José Barroso: "laat Europa's groei de vrije loop" (en)

SPEECH/06/575

José Manuel Barroso

President of the European Commission

"Unlocking Europe’s growth potential"

The Economist Business Roundtable

Brussels, 10th October 2006

Ladies and gentlemen,

Let me first congratulate The Economist for hosting this Roundtable. This is a welcome opportunity for me and my colleagues to discuss with you ways to boost Europe's competitiveness. And I'm sure there is no lack of good ideas around this table.

We all know the context we're in and the challenges we face. Globalisation is accelerating. Competition is intensifying. Technological change is affecting the way business works.

At the same time, the world must cope with new strategic challenges: peace and security, energy supply, migration flows, demographic change - just to name a few.

Europe has the tools and resources to shape globalisation. It is the first trade power. It has solid foundations - the internal market, the euro, the rule of law. With the accession of Bulgaria and Romania, it will represent almost half a billion people.

But Europe must do more to tap its economic potential, and for that it needs to embrace change. Not because change is an end in itself. But because it allows us to fulfil our political ambitions.

This is the essence of the new Lisbon Strategy for Growth and Jobs we launched in 2005. And this approach was confirmed by the European Council held in Hampton Court last year.

So how is Europe doing? I think it is doing better.

This is certainly true in economic terms. The latest figures on growth, jobs and investment are the best for many years. We even had to revise our forecasts upwards. I will give Commissioner Almunia the pleasure of sharing more of the good news with you in a moment.

But let me just quote two figures:

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  GDP growth: we predict 2.7% for the EU in 2006. This is the strongest growth since 2000.

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  Employment: job creation is growing and the unemployment rate has dropped to 8% in the EU, the lowest figure since 1998.

This shows that Europe is on the move. And I'd like to illustrate this further with the topics of our session this morning.

First, competitiveness and Lisbon. When I took office, I decided that my top priority was to restore growth by making our continent more dynamic and competitive.

That meant streamlining the Lisbon Strategy by focusing squarely on growth and jobs, by putting competitiveness at its core and by launching a new partnership with the Member States.

In practice, we did two things. First, we agreed a new integrated set of policy guidelines, which links together our macro-economic, micro-economic and employment policy objectives. Second, we agreed a new governance mechanism, which clarifies the role and responsibilities of each level: at EU level, a Community Programme, which defines the priorities for the EU; at Member States' level, National Reform Programmes, where they set their own policies.

This now gives us a platform for action. Since the first National Reform Programmes were adopted last Autumn, implementation is progressing. Most Member States are putting order into their public finances, improving the business environment, getting more people into the labour market. If there are concerns, it is not so much about the direction, but about the pace of reforms. I'm sure Vice President Verheugen will come back to that.

With the more favourable economic wind, we can expect our efforts to bear even greater fruit. But we cannot be complacent. My conviction is that this improved economic situation provides a unique window of opportunity to accelerate the necessary reforms. This is particularly crucial before the impact of demographic change intensifies.

In this context, one of our priorities should be to complete the single market. This has been at the core of the European process since the mid-1980s. There are already significant gains in terms of GDP and employment. And I don't think it is correct to blame the single market for failing to deliver even better growth.

What is fair to say is that the full potential of the single market is not yet fully exploited. Barriers and inefficiencies remain and new issues need to be tackled as the economy changes.

This is why the Commission has carried out a wide consultation and is preparing a review for next year. The consultation confirms that if the current internal market falls short, this has more to do with a few remaining gaps, and problems in enforcement. This shows that action is needed at EU level, in line with the principle of better regulation. One of the areas where barriers still remain is that of taxation, and Commissioner Kovács will explain you later today how these can be tackled.

Now, a word about services. Everybody agrees on the importance of services for the EU: they account for 70% of GDP, 68% of employment and 96% of the new jobs!

Europe is a global leader in many services, but the absence of a genuine internal market amounts to a considerable drag on its economy. An obvious symptom is the fact that services only account for 20% of intra-EU trade.

The services directive was meant to remove the barriers affecting service provision in the EU. The text we have on the table is a compromise text. It was difficult to obtain. But it is certainly better than no deal at all, and it will help to simplify the rules in this area. I hope, therefore, that we can implement it without delay.

The Commission is also working on a number of other key services, which are not directly addressed by the directive. Two weeks ago, I was in the Parliament to discuss services of general economic interest. I recalled the progress which has been made to open up the markets of major network industries, such as energy, telecommunications and transport. New proposals are also, or soon will be, on the table, for instance in the field of health, postal and financial services.

This shows that Europe is committed to freeing up cross-border trade and investment in services, and that progress is taking place.

Now comes the question: if the development of services should get priority, does this mean we should forget about our industry? The answer is no, of course not. The future of one depends on the future of the other.

The manufacturing industry employs over 34 million people; it accounts for three quarters of EU exports and over 80% of EU private sector R&D expenditure.

Is this sustainable given the rise of China and India? Evidence so far suggests that delocalisation is actually limited in scope. And one should not forget that foreign direct investment of EU companies is also a way to access fast-growing markets.

Having said this, we need to take this question seriously.

Firstly, because the trend towards relocation is there. Actually, it is not just manufacturing which is affected: as services become more tradable, they are also becoming more subject to relocation.

Secondly, because the costs of delocalisation have a particularly heavy impact on weaker parts of our economy, notably those people and regions with fewer skills.

So what should we do? I believe there is no way back to the bad old days of protectionism and subsidies. The job of government is to create the right framework in which EU industry can thrive, and to equip people to cope with change.

This is why actions to strengthen the competitive advantages of our industrial base and to create a more business-friendly environment are at the core of the revised Lisbon Strategy.

This means in particular a greater commitment to the principle of better regulation, by reducing the administrative burden on enterprises, and by improving the quality of existing and new legislation.

It also means boosting innovation. Two weeks ago, we put on the table the elements of a broad-based innovation strategy for Europe, including measures to improve access to finance and the framework for intellectual property rights.

It is also in this context that I proposed to establish a European Institute of Technology. This should help raise standards throughout the knowledge triangle of education, research and innovation, with direct benefits for our industry.

Europe's innovation strategy will be at the core of our discussion at the Lahti European summit in ten days time.

To cope with globalisation, we must also be prepared to manage the effects of delocalisation. This is the role of the Globalisation Adjustment Fund proposed by this Commission. The aim is not to preserve jobs which are not sustainable; it is to equip people who are negatively affected by global trade to move on and reintegrate into the employment market.

Ladies and gentlemen,

I'd now like to ask you a question: do you believe your business is ready for the demographic challenge?

Ageing is first and foremost good news: it means more people living longer, in better conditions. This also creates a demand for new products and services. But it also means an ageing and shrinking workforce, with an increasing risk of skill bottlenecks.

We often discuss the need to reform social protection systems and to boost employment and productivity. This is very true. But I'm not sure we have done enough to quantify the amount of change needed - including in our own minds - to cope with the new realities of Europe's demographic squeeze.

The Commission is about to adopt a Communication which does precisely that. And it is clear from this paper that Europe will need more people - either born here or migrating to the EU. And that there should be more of these people at work, working more productively, with longer working lives. Great improvements to the health of European citizens over recent decades will make this easier. But we still need to revisit our policies and our mindset in a radical way.

It is also the responsibility of business to prepare for this new, unprecedented, challenge. For once, we can predict the future. We need to use this information and take action now, and not wait for demographic and market pressures to spring a nasty surprise.

Having said all this, can we conclude there is a viable economic model in Europe? I think we can, although there is not just one model. Europe has a diversity of situations - with good and less good examples.

What we share are common values and ambitions, such as sustainable development, solidarity and cohesion, equal opportunities and the fight against all forms of discrimination, universal access to health and education, quality of life and quality in work.

And to achieve that, we need a competitive and open Europe, a Europe of buoyant markets and healthy trading relations, which can deliver full employment, high social and environmental standards, and high levels of investment in research and education to prepare for the future.

Europe must reform and modernise its policies to preserve its values and to deliver prosperity and solidarity. This is the kind of Europe we want.

Thank you.