Only competitiveness can maintain and enhance prosperity in Europe, said the Chancellor in her address at the World Economic Forum in Davos. The European Union must not accept mediocrity here. We must take as our yardstick, "whether we are competitive enough to play on global markets", declared Angela Merkel. "We will really only be able to maintain our prosperity if we are innovative, and if we take our lead from the best."
Compact for competitiveness
Member States, she proposed, should enter into agreements with the European Commission, in which they undertake to improve elements of their competitiveness which are not yet at the level required. She gave the examples of ancillary labour costs, research spending, infrastructure and the efficiency of authorities. National parliaments would have to legitimate these agreements, added the Chancellor.
Working together to strengthen the common labour market
It is also important to do everything possible to ensure the mobility of labour within the European single market, she said. "The opportunities offered by the single market must also be used to maximise the benefits of a common labour market", underscored the Chancellor.
Angela Merkel declared that free trade is one of the major locomotives of growth. Currently, though, we are seeing many protectionist trends around the world. Increasingly, bilateral agreements will be the way of choice, she said. "In this concert Germany will be playing a very proactive role." She stressed the fact that the European Union is endeavouring to put in place a free trade agreement with the United States of America. "We would all benefit from this."
On the way to a stability union
"Within the European Union, we aim to take the economic and currency union further, to achieve a stability union," said the Chancellor. This is a long-term undertaking. She declared that structural reforms to improve competitiveness and budget consolidation are "two sides of the same coin".
Currently the time factor does have "a certain role" to play, said Angela Merkel. "We have already launched consolidation measures and a large number of structural reforms, but we know that the impacts will only be seen later." It is important that no new instability emerge in the meantime. The main task in hand is thus to demonstrate the new prospects and if necessary take steps to bridge the gap. "We must undertake structural reforms today, so that we can live better tomorrow."
Further regulation of financial markets needed
Looking at the financial markets, the Chancellor called for the regulation of the shadow banking system to play a major part at the G20 meeting in Russia. Equity capital is strongly or fairly strongly regulated, but we can see a flight into the shadow banking system, she said.
There are still major gaps in the regulation of financial markets, said Angela Merkel. Everybody agreed that every financial centre, every financial market actors and every financial market product must be regulated. We are a long way from this goal, said the Chancellor. People need to be convinced that business is there for them.
The central banks cannot resolve the structural problems, but they can build bridges. "That is why the main task ahead is a political task – to put in place an enabling economic environment in Europe, an environment in which it is fun to invest, which facilitates new investment, and which makes possible growth and thus competitive jobs in the long term", declared Angela Merkel.
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