EUROPA - Rapid : Speech by Joaquín Almunia "Time to address the economic challenges of Europe"

EUROPA - RApid

Speech by Joaquín Almunia "Time to address the economic challenges of Europe"

In his address about the economic challenges of Europe to the BDI, Federation of German Industries, EU Commissioner for Economic and Monetary affairs said:"Real GDP growth in the euro zone should be around 1.2 % or 1.3% this year. However, in 2006 economic growth could again be around 2%. Europe is fully exposed to the increasingly globalised world economy. The globalisation of the economy means that Europe is now facing fierce competition both from low-cost economies like China and India and from innovation-driven economies like the US. Because of this pressure, public perceptions of globalisation are often characterised by suspicion, distrust or even hostility. But there is no reason to think that the overall impact of globalisation on the European economy will necessarily be negative. Trade liberalisation is beneficial to all trade partners, as it improves the allocation of resources and allows goods and services to be produced in the most efficient way. Sometimes, it means that there is a need to invest abroad. Some fear that the relocation of economic activities is affecting growth and job creation in the EU. But the data show that it has not in fact posed major problems at the macroeconomic level. Indeed, we are aware that it does have costs, which may be strongly felt, at least in the short term, in particular sectors, and in the regions where these sectors are concentrated. In order to seize the opportunities opened up by globalisation, European economies need to be reformed so as to increase their adjustment capacity and improve their ability to innovate. At the same time, any structural reform strategy must rest on a firm ground provided by a stable macroeconomic environment. The establishment of EMU has introduced a framework which – overall – has delivered the desired financial stability. Inflation is controlled and we have historically low interest rates. Whilst some Member States are experiencing some difficulties with deficits and debt, budgetary trends compare favourably with previous economic downturns. The reformed Stability and Growth Pact, which combines rigour and flexibility will contribute to the sustainability of public finances and also reinforce its contribution to growth and jobs. The new Pact preserves the EU’s fundamental fiscal rules for keeping budget deficits below 3 percent and government debt below 60 percent of GDP. At the same time it leaves more room for economic judgement in the application of these rules so as to better reflect the economic heterogeneity of the 25 Member States. We can for instance give more time to correct imbalances, take into account the level of debts and adjust accordingly the medium target fiscal target or be stricter when considering one off measures. While an appropriate framework for macroeconomic policy is crucial for good economic performance, it is self evident that more needs to be done. The disappointing growth in recent years and the failure to create a sufficient number of new jobs reflect a broader structural weakness in European competitiveness. This is the main problem that we have to tackle in the long-run if Europe is to succeed in the globalised world. Our calculations show that potential growth in Europe stands at a hardly satisfactory rate of 2%. Recent estimates show that population ageing alone might cut the rate of potential growth in half to a mere 1 per cent by 2040. In order to raise the potential growth rate we need to improve the implementation of structural reforms across the EU. Achieving sustainable higher growth rates requires above all reforms that will allow making better use of our labour force and reversing the declining trend in productivity growth."