08 May 2012

European Commission Statement for Schuman Day

1. Introduction

The economic crisis has demonstrated that debt-fuelled growth is unsustainable. To tackle the crisis, the EU has undertaken a radical overhaul of its economic governance structures (especially in the euro area) and of its financial sector. The challenge has always been how to combine fiscal consolidation and convergence, stability and growth. These are integral to the new economic governance of the EU and we cannot have one without the other: the growth dimension that is built into the EU's new economic governance structures complements the consolidation dimension and sound public finances are the requisite basis for lasting growth. 

In October 2011 the Commission published "a roadmap to stability and growth" with five interdependent elements. It made clear that these should be implemented as a package since the measures would reinforce each other. The aim of this package is to break the vicious cycle of low growth, reduce tensions in sovereign debt markets and the vulnerability of the banking sector and to create  a virtuous cycle of robust and sustainable economic recovery. The Commission called on the EU to:

1. give a decisive response to the problems of Greece
2. enhance the euro area's backstops against the crisis
3. strengthen the banking system, namely through recapitalisation
4. frontload stability and growth enhancing policies
5. build a more robust and integrated economic governance. 

Good progress has been made in most of these areas, which are about creating the conditions for sustainable future growth. Now the fourth element – frontloading stability and growth-enhancing policies - has moved to centre stage and needs to be pursued with the same determination and speed as the other elements. 

2. Key ingredients for accelerating growth (excerpts)

Stability:

• Each Member State needs to pursue a fiscal consolidation strategy within the parameters fixed at EU level under the new economic governance procedures. For most of them correction of the  excessive budgetary deficit remains the priority. Steady delivery within the medium-term EU parameters will help to build market confidence, reducing the cost of borrowing for some Member States and enabling those with greater fiscal space to increase growth enhancing investments. 

Targeted investment in growth:

• Increasing the lending capacity of the EIB: As proposed in 2011, a paid in capital increase (of at least €10 billion) would help the EIB to expand its lending capacity where it is most needed. This could be channelled towards SMEs, the greatest source of job creation in the EU today. EU support for EIB activities could come from expanding the risk sharing instruments with the bank – the Commission is ready to increase structural fund support for EIB managed projects that support SMEs, research and innovation and in the energy sector.
• Taxing financial transactions as a source of revenue for growth: In 2011, the Commission proposed the creation  of a common system of financial transaction taxation so that this sector - which has received state aid and guarantees of nearly €5 trillion - makes a fairer contribution to public finances. The Member States could channel their share of revenues into growth-enhancing public investment (in addition to the contribution that could be made through the EU budget's growth and investment actions).

3. Progress with other elements of the October roadmap

Since the Commission published its Roadmap in October 2011, much has been done to give a decisive response to the problems of Greece.  A second EU/IMF programme for Greece has been agreed and a one-off private sector debt write down was negotiated. In a recent Communication on Growth for Greece the Commission provides full details on the intensive EU action to support Greece.

There has also been important progress in  enhancing the euro area's backstops against the crisis: The "firewall" against sovereign contagion has been strengthened by accelerating the setting up of the European Stability Mechanism and by combining the resources of the European Financial Stability Facility with it, EU Member States have made an important contribution to increased resources for the IMF. In 2011, the Commission launched a consultation on the  feasibility of different options for stability bonds (joint issuance of debt in the euro area). Once a sufficient level of fiscal consolidation has been achieved, and the sovereign debt risk has been averted, the Commission believes that the EU should give serious consideration to some form of joint issuance of debt for the euro area.

With the reformed Stability and Growth Pact the EU fiscal framework provides a solid, rules-based system to secure fiscal discipline. It sets out clear reference values for activating preventive and corrective action if limits are exceeded. The application of these rules is based on economic analysis as well as legal provisions, together with an overall assessment of the structural sustainability of public finances and allows for objectively-based differentiation between Member States according to their fiscal space and macro-economic conditions. Central to the implementation of the rules is the assessment of the budgetary measures taken by the Member States, in particular in structural terms.

These principles are reflected in the EU's fiscal consolidation strategy which calls on those Member States that have more fiscal space to let the automatic stabilisers function fully, and those Member States under close market scrutiny to tackle their fiscal challenges as part of confidence building measures vis à vis the markets.

Medium-term economic sustainability will be built through successive decisive steps in structural reforms and financial stability. The Commission is currently assessing the stability programmes presented by all Member States by the end of April. On this basis and taking account of its Spring forecasts which will be published on 11 May, the Commission will propose a common policy approach for the euro area as a whole at the end of May when it publishes its country-specific recommendations as part of the 2012 European Semester.

Action to  strengthen the banking system, namely through recapitalisation, is ongoing. By June 2012, all the main EU banks will have strengthened their capital bases in a common effort coordinated by the European Banking Authority, and in a way that does not lead to excessive deleveraging. The restoration of bank lending to the real economy has also been aided by the European Central Bank's two longer-term refinancing operations. The EU is in the lead in implementing G20 commitments to improve the regulation and supervision of the banking sector. The reform package will be complete in June when the Commission will propose a common legislative framework for the recovery and resolution of banks and investment firms. This will provide a set of tools allowing for the managed failure of institutions in crisis, without taxpayers ultimately bearing the burden.

Major steps have been taken to  build a more robust and integrated economic governance. The new economic governance structures (based on the "six pack") are up and running, and 25 Member States have signed a new Treaty on stability, coordination and governance in the economic and monetary union. The Commission would like to see its proposals for Regulations on further strengthening budgetary surveillance in the euro area adopted rapidly.

4. Next steps

The EU needs to show the same speed and determination in implementing its growth agenda as it has already shown in fiscal  consolidation. This short paper shows that many proposals are on the table, waiting for Member State and European Parliament endorsement. While the return to lasting growth will take time, a turn around can be achieved by the end of this year if the necessary decisions are taken now.  

On 30 May the Commission will adopt a major package of proposals as part of the European Semester. These will include country specific recommendations for each Member State, in depth reviews on 12 Member States, and an overall Communication on the Commission's conclusions drawn from the 2012 European Semester of European economic governance.

The Commission's country-specific recommendations will be discussed by the EPSCO Council on 21 June and ECOFIN on 22 June. 

The European Council meeting on 28/29 June will draw the 2012 European Semester to a close, on the basis of the Commission's recommendations and other inputs from the Commission which will include a package of proposals on the implementation of the Services Directive. At that meeting, the Commission will call for the rapid adoption of the proposals mentioned in this paper, including for adoption of an ambitious future budget for the EU, to create the conditions for a return to growth and job creation across the EU.

Full statement

© European Commission