European Commission [Check Against Delivery] José Manuel Durão Barroso

President of the European Commission

“Villa d’Este”

Ladies and gentlemen,

It is good to be here again. I have attended this conference in previous years, first as Prime Minister of my country in 2002 and later as Commission President in 2008 and it is always a pleasure and an inspiration.

The timing and setting are perfect for me personally to make a bilan of what the European Union has been able to achieve in its reform agenda over the last ten years and also what it should be doing now and in the future.

Let me tell you very clearly, I believe much of the ground work has been done.

The task now is to keep up the momentum and truly deliver the reforms we have set in motion at all levels.

Before we take a look at what has been achieved since the moment financial and economic crisis erupted, it may be useful to point out the political context in which this took place:

First, let us not forget that we were facing growth levels far below potential even before the crisis.

The first programme I submitted as Commission President in 2004 was already built around the priority on growth and jobs, with the accent firmly on the need for reform. The 2000 Lisbon strategy had lost much of its original appeal and suffered from weakened credibility, because of too numerous targets and problems of governance - deficiencies which had already been signalled in the Kok report in the autumn of 2004. That is why we came with a renewed Lisbon strategy, and eventually in my second mandate with the Europe 2020 strategy to build sustainable, smart and inclusive growth. So growth has been our goal all along.

I believe the strategy now is more focused in terms of economic targets and political guidance.

Already in the beginning of 2005, I was convinced that unless we delivered more concrete results and reinforced our commitment to the growth and competitiveness objectives, not just our credibility but also our socio-economic model would come under serious pressure. The Commission came out very forcefully on this. But due to a lack of support from Member States, (let's be honest, there was no commitment for reform in 2004 or 2005; it was not popular even to mention the name) the reality is that progress had to wait until after the crisis in terms of reform, to a large extent because of market pressure, and then we had a combination of the objectives of the Europe 2020 strategy and the systemic governance reforms of a deepened Economic and Monetary Union that are now giving the focus that we were lacking before.

I believe that now, we have the conditions and the means to make reform happen and now we should focus on delivery. We should focus on implementation. We cannot have the illusion that we will reinvent the wheel every time and on every occasion.

Ladies and gentlemen,

Against the backdrop of complex European political realities - it is too soon to write my memoirs, but the reality is that we were facing an unprecedented crisis with big differences among our Member States and deep divisions regarding the way to confront those challenges - I think that against the backdrop of these complex political realities, what we have been able to achieve are nothing to be ashamed of – to the contrary. As the cliché goes, we have not 'let a good crisis go to waste'.

Let's not forget that our first reaction as European Union, immediately after the Lehmann brother crisis, was the European Economic Recovery Plan proposing a fiscal expansion of some 1.5% of GDP in 2009-2010. We made it, as least it was a proposal of the Commission, 'Timely, Targeted and Temporary' - the famous 3 Ts, even if not all the governments understood it as targeted and temporary. But it was important as part of the comprehensive and counter-cyclical response. It was also a way to uphold our fiscal rules as in the revised Stability and Growth Pact, recognizing we were living in exceptional circumstances, when some governments simply wanted to scrap them. I believe that scrapping the common fiscal framework would have been a disaster for Europe at a time when the interdependence of our economies was highlighted more than ever before. That was avoided - then and later and I think it is really a great demonstration of European resilience that we could keep our very important commitment to fiscal prudence while responding to this very difficult and unprecedented crisis.

It was also at the instigation of the EU that global reactions to the crisis were coordinated instead of confrontational. I vividly remember President Sarkozy of France and myself - France was then holding the rotating Presidency of the Council - going to Camp David to try to convince the United States President, then George W. Bush, of the need for a coordinated global response. At that time the Americans were hesitating because they did not want to have the blame of the crisis or in the Lehmann brother collapse, but finally the American President agreed and this led to the G20 in its current form, at heads of state and government level, and the hugely important effort to globalise the response to the crisis at that stage, and to try to avoid protectionism. I am deeply convinced that this response was useful in trying to avoid, as it happened in the crisis in the 1930s, a retour of naked, ugly protectionism.

The financial crisis, and the sovereign debt crisis that resulted from it, exposed fundamental problems in many European countries, namely because of the excessive debt of the countries but also because of problems of supervision of the financial sector and it exposed the vulnerability of some of our countries as a result of the accumulation of significant macro-economic imbalances, and their spill-over effects to other countries.

This is why the EU has since then introduced a new economic governance model based on three main blocks:

- First, a reinforced economic governance system encapsulated in the so-called European Semester to address fiscal and macro-economic imbalances.

- Second, action to safeguard the stability of the euro area with the establishment of financial support mechanisms like the European Stability Mechanism for those Member States in distress, linked to fiscal consolidation and reform programmes.

- Third, action to repair the financial sector through profound reform of the financial sector and eventually through the creation of a banking union. The banking union, let's not forget, was a proposal of the European Commission. Already in 2008 I have asked Jacques de Larosière in the face of the problems in the financial sector in Europe to come with a report to address the problems of financial instability and deficiencies in national supervision. And then, based on that report, my second Commission and Michel Barnier was leading this effort, came with the most ambitious ever programme of regulation and supervision and we made the proposal for the banking union. By the way, when the European Commission used for the first time the word banking union, we were confronted with very strong reaction from some capitals saying that we could not and we should not mention banking union because it was not in the Treaties and we should not use that term. The maximum we could say, I was told, is that we can speak about financial framework or financial stability. But now we have a banking union.

So the interesting thing is that in spite of all the political difficulties and complexities we have now more integrated governance at European level than before. The European Commission has unprecedented powers and competences, in terms of the management of the European semester for instance, and the European Central Bank has been given powers that were considered a dream before the crisis.

So I think this is something that some analysts have underestimated – the fact that in spite of the contradictions, and sometimes the delays in the decision-making process of Europe that is by definition very complex, we are making steps forward in terms of more integration, namely in the Euro area, and not less integration.

Ladies and gentlemen,

The tremendous pressures and emergencies resulting from the financial and sovereign debt crisis have, to some extent, drawn political and media attention away from the need for structural reform and competitiveness.

But that has not hampered them. Indeed, we now see that Member States, with differing degrees of commitment, have adopted many of these reforms and with the intended results. This shows clearly from a report I have commissioned from my Bureau of European Policy Advisers (BEPA), the ‘Survey of Economic Reforms in the European Union as a response to the crisis’ that we are distributing for the first time today. And you can see there some of the reforms made there at European and national level. I am not going to go into detail on that because of lack of time. The point I want to make is that, taken together, the sheer volume and pace of reforms at both Member State and EU level should put Europe's recovery on a sound and sustainable footing. What matters now is that structural reforms for competitiveness are carried through and further completed – there have been many announcements, but not yet sufficient delivery. This is the reality and indeed there are very important differences among Member states. Because, we are not yet where we want to be in terms of growth and in terms of jobs. This is by far the most important problem we have in Europe, in some cases a dramatic problem of very high levels of unemployment, especially youth unemployment. So I think we have to show resilience, stick with the reform agenda and demonstrate courage and patience in seeing through what we have begun.

Ladies and gentlemen,

I did was not intending to speak about flexibility, but since I know this is the topic of the day, I cannot resist if you allow me two more minutes.

Why did I not want to speak about flexibility? Because I think we should avoid everything that can help us deviate our attention from the reforms. Sometimes discussions are a way of relaxing our efforts for more growth and competitiveness in Europe. But about flexibility, I want to repeat what I said with Prime Minister Renzi on 4 July in Rome, so before the statements of my good friend Mario Draghi at Jackson Hole and I said about the Commission's position on flexibility that I believe this debate is a little bit overblown sometimes. I was in the European Council recently when we had a discussion about flexibility - no Prime Minister, no one asked for a change in the rules. No one. The rules of the Stability and Growth Pact have to be respected 100%. This is in the Treaty. The worst thing we could do now is to appear that we are not respecting our own rules. The rules are there. Now, according to our vision, the current rules already provide for some flexibility and we have been implementing that flexibility. For instance, the European Commission has proposed more time to correct the deficit for France, Spain, Greece, Portugal and Ireland. So, we cannot say there is no flexibility. There is in-built flexibility and in fact after the revision of the Stability and Growth Pact we are now putting much more emphasis on the structural deficit than on the nominal deficit taking into consideration the economic cycles and looking at each country specifically what are the difficulties and the challenges.

So, I am quoting what I said on 4 July: "There is already a reform in terms of more flexibility, but in full respect of the Stability and Growth Pact." At the same time we have to have an intelligent way of implementing those rules and this is the point. I believe the key, and we have been saying it, is to put emphasis on structural reforms. "If a country has to make some efforts in the short term for structural reforms it should be given some flexibility in terms of the implementation of the rules of the stability and growth pact" - once again I am quoting what I said on 4 July.

So my concrete answer to you, it was a question from a journalist, is structural reforms. Let's make it, because they are critically important for our competitiveness. Countries like Italy need it. That's what Prime Minister Renzi has announced with the programme of 1 000 days for reforms that are really very much welcome. So this is the key.

"It would be a mistake", I continued, "to have an obsession only with fiscal consolidation". Fiscal consolidation is necessary, indispensable when you have such high level of debts. Without fiscal consolidation what would happen? The market will start again betting against some of our Member states. As we know Italy was going through a very very difficult period some time ago. I remember well it was not just Greece or Portugal, or Ireland. There were threats against Italy as well. Thanks to reforms already initiated and the commitments, it was possible to restore confidence in Italy and now, since they are here around the table, I want to pay tribute to Mario Monti and Enrico Letta, because it was thanks to the reforms they have initiated and also what we have been doing at European level, that we were able to put Italy out of the strict vigilance of the markets. And so they deserve credit for it. Now we need to deliver on that and this is, I now come back to my comments on 4 July, what is important to know about stability is that stability is important, but stability is just part of our programme that is stability and growth. So it is a question of common sense, of good sense, avoiding oversimplification of issues. I believe it is a mistake to put on one side those which are for growth and the other side which are for fiscal rigour. We need both and we need structural reforms to make our economies more competitive.

SPEECH/14/581