Speech by President Herman Van Rompuy at the Estoril Conference 2013

EUROPEAN COUNCIL THE PRESIDT

Cascais, 2 May 2013 EUCO PRESSE 174 PR PCE 90

Speech by President of the European Council Herman Van Rompuy at the Estoril Conference 2013

It's a great pleasure to speak here at Estoril, at this important international forum for debate on global issues. I was here in 1990 and 1999, as a private tourist on holidays..

I'm also touched to be in Portugal today. A country that has undertaken such huge efforts in the financial crisis, with a sense of purpose. The first results are beginning to show, pointing to a better future..., but I am very much aware that these are hard times, for many people - for families, students, workers and job-seekers from Braga to Faro, and no doubt even here, in the beautiful city of Cascais..

I just spoke with President Cavaco Silva about the current situation and the outlook for the country, and I will do so later today with Prime Minister Passos Coelho

"Global challenges, local answers" is your theme in Estoril this week. I should like to use this opportunity to speak today about where we stand in the crisis, for the European Union as a whole. "Global challenge, Europe's answer."

Our countries share common challenges, yet each has its own specific situation, its specific problems. Within the common frame we've set for our actions, it is to each government to chart the right course for its country, and to gather political support for that course

But while there is no standard recipe for recovery, there are four fundamentals that are absolutely essential for success. This is something all leaders in the European Council, all 27 presidents and prime ministers, agree on very strongly

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  The first fundamental is to preserve financial stability;

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  the second, to make our economies more resilient, through sound public finances and improved competitiveness;

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  the third, to take immediate measures for growth and employment;

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  and the fourth, to complete the architecture of our economic and monetary union

The right balance, the right mix needs to be carefully assessed, at any given time, for any given country - all leaders said it again in the last European Council in March. But they all know one thing for sure: these four fundamentals we need them all, all four at the same time. For my talk, I will go through the four of them in turn. Unfortunately, although we must do them all simultaneously, I cannot speak about them simultaneously! But clearly they are all linked. It is not about slogans. Nuances matter

Let me start with financial stability. When financial stability goes adrift, everything else starts to shake. The early days of the financial crisis couldn't have made that clearer

As Portugal experienced first-hand, under intense market pressure, you loose the ground under your feet.So stabilising the situation - bringing down spreads, eliminating the existential threats on the eurozone - was the overriding priority, the precondition for all the rest

Collectively, and although it took two years, we have managed to restore confidence in our common currency, and no one questions any longer the fact that the eurozone will remain intact. It's a major achievement. And the work of your country played an essential part

Let me turn to the second fundamental field of action: making our economies stronger and more resilient. Improving public finances and competitiveness. It is essential in order to come out of this storm and to weather future ones more safely. We now know what to avoid - past excesses, past neglect... - and what to aim for. Yet there is not one single recipe

The root causes of the crisis were manifold: in some countries it was unsustainable public deficits, in others a fragile banking sector, a housing bubble, a manifest lack of competitiveness, or even a mix of those

We have seen systemic private sector trouble end up on public balance sheets, and also excessive public debt become a drag on the overall economy. That's why both bringing deficits under control and implementing structural reforms had to be part of the emergency response. When the crisis hit and their economies were choking, at that moment the governments concerned had little choice. Speed was of the essence

Today, after this phase of emergency, and now that the focus is more on setting our economies on a sound footing, we must still look comprehensively. Bringing excessive debts and deficits under control and preventing the weaknesses and bubbles of the future. Sound public finances and structural reforms for lasting growth. And there's more breathing space to work out the best balance

Because the first results of all the efforts are there. Competitiveness is improving, in Italy, Greece, Portugal, for instance in terms of unit labour costs. Exports are increasing. Within the eurozone as a whole, public deficits have gone down by half since the beginning of the crisis. But even as the emergency recedes, excessive deficits still have to be contained

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At the same time, clearly, deficits cannot be eliminated overnight: that would risk triggering a downward spiral, which would be self-defeating (simply because, if your GDP shrinks, your relative debt ratio increases all by itself)

So the challenge is finding the right pace: to reduce fiscal deficits steadily but gradually, and to protect sources of growth. But always keeping the direction: it's of the essence for credibility. It is something that European Council members said again clearly at our last meeting in March

I used to be a budget minister myself for many years, so I know the challenge of translating principles into practice. Especially during emergency situations, when decisions must be taken fast, and all at once. But now that financial turmoil has receded, there should be more time get the balance right

As we tiptoe away from financial emergency, as investor-confidence slowly returns, we need to build on that, with the focus on structural measures to reduce imbalances and make public finances sustainable in the long run

For each government it means making its own sensible choices. Keeping an eye at the long term, not sacrificing vital investments for growth, like innovation or human capital. Launching vital reforms now, rather than putting off to the distant future. Making tax systems more efficient, supportive-of-employment and fair. Especially in times of crisis, it is essential that the burden is fairly shared and that all citizens, all companies, contribute to the common effort. Fighting tax fraud and tax evasion is of critical importance, which is why I put the issue at the top of the agenda for our next European summit, late May

As a Union, to all become more resilient individually and collectively, in the past three years we have also strengthened our common budget rules (with all kind of implausible names, like the 'two-pack', 'six-pack' and 'fiscal compact'...). All countries commit to our fiscal rules, and we can use the flexibility within them, such as the focus on structural balances and not just on nominal figures. For instance a few weeks ago in the case of Portugal, and likewise in Ireland, it was possible to be flexible on nominal targets: because structural targets were met. I fully support this decision. The same pragmatism can apply elsewhere. Once again, what matters most is to clearly keep the sense of direction

Structural reforms are about preparing already today for the future, investing in the skills and infrastructure that will be needed tomorrow to remain an attractive, innovative economy, and planning carefully how to be able to honour longer-term spending commitments, like pensions. All this concerns all our countries. Because all of us are affected by global challenges: the emerging economies, an ageing population, technological revolutions, shifts in the regions around us. All European countries need to become more resilient. If we play it well, the crisis - as a rough wake-up call - will have made us stronger

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A general remark about the shared context of these efforts. When a country plans its adjustment, it's important to keep in mind that these national choices don't happen in a vacuum: we all have neighbours, trading partners, currency-companions. Especially within the eurozone. Even when each balances its own books, the overall result could still be unbalanced. Because the eurozone is much more than the sum of its parts, interdependences matter. Measures that might make sense for a country considered in isolation, may not have the exact same impact once placed into the more general context. We need to keep looking at the overall picture. Rebalancing is under way. And we have to consider finding more ways to improve how we take interdependences and imbalances into account, together as the euro area. Ultimately it's in the interest of all euro countries -whether they still need to make efforts to rein in excessive deficits, or whether they happen to have margins that could help the recovery, as G20 finance ministers also suggested last month. Because, ultimately, we all depend on each other

This brings me to the third fundamental element of our overall strategy: immediate action to foster growth and fight unemployment. That's more urgent than ever. We are now in that most difficult of moments: in-between. After the violent storm, but before the clear sky

The emergency of the financial crisis is receding (our first fundamental point), and the work for long-term resilience is on a promising path (the second point). The challenge today is to bridge the interval, to shorten the economic crisis, and especially - especially -to combat unemployment. After three years of fire-fighting and sacrifices, patience is wearing understandably thin

'Reform fatigue' in some countries and 'aid fatigue' in others are gaining ground. There is a real risk: that the gains of past and present efforts become fragilised. And this is something we need to avoid by all means. The only way to make sure that all these efforts do not go to waste is to keep focusing relentlessly on growth and employment. In one word: speeding up the recovery; that ... ladies and gentlemen, ... is the biggest priority today. Here we need to be bold, we cannot afford to wait any longer. We need growth measures now. Targeted measures to fight unemployment: Targeted measures to boost economic activity:

The key political players in this field are national governments: they are the ones who are first in line. But together as a Union, we can support national initiatives and it's urgent to look at where we can do more

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  Investing in growth is above all about financing the economy. Here lies the main bottleneck today, not least in this country. One way to tackle it is to help investments happen

That's why the European Council has agreed to direct as much as possible of our common EU resources for the next seven years towards growth and competitiveness objectives. There is also the European Investment Bank, which in Portugal alone made 12 billion euro worth of loans since the start of the crisis in 2008. Its lending capacity has been massively increased for this current year and the years ahead, and I encourage the EIB to step up the delivery

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But more needs to be done. In this part of Europe in particular, there is a deeper funding problem: that of access to credit

Today it's much more expensive for a Portuguese or Italian company to borrow money than for a similar company based in Austria or Belgium: this is unacceptable. Tight lending conditions are a huge drag on recovery - and they affect most strongly small- and medium-sized companies. This is very harmful, since our whole financing system revolves around banks (they provide about three quarters of the financing in the eurozone) and our whole economic fabric revolves around SMEs (they provide about three quarters of all jobs in the eurozone). So clearly something needs to be done

National governments can help (like the Portuguese government recently announced), the EIB can help, but the core problem concerns financial fragmentation, which puts some of Europe's key achievements at risk

That's where the European Central Bank's role comes into play. As President Draghi explained last month, the benefits of standard monetary operations by the ECB don't flow in the same way across all parts of the Union, and that's a problem, he said. A problem that calls for even more engaged action from the ECB, in good intelligence with governments and other European institutions - and within the strict limits of its mandate - because the ECB cannot and should not solve all of Europe's problems alone

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  For employment also, we must mobilise every lever, every actor

Here too, governments are in the lead but the European Union is doing its utmost to help, and we need to do more. We've reallocated unused European funds in support of national initiatives to fight unemployment

In Portugal for instance, it's helped to launch a national initiative called 'Impulso Jovem', which - with the support of the Commission - will help create opportunities for 90 000 young people. And 500 million euro was redirected to support training facilities and traineeship schemes

For the new seven-year EU budget, the European Council proposed to set up a 6 billion euro youth employment initiative, from which Portugal will also benefit. This money will help governments implement the Youth Guarantee they all committed to: Every young person should be in school, in training or in work!

Again, all these initiatives are important, but more is needed - all across Europe. As unemployment reaches shocking levels that defy imagination, we must push our own imagination to the limits. I call upon economic actors, upon business leaders, upon the unions, to be creative, to leave old divides behind, to jointly find solutions, both within their countries and at the European level. I can also assure you this is the single most important immediate priority for all members of the European Council, and we will remain focused on it in our next meetings

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Let me just insist again: what matters tremendously for immediate measures on growth or employment, whether national or collective, is that they come together with structural reforms to improve business and employment conditions in a lasting way. Because investment won't just flow from lower taxes or more accessible money, if the overall business environment isn't good. They go together

The new set of ambitious measures announced last week by Prime Minister Passos Coelho goes precisely in that direction. Offering access to affordable loans to SMEs, revising corporate tax-rates while at the same time drastically simplifying the business environment and bringing down red-tape.In short: linking short-term efforts to long-term credibility

This brings me to the fourth and fundamental element in our overall strategy: deepening our economic and monetary union

In the crisis, all eurozone countries discovered the true extent of their interdependence. And we found out that the eurozone's initial architecture did not match up to that interdependence

Over the course of last year, and at the demand of colleagues in the European Council, I have spelt out what it would really take for euro area countries to achieve (to quote the name of my reports) a "genuine Economic and Monetary Union". The main conclusion is simple: given their high level of interdependence, euro area countries need to coordinate closer together: their banking sector policy, their fiscal policies and their economic policies. And that means they will also need to adapt the way they deal with political accountability and legitimacy

In this process, the current priority is to establish a banking union, that is, an integrated way to deal with the financial sector. We have agreed to completely reorganise the way we supervise our banks, and that once that is done we will also need to equip ourselves with integrated tools for crisis resolution

The so-called single supervisory mechanism, which will be responsible for all banks in the Eurozone, is already under way. The European Central Bank will supervise all participating banks as from 2014. The next step is single resolution, which we will further discuss on the basis of next June's proposal by the European Commission. The objective is to deal with bank failures in a sound and systemically safe way

The banking union is an area where we need to keep the momentum. If anything, the recent uncertainties around Cyprus have underlined the need, not only for single supervision but also for strong and effective single resolution

We can't afford to have a half-built system. Single supervision and single resolution go together, you can't have one without the other. We can build both within our current Treaty. Which is good, since we need to keep moving swiftly

That's why I call upon the legislators to also quickly reach agreement on the two related pieces of legislation: the directive harmonising national resolution mechanisms and the one harmonising deposit guarantee schemes. These two, together with the possibility of direct banking recap once the single supervisor is effectively in place, will allow us to bridge the period between now and the establishment of the single resolution

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Beyond the banking union, the broader work towards a genuine Economic and Monetary Union must continue: it will be one of the central issues at the European council summit in June

To conclude:

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  Financial stability;

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  Resilient economies;

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  Immediate action on growth and employment;

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  And a better architecture for our monetary union -

These are the four fundamental workplaces where we as European Union are engaged. And when I say "we", it really means all of us, together. National governments and parliaments, social partners, European institutions..., and in the end this effort concerns all citizens of all the countries of our Union

It's a complicated task, it takes more time than we had anticipated, but we know where we want to go. To bring Europe where it belongs: back on the path of growth, of shared prosperity and of a better future. Proving, as we go, that Europe is part of the solution for this better future

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