06 March 2012

Olli Rehn: Turning the tide of the crisis

"Let me recall that last October the Commission proposed a roadmap to stability and growth based on five main elements. As seen in last week's European Council, we are making very good progress on all of them.

First, the framework for economic governance in the euro area has been completely overhauled with the new legislation that entered into force in December. The Fiscal Compact Treaty has been signed. And proposals on enhanced surveillance and budgetary monitoring are in the pipeline.

The architecture of the Economic and Monetary Union will finally be made robust enough to prevent and withstand the kind of financial crisis that we have been going through since 2009. It will create foundations for a more balanced and sustainable economic development in the EU.

Second, the European banking sector is recovering and the risk of a credit crunch in the real economy has been prevented, largely thanks to the recent ECB long-term refinancing operations. The stress in sovereign bond markets has eased. All this has boosted investor confidence.

Third, the euro-area financial firewalls are being reinforced. It has been agreed to accelerate the start of the permanent ESM by one year to July this year. The combined lending capacity of the ESM and the EFSF will be re-assessed by the end of this month. A larger euro area financial firewall will also help to unlock a strengthening of IMF resources.

Fourth, measures to raise growth potential are an essential element of Europe's economic strategy and crisis response. The completion of the Single Market 20 years after its foundation will be a major engine for growth. In Member States, long-planned structural reforms in product and labour markets can give a major boost for employment. And public spending and investment decisions both at EU and national levels will have to be taken with growth considerations as the first priority.

Credible policies and their determined implementation will have a strong confidence effect and thereby trigger badly-needed investment decisions. That is where growth and employment will be generated from.

The fifth brick of our crisis response is a sustainable solution for Greece. Last week's agreement on the second programme for Greece will help to restore her public-debt sustainability and enhance competitiveness.

A recovery of Greece calls for new investment, both Greek and foreign, into new growth and new jobs. For this to happen, attractive conditions for investment must be created: an efficient and fair tax system, an effective public administration, a better mobilisation of structural funds, and competitive labour costs. We are supporting Greece in its efforts in an unprecedented scale in terms of expanded technical assistance.

And once we have finished fire-fighting, we need to look into tomorrow's challenges, consider next steps in strengthening the euro area governance, its institutions and instruments. Therefore, the Commission presented the Green Paper on Stability Bonds last November. It opened up a useful public debate, not least thanks to the European Parliament. We underline the basic principle of sustainability: Any step in the further sharing of risk would have to be balanced by provisions that ensure sustainable public finances and minimise the moral hazard. Stability bonds would have to go hand in hand with a substantially reinforced fiscal surveillance and policy coordination, as an essential counterpart.

We have carefully listened to various proposals over the past months. This includes the one by the German Council of Economic Advisors who suggest such a joint issuance of bonds that would be limited in time and size to bring public debt in all Member States to below 60 per cent of their GDP. While I would not mix this with eurobonds proper, I find the proposal smart and potentially doable, and certainly worth exploring further."

Full speech

© European Commission