroen Dijsselbloem over groei en werkgelegenheid (en)
Your Excellencies, ladies and gentlemen,
This fifteenth-century building is the former home of the Protestant community of The Hague. Our King, Willem-Alexander, was baptised here. The building is no longer used as a church, but also for cultural and social activities. I still find it a most inviting location for a meeting on community sense. Community sense in Europe of course.
Those who have studied the history of the European Union know that we started with the European Coal and Steel Community. After that we had the European Economic Community. And until the Lisbon Treaty took effect, one of the three pillars of the European Union was called ‘the European Communities’.
Personally, I still prefer the term ‘community’. It describes better how we work together in the European Union in general and in the eurozone in particular. In the Netherlands, a ‘union’ sounds a little more like something that has been agreed upon in a boardroom. Whereas a community sounds like something built from the grassroots up, by the people.
People form communities all the time. What defines every community is that its members have common characteristics and shared interests. In a well-functioningcommunity there is a form of solidarity among its members and an understanding of the responsibilities towards one another. The seventeen, soon to be eighteen, member states of the Eurozone form a relatively young community, with the euro as the defining element. To make this community viable, the founding fathers of the euro area created a set of rules. For example, they gave the European Central Bank a clear mandate and laid down fiscal rules in the Stability and Growth Pact. And until 2008, before the fall of Lehman Brothers in the US, it seemed to function quite well.
In my speech today, I want to explain that in recent crisis years we have not only saved the community but strengthened it. I will then discuss the new challenge that lies ahead: improving our growth performance.
The euro crisis has put our community to the test. It raised doubts about member states’ commitment to the rights and obligations within a monetary union. And subsequently that posed a threat to the heart of the community and the functioning of the euro area. But we reacted as a community should. We showed solidarity, strengthened our commitments and accepted our responsibilities. Solidarity in a community requires effort. Solidarity is not charity. When unemployed people apply for benefits, society asks them to do their utmost to find a new job. In a monetary union, too, solidarity means that those receiving support must also show commitment and responsibility. In that respect we shouldn’t underestimate the significance of what we have achieved.
Last Thursday we decided on the clean exit of Ireland and Spain. After three years in the programme for Ireland, and one and a half years for Spain, those countries are back on their own feet. We shouldn’t underestimate the significance of countries supporting and financing loans to cover the debts of other countries. Nor should we underestimate the significance of the efforts made by Greece, Portugal, Ireland, Spain and of course Cyprus. They have carried and will carry out radical reforms and asked their people to make painful sacrifices. Many in the programme countries have suffered major income losses. We, the politicians, have an obligation to keep explaining to our people how all Europeans have taken responsibility. That’s also part of community building.
But we did not only tackle the huge problems in the short term. We realised that the rights and rules for the European monetary union were incomplete and needed maintenance. In fact we are still working on the further design of the system. We have created a permanent safety net in the form of the European Stability Mechanism, the ESM. And we are now in the middle of setting up a Banking Union.
To strengthen our obligations and responsibilities in the area of fiscal policy, we have designed an essential set of rules, known as the Six-Pack and the Two-Pack, enhancing the functioning of the Stability and Growth Pact. It provides tools to improve our national fiscal frameworks. It creates a mechanism for monitoring possible macroeconomic imbalances. And it facilitates effective EU-level intervention when necessary. In fact, in two days we will discuss one another’s draft budgets in the Eurogroup as a direct result of the Two-Pack. It is the first time we will discuss our policies for the next year before the start of the fiscal year. In my opinion that provides a real opportunity for the European dialogue to have an impact on the new national budgets. Until recently, discussions among finance ministers on national budgets were characterised by let´s say, non-intervention. Now the atmosphere is strikingly different. We realised that European governance of fiscal policies means far more than ticking the box of the three per cent deficit target. When setting deficit targets and deadlines, it is also important to discuss the more structural measures that are needed.
European economic governance is about accepting that members of the euro area have a clear interest in other member states’ economic affairs. And it is about accepting that there is a European interest in your own budget. We realised that having a set of rules is not enough. Members need to point out to one another their common responsibilities in order to keep the community sound and stable. And even though every now and then a government leader tells the European Commission to mind its own business, the work of the Commission has been successful. During economic hard times we have managed to stabilize and lower deficits. The Eurozone budgets are now more sustainable than in the UK, the US and Japan. So we have made significant progress in shaping a more robust community.
Now, let me discuss what I think is the next challenge for all eurozone countries as we enter a new phase. The fiscal outlook in the programme countries has improved significantly. Ireland and Spain are ready to stand on their own feet again. Europe has shown its ability to adapt. But let’s take a look at the European Commission’s latest growth figures: growth in the euro area for this year is still negative at -0.4 per cent. Potential growth is weak, at a forecast 0.7 per cent in 2015. The unemployment rate will remain in double digits in the coming years. This is the new challenge for the countries in the Eurozone: improving our growth performance and reducing high unemployment. And at the same time preserving and modernising our unique European social model.
To make this possible, our economies need to be revived and our social systems need to adapt to the new economic reality. It is simply a necessity at a time when jobs are easily shifted to other parts of the world and the population of Europe is ageing. Obviously, every country in the Eurozone, without exception, needs to strengthen its competitiveness. We need to improve our earning capacity.
For decades after the Second World War, Europe was an inspiration for many parts of the world. The historic economic performance of the old EU member states after the war, with average annual growth figures of over four per cent, enabled Europe to quickly catch up with the US. After joining the EU, member states in Southern Europe showed the same kind of growth, and Central and Eastern Europe followed their example later. Between 1995 and 2009, countries like Poland and Estonia also recorded growth in excess of four per cent on average.
Nowadays we tend to look with envy at Asia with its vibrant and dynamic economy. But we don’t have to look so far to see promising economies catching up. A few weeks ago I visited Latvia. A country that suffered severely in the early years of the crisis. The European Commission is now forecasting solid growth figures of over four per cent for the next few years for this country. And whereas unemployment was around twenty per cent in 2010, it will be halved by next year. This ‘good practice’ can serve also as an inspiration for other member states. I realise that the Latvians have had to make great sacrifices to get this far. But it shows that member states can recover and significantly improve their growth perspective. We therefore need to remove the inefficiencies hindering our economies. The OECD estimates that over a period of time the economies in the euro area can increase Gross Domestic Product by up to one fifth by implementing structural reforms. We need to get rid of the barriers preventing us from fully adapting to the new economic challenges and being competitive. But most of all we need to get rid of them to get people back to work. For the biggest challenges lie in the labour market.
We tend to speak of outsiders and insiders on our labour markets. Yet we cannot allow ourselves to have outsiders, nor can we afford it. We need to profit more from the energy of young people and the experience of older people. To lower the costs of labour. To make it attractive to hire people. To improve the education system and pursue effective labour market policies. These are essential elements for increasing our growth potential and making our economies more competitive and dynamic. Ultimately, the question is not how much money we should invest in our economies, but how to create economies people want to invest in.
This brings me to Europe’s role in fuelling this growth agenda. Clearly, the European level has a major part to play. Despite everything that may divide the European countries sometimes, politically we have a lot in common. Raising the retirement age is not only an issue in France or Italy, but also in Finland and Germany and basically in all other countries. And Ireland and Spain are not the only countries that were confronted with trouble on the housing market. In Slovenia, the Netherlands and in many other countries too, the housing market is under pressure. We can learn from one another’s experiences. But perhaps even more important: as in every community, the members must have the courage to confront each other with inconvenient truths. We need to make one another aware of our weaknesses and put forward best practices for solving them. We need to lead each other firmly to the right solutions and the best ways to implement them.
Now, let me be clear: the main responsibility for these reforms lies with national politicians. They understand the national economic challenges best. They are best placed to engage in a dialogue with society, with social partners, with citizens, with voters. But across Europe we should adopt country growth strategies that address the specific growth problems. These should include the crucial reforms required. The instruments Europe provides should support these reforms and be part of the country growth strategies. For example, by making structural reforms a condition when setting deadlines in deficit procedures. Or by using European structural funds to implement and support structural reforms.
Ladies and gentlemen,
The European growth model has proven its value since the European Coal and Steel Community was founded. From the German Wirtschaftswunder in the fifties and sixties, to the Celtic Tiger in the nineties and the Baltic miracle at the beginning of this century. They all saw periods when economic growth hit double digits.
‘A convergence machine’, Europe is called by the World Bank. But it’s a machine that needs constant maintenance.
In the past few years the Eurozone community was put to the test for the first time. It was difficult, but in the end the members responded by shouldering their responsibilities. We have laid a stronger basis that has created new hope for Europe. Now we have to pass the next test. Moving out of the crisis, leading politicians must maintain the sense of urgency and take their countries through an inevitable transition phase. Let’s use our full potential and make our economies more dynamic. Let’s pursue the path to sustainable growth and modernise our social model. Let’s go forward with confidence to the next, post-crisis phase and turn Europe into a convergence machine again.