22 April 2013

Closing keynote speech at the Brussels Think Tank Dialogue by President Van Rompuy

Recognising that the length of the economic crisis remains a major concern, the President acknowledged that "growth and employment are not picking up as fast as we had hoped for. […] This means we need more immediate measures to directly support job creation and economic activity. […]The eurozone is much more than the sum of its parts, so it’s not enough to try solve each country situation in isolation. We need to keep looking at the overall picture." Since European leaders share a common understanding "on the four fundamentals of our strategy: financial stability, sound public finances, immediate action to fight unemployment and long-term reforms", the stake in current debates, said the President, is in fact "timing and sequencing.[…] For each country the challenge is finding the right pace, the right balance […] Again, what matters most is to clearly keep the sense of direction."

Speaking of the work to reinforce the Economic and Monetary Union, President Van Rompuy stressed that "we must keep the momentum on the banking union. […] We can't afford to have a half-built system. Single supervision and single resolution go together [and] we can build both within our current Treaty. Which is good, since we do not have the luxury of time." "Changes in the Economic and Monetary Union will have implications in terms of democratic accountability and political legitimacy. […] When a decision involves both national and European competences, it becomes even more complicated. And that's exactly what's happening these days. In those cases, we need a double legitimacy."..

At the start of the financial crisis, we found ourselves engaged in a race against time. We managed to avoid the worst, and prove wrong those who claimed it was "just a matter of time" before the euro would collapse. Today the biggest problem is the economic crisis. And this is less about its (potential) deepness, than about its length. The passage of a tornado is devastating, but you can start rebuilding the next day, whereas endless head-winds can be harder to deal with. Put more simply, the economic crisis in some way is lasting too long. Growth and employment are not picking up as fast as we had hoped for.

Early in the crisis we managed to secure more time, more breathing space – for Greece, for Ireland, for Portugal. It was going to be tough, but they were going to get through it. Now, some years down the line, the feeling by some is that the situation isn't getting sufficiently better yet, that things aren't evolving fast enough. Too many people, especially young people, feel like their lives are stuck on pause, suspended, because they cannot project themselves in the future. Patience is understandably wearing thin and a renewed sense of urgency is setting in.

That's why the debate about the direction comes to the surface, commonly phrased as 'austerity vs. growth'. In fact, what it is mainly about, is timing and sequencing, because between leaders we still all agree on the four fundamentals of our strategy: financial stability, sound public finances, immediate action to fight unemployment and long-term reforms. What's really important is that we keep working simultaneously on the short-term and on the long-term...

“Economic policies are a matter of common interest” says the Treaty: this has become a daily, tangible reality. So when national fiscal policies are designed, there is a real need to think also of the economic and monetary union as a whole, to factor in our interdependence. The eurozone is much more than the sum of its parts, so it’s not enough to try solve each country situation in isolation. We need to keep looking at the overall picture.

Within this picture, for each country the challenge is finding the right pace, the right balance, always with the short-term and the long-term in mind. It's important to move faster on the reforms with the biggest immediate growth impact. The flexibility in our common fiscal rules allows precisely that. We showed last week for Portugal and Ireland that we can be flexible on nominal targets as long as structural targets are met. The same pragmatism can apply elsewhere. Again, what matters most is to clearly keep the sense of direction.

We also must unlock the biggest obstacles to recovery. I'm especially concerned about financial fragmentation and difficult access to credit in the hardest hit countries. High private sector lending spreads are taking a toll on growth; it's holding back the very companies that should be driving the recovery. We need to restore normal lending in these countries, especially for SMEs. Part of the answer lies in setting up the banking union of course (and I’ll say more on that in a moment). But even beyond that, more will be needed to get credit flowing again, possibly through specific action involving all EU institutions.

Full speech

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