24 February 2014

VP Rehn: Stress tests will be a "serious exercise"

Polls predict eurosceptic parties to do well in the European elections in May. Will we see a large anti-euro-vote?

These will be certainly the most important European elections in recent decades. The pro-Europeans have to argue for the European project, not naïvely, but critically and constructively. That's why I'm going to resign from my position as Commissioner in early April and run for the European Parliament myself.

You have experienced in your home country Finland how a small party like the Finns Party can shape policy. What do you expect when, in a large Member State like Germany, the euro-critical Alternative für Deutschland makes it into the European Parliament?

In many countries, anti-European populists have influenced the mainstream parties. We have seen that in Finland, France, Great Britain and Italy. In Germany this was not the case, and I hope it will not come to that either. In Finland and Italy, anti-European parties have paralised the political system. This has blocked reforms that would be important for growth, such as reforms of the pensions and health care system in Finland. Paradoxically, the rise of populist parties has hampered exactly the solution of those problems to which they owe their popularity. In this respect, this trend is worrying.

At the same time the political leadership plays into the hands of populists when it leaves voters in the dark about Greece. Will the decision about a third aid programme be made after the elections?

We need to compile all the facts carefully. By the end of April, the interest-adjusted deficit for 2013 will be available. We need to update our forecast to have an accurate picture of the growth prospects - which has a great impact on debt sustainability. We must also consider the implementation of the current programme which is at a critical point.

The crisis has forced programme countries to implement reforms. The desire for changes in many other countries, however, is rather limited. Are you concerned by that?

Taking the unit labour costs as an indicator of competitiveness, Ireland, Spain and Portugal have restored their competitiveness and increased their exports. France and Italy have not yet corrected their competitiveness to the same extent. Both countries have been losing market shares for a decade. Finland has experienced the same thing for five or six years. All three have a lot of homework to do.

Last year you initiated a procedure against Germany because of its trade surplus. Would it not be more important that the Commission put pressure on Germany regarding its backward pension reform?

To make it very clear: No-one criticised Germany for its exceptional trade performance. I would prefer it if all EU countries had the international competitiveness of Germany. But Germany must remove obstacles that are slowing down domestic demand and investment. As part of the alert mechanism for macroeconomic imbalances we will publish our detailed review of German economic policy. The results will feed into the next round of recommendations in June. 

Do you think your successor should have greater tools at his disposal to bring Member States in line?

First of all, the governments of the Member States should take the Commission's recommendations more seriously and intensify reforms. If you look at France and Germany in recent decades, they have always called for a new institution if there was an economic problem in Europe. Institutions are important, but real life is more important. That's why I advocate that both countries should tackle reforms that complement each other. France needs to do something for its competitiveness, Germany for domestic demand.

Does the Eurogroup need a permanent chairman?

This idea goes back the Franco-German attempt last year. I am against creating any overlaps; form must follow function. First we would have to look at exactly what is needed in this area.

What do you expect from the asset quality review and stress test of the banks carried out by the ECB?

Incentives and structures are different today than they were in 2010. Then, the responsibility lay with the national supervisors and they tended to obscure problems, as we have experienced in Ireland and Spain. Someone called that once the "financial nationalism", which I think is an accurate term. The ECB has no interest in taking ailing banks under its wing. Therefore, these tests will be a very serious exercise.

Economists say that the markets see the eurozone currently in a too positive light - just as they have for some time judged it to be negative. Could the results of the stress tests put the markets back into turmoil?

I have my own views about the way that markets operate, but those I keep to myself. Currently the markets are very calm because the budgetary policies of Member States have become more credible. The deficits have shrunk by nearly 7 per cent of gross domestic product in 2012 to around 3 per cent this year. The ECB has come into action as a lender-of-last resort and we have created a more solid framework for the further consolidation of public budgets and reforms in Europe. All three factors are important. Last year political crises like the one in Portugal and Greece shook the markets much less than they would have the year before. The markets have understood that the existential threat to the euro is over.

Full interview (in German)

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