28 February 2013

VP Rehn: Deeper Integration in the eurozone and Britain's place in Europe

Agreeing with a former British PM, Rehn quoted: "I do not know of many economic or political problems in the world which will be easier to solve if Britain is outside rather than inside the Community".

In my view, the focus on fiscal policy alone is a much too limited view when trying to trace the reasons for slower-than-anticipated growth in Europe. Where is the primary problem, then? I would seek it in excessively tight financing conditions for businesses and households, which are caused by the still-unfinished repair of the financial system and banking sector. Today’s liquidity trap is in fact a financing trap.

The excessively tight financing conditions, especially in southern Europe like Spain, Portugal and Italy, are hindering the flow of credit to households and businesses and thus suffocating economic activity and export growth in these countries. While the US by and large proceeded with financial repair in 2008-9, which was crucial to its recovery, this process in Europe is still only partially achieved, which is working as a critical drag against returning to recovery.

That’s why we need to complete the repair of the financial sector, in order to unblock private investment. This is not about "bailing out bankers", it is about letting credit flow to create growth and jobs.

But we need to do even more to boost productive investment. Public banks such as the European Investment Bank have an important role to play here. The €10 billion increase in the EIB's capital agreed last year has expanded its lending capacity by €60 billion, which means around €180 billion investment in innovation, infrastructure and green growth in Europe over three years, starting this January...

And that brings me to the question of Britain in Europe. Because it is in everyone's interests for Britain to be an active player here. This is a game in which, if I were a British citizen, I would want my country to be playing as a midfield playmaker rather than watching from the sidelines. No one ever scored goals sitting on the bench.

For 40 years now, Britain has been stronger thanks to its membership of the European Union. More dynamic economically. More equitable socially. More influential in world affairs.

To illustrate Europe's importance for Britain, I think Dr Simon Sweeney, Lecturer in international political economy at the University of York, hit the nail on the head when he wrote as follows:

"What did the EEC/EU ever do for us? Not much, apart from: providing 57 per cent of our trade; structural funding to areas hit by industrial decline; clean beaches and rivers; cleaner air; lead-free petrol; restrictions on landfill dumping; a recycling culture; cheaper mobile charges; cheaper air travel; single market competition bringing quality improvements and better industrial performance; break-up of monopolies; Europe-wide patent and copyright protection; no paperwork or customs for exports throughout the single market; freedom to travel, live and work across Europe; funded opportunities for young people to undertake study or work placements abroad; labour protection and enhanced social welfare; smoke-free workplaces; EU-funded research and industrial collaboration; European arrest warrant…".

I must stop here for the sake of time, as he listed dozens of other things that the EU has brought for Britain. But he coined it even better:

"All of this is nothing compared with its greatest achievements: the EU has for 60 years been the foundation of peace between European neighbours after centuries of bloodshed. It furthermore assisted the extraordinary political, social and economic transformation of 13 former dictatorships, now EU members, since 1980… We must play a full part in enabling the Union to be a force for good in a multipolar global future."

That's the point. And the European Union is stronger today because of Britain’s tremendous contribution to it. Our economy is more open and dynamic as a result of Britain’s liberal instincts, which are an important counterweight to the regulatory reflex which still sometimes surfaces.

The single market we have built up over the last two-and-a-half decades owes a lot to those liberal instincts. But let’s be clear about one thing. The single market needs rules, regulations and strong and effective institutions in order to function. Without those, there is no single market. Prime Minister Margaret Thatcher understood this when she signed the Single European Act and had it ratified.

Whatever choices Britain ultimately makes about its future in Europe, I trust this great European country will support the rebuilding of our economic and monetary union, in line with Chancellor George Osborne's political maxim that “the remorseless logic” of monetary union leads to greater economic union.

We have learnt the lesson that a banking union must be an essential element of the EMU. It will move decisively forward this year. The Single Supervisory Mechanism should be agreed in the coming weeks and we will propose a European Resolution Mechanism later this year.

The Commission will also soon take initiatives to complement the monetary union with a real economic union. Our guiding principle in rebuilding the EMU is that any steps towards more solidarity and mutualisation of risk should be combined with increased responsibility and further sharing of budgetary sovereignty. That implies deeper integration of decision-making, as well as commensurate steps towards a political union and increased democratic accountability.

We have before us many more far-reaching choices, in the eurozone and in the wider European Union. In that context, I believe it is firmly in Britain's interest to use its energy for reforming Europe rather than seeking to undo our Community, which would leave us all weaker. In a nutshell, why not focus on reform rather than repatriation?

A former prime minister told the House of Commons in 1967 that British membership of the Community would be "healthier for Britain, advantageous for Europe and a gain for the whole world". He was right on every count, and I can only agree wholeheartedly with his next remark: "I do not know of many economic or political problems in the world which will be easier to solve if Britain is outside rather than inside the Community".

Full speech

© European Commission