03 January 2013

Speech by President Barroso: "Europe as solution: Facts and myths"

Myth number 1: Europe and the European Union caused this crisis. Not so. The crisis was born on the far side of the Atlantic, caused by practices in the financial sector that were irresponsible – in some cases even criminal – which in a second stage spread to Europe by virtue of the global nature of the banking and financial system. And what started as a problem of the high-risk subprime sector degenerated into a crisis for the real economy that then exposed the various weaknesses of the banking system and of some European countries' economies and in particular the intolerable excessive indebtedness and their lack of competitiveness.

Myth number 2: Europe is the 'sick man' of the global economy. Not so. If we look at the debt-to-GDP ratio, the European average (of 82.5 per cent in spite of all this crisis) is decidedly better than the United States' (almost 103 per cent) or Japan's (almost 230 per cent of GDP).

Something which fewer may know is that, for the first decade of the twenty-first century, in spite of the redistribution of power and the emergence of extremely competitive new economies, Europe's share of the world market remained stable at 20%, while the USA's and Japan's recorded significant falls, to 13 per cent and 9.5 per cent respectively.

Myth number 3: The euro caused the crisis. Not so. Our currency did not cause the crisis. I remind you, moreover, that the European country in which the financial crisis took on the greatest proportions from the outset was Iceland, which is not even a member of the European Union (although it is currently a candidate for membership). The euro has remained strong and stable and is still a reference currency globally.

The so-called euro crisis should not be confused with what is in fact certain Member States' sovereign debt crisis. The euro is, I repeat, a stable, strong, credible currency.

Myth number 4: The European institutions did not act in time. Not so. There should be no confusion regarding the role of the European Institutions, which is to propose solutions, with the role of the Member States with which the final decision on these very matters lies. So one of the problems that this crisis revealed and which we are now seeking to correct was precisely the lack of powers at European level to correct the imbalances which began to emerge.

Let us remember that banking supervision was conducted at national level and that there were no powers at European level. Let us remember that the mechanisms for applying the Stability and Growth Pact were weak, particularly the preventive part. And, should we wish for a more specific example, let us recall that the Member States did not approve a Commission proposal, made at the very start of my first term of office, to give Eurostat additional powers to investigate and collect data directly, without going through the national statistical bodies, which would for example have permitted us to identify serious irregularities in the Greek accounts.

Myth number 5: Europe has not shown solidarity with the countries in crisis or, in another common variant, 'We need a new Marshall Plan'. Not so. If we take the example of Greece, even excluding the new plan recently approved for the country, the total European and international assistance (including loans, private debt write-offs and funds from the Community budget) amounts to 380 billion euros. That is the equivalent of 177 per cent of Greek GDP, or around €34,000 per Greek citizen. The Marshall Plan corresponded to some 2.1 per cent of the GDP of the countries it supported, and was therefore on an entirely different scale to the 177 per cent of Greek GDP.

Myth number 6: The European Union – or membership of the euro – is imposing austerity on the Member States and their citizens. Not so. Policies to reduce public deficits are inevitable and have to be pursued regardless of whether countries are in the eurozone or not, although their rhythm will obviously depend on each country's economic and financial health. Even the countries which do not belong to the euro and are not bound to balance their budgets by the recent Treaty on Stability, Coordination and Governance in the MEU are following similar policies. This is yet further proof that the problem is not specific to the euro. Take the example of the United Kingdom, which recently approved one of the most rigorous budgets in its history. That is what would normally be called a real austerity budget. And, let me say it again, it has nothing to do with either the financial assistance programme or belonging to the euro.

This does not mean that developments at European level have not also revealed shortcomings in the management of the crisis; they most certainly have revealed shortcomings, some of which are serious. On top of the structural imbalances that persisted for far too long – particularly where the deficit is concerned – the financial crisis has laid bare the inadequacies in the design of the economic and monetary union.

It became clear that it was an imperfect construction; that while we had a shared currency, we did not have any truly coordinated economic policies; and that we did not have the necessary tools to deal with situations of financial instability. In other words, we had a ship that was fit for calm waters, but proved far too fragile when the storm came. Fundamentally speaking we had - and still have - a system where the Member States are no longer able to take autonomous action to resolve their problems on their own and where Europe as a whole is still not fully equipped to address the same problems effectively.

Full speech

© European Commission