05 May 2012

Olli Rehn: Restoring growth in Europe - confidence, reforms and investment

In his speech, Commissioner Rehn discussed the economic situation of Europe today, the crisis management, and Europe's strategy to restore sustainable growth through three overriding elements: confidence, reforms and investment.

The crisis exposed vulnerabilities that had been built up in Europe during the first decade of the euro. In a context of excessive global liquidity and mispricing of risk, weaknesses in the design of the Economic and Monetary Union had allowed the build-up of significant fiscal and macro-economic imbalances in the years before the crisis. With the possible exception of Greece, fiscal weakness has been a result rather than the cause for the crisis: the level of public debt rocketed on average from an already significant 60 per cent to 90 per cent in four years, caused both by the falling output and, to a lesser extent, by the fiscal stimulus to tackle the crisis. Once again, the evolution in public debt has varied among the Member States. In many Member States, very high levels of public debt have made public finances vulnerable and burdened their economic dynamism and medium-term perspectives for sustainable growth. This has been a striking feature of the current crisis in comparison to previous episodes of crisis and recovery, since in the present situation the core problem is less the increase of debt as such than the much higher level of debt from which the increase started.

We have in the past two years completely overhauled and reinforced the rules and practices of economic governance in the EU. With the strengthening of the Stability and Growth Pact and with the new Macro-economic Imbalances Procedure, the most important instruments of the new governance system are in place and now being applied. The Member States' commitment to this direction is confirmed with the Fiscal Compact Treaty, which is in the process of ratification.

In addition, we are about to conclude the second cycle of economic policy coordination under the European Semester. One important task this year is to establish a strong and consistent track record of the new economic governance as a pre-condition for any deep integration towards a genuine economic union.

The first building block is that fiscal consolidation, while necessary, is done in a growth-friendly and differentiated way, in order to strike a balance between necessary fiscal consolidation and concerns for growth. The second building block is based on the acknowledgement that the current crisis does not have only fiscal roots, but it has its deeper origins in macro-economic imbalances and divergences in competitiveness.

Full speech

© European Commission