Prime Minister Jyrki Katainen at the seminar on the future of Europe in Helsinki
(subject to changes)
Europe is a project of peace, freedom and prosperity. This has to be remembered, particularly during these difficult times. Our common value base is fragile: when times are better, we take such values for granted. However, in difficult times they seem very hard to defend, as this means taking difficult, sometimes unpopular measures. Still, such actions are necessary.
I very much hope that the history of the EU repeats itself ? that the Union emerges from the current crisis with a stronger value-base and a new direction in which to evolve. After all, hasn?t the EU?s development been a question of evolution through crises?
This forms the background of our current series of seminars, launched last autumn. The crisis we are now experiencing gives us the historical momentum to do what is necessary to shape the Union. We must thoroughly analyse the factors leading up to the current crisis. Otherwise, we will end up repeating the same mistakes.
It is a great honour to have Jean-Claude Trichet as a visiting speaker. During my years as Minister of Finance, I engaged in close co-operation with Jean-Claude on Eurogroup and the Ecofin Council. I learned to respect his vision of the European economy, which steered the European Central Bank?s monetary policy during many difficult crisis years. It will be a genuine pleasure to hear Jean-Claude?s remarks and thoughts on these issues, especially since he can speak a little more freely now that his term in office is over.
Insightful analysis and openness about the problems we face is just the remedy we now need.
As one of the reasons for the crisis, I would refer to the failure to follow our own rules and wholly respect the treaties to which we signed up. For example, when the Euro area was originally created, not all members fully fulfilled the criteria. A second failure arose in not abiding by the rules.
It was the Member States who watered down the Stability and Growth Pact and its implementation. I would argue that, as much as we need to strengthen the rule-base and implement stricter sanctions, if we had respected the Stability and Growth Pact as intended, we would have avoided this crisis.
Even a long set of new rules will be of little help if we do not follow them. This is where stronger institutions, particularly the Commission, come in. I will return to this a little later in my speech.
First, I would like to dwell a little more on the reasons for this crisis, and how to find a permanent solution. Then, I will set out some conclusions on how to get us back on track by strengthening the Community Method, kick-starting new growth and bringing jobs to Europe.
The primary reason for this crisis is the failure of Member States to do their homework. One cannot build sustainable growth on mounting debt ? public or private. Sustainable growth and prosperity can only be built on a competitive economy. The financial crisis finally burst bubbles in both the public and banking sectors, in countries which tried to borrow their way to prosperity.
As I said earlier, this development was caused by eurozone members? inability to follow their own rules. But there were also other, structural reasons for the crisis. In some Member States, the single currency created false confidence, based on credit that was too cheap for too long. As we can now see, interest rates did not reflect the actual risk of losing money. But there is no such thing as a market economy without risk. The illusion of a risk-free deal destroyed the pricing mechanism underlying eurozone sovereign debt.
A mechanism based on which it was lucrative to both lend and borrow provided a comfort zone. For some member states this was a more popular way of creating welfare for citizens than undergoing uncomfortable structural changes in order to create real competitiveness and growth.
But then came the reality check and we had to change course.
The solutions to this crisis are confidence and growth.
First, let us deal with the issue of confidence. For the member States in trouble, this crisis is about a lack of confidence. Convincing stability measures will be required in order to regain credibility. In addition, confidence must be created in the political will of the affected countries to stay the course. The markets follow a simple logic. When investors have information and trust in you, you are credible and can borrow the money you need at a reasonable rate.
As the Eurozone, EU, ECB and IMF, we have taken action and bought time for certain Member States to take measures to win back confidence. With respect to deficit reduction programmes, we can provide help in the form of liquidity. But only the country in question can rebuild market confidence in itself.
Despite arguments to the contrary, these programmes work: Ireland is an excellent example of this. Ireland has even exceeded the agreed measures, which has built confidence.
Greece is a special case. Winning back confidence, through a new programme over the coming years, will require very tough measures. Rejecting the programme would mean even more drastic cuts, but quitting the Euro would be an even more dangerous route. Greece can survive if it stands behind its promises and no new unpleasant surprises occur in Europe?s economic outlook, the world and of course Greece itself.
Other Eurozone countries face similar challenges ? interest rates are the touchstone of confidence.
I would now like to devote a few words to growth, jobs and prosperity.
Healing Europe essentially means returning to sustainable growth.
We can win back confidence in the short term, but austerity reduces short term growth. On the other hand, when excessive debt is the main problem, adding yet more debt is not a sustainable way of stimulating the economy.
We need to go back to basics. Healthy structural growth is a precondition for the sustainability of sound public finances. A clear and credible commitment to work on an ambitious growth agenda, both at national and EU level, is therefore necessary to getting Europe back on track.
Member States must take full advantage of and implement the fresh recommendations given under the European Semester. Peer pressure, so-called ?naming and shaming?, must be used to accelerate the structural changes underpinning competitiveness in Member States.
It is no coincidence that the Member States in trouble are those in which wages increased the most during the last decade ? bearing no relation whatsoever to productivity developments. In most cases, these same Member States have the most inflexible labour markets, with multiple benefits unrelated to productivity and many occupations and businesses functioning as licensed ?guilds?. In order to sow the seeds of growth and employment, these must be liberalised, as fiscal consolidation progresses.
The Commission also has its part to play. The Europe 2020 strategy must be full of initiatives that open up markets and provide the elements of growth. Developing the single market is a key element in delivering on Europe 2020’s objectives.
Strengthening EU growth and competitiveness requires high levels of ambition in creating open and competitive markets, innovation, smart regulation and a strong single market. We need to remove all unnecessary obstacles to entrepreneurs who wish to expand their businesses across borders.
To make progress in these fields, there are no alternatives to the Community Method. No progress will be made without good and thorough preparation. Heads of State and Government can give political direction to the desperately needed completion of the Single Market, but they cannot propose or implement directives that make these things happen in the real world. The role of the Commission cannot be stressed enough in this respect.
In the Single Market area, some areas have huge potential. Especially promising is the Digital Single Market. Here, progress should be made without delay to ensure that the EU is competitive against other global players.
In this respect, I should mention that our Minister of Foreign Trade and European Affairs is currently in Silicon Valley, with a large group of start-ups and small IT and game design companies. Finnish IT and game design companies find it far easier to enter US markets, with more promising development prospects than here in Europe. This is something that we clearly must change.
It is for this reason that we must build a Digital Single Market: for the sake of the EU?s growth, competitiveness and employment. To harness the EU?s unused potential, we need ambitious legislative initiatives from the Commission.
Urgent action is needed in the copyright sector in particular. This is a politically sensitive and legally complex area, but it must be tackled nevertheless. In the US, you need to follow only one set of rules to enter a market of 300 million consumers. In EU, you need to follow 27.
In order to keep pace with our global competitors, we need to actively promote the establishment of cross border schemes for licensing work, enabling Pan-European licensing. We also need to develop new licensing mechanisms. Simpler licensing would provide new businesses with the possibility to thrive.
It is worth repeating that the completion of the Single Market is in everybody?s interest and should be an absolute priority in the EU. In this respect, it is very worrying that, on the contrary, there seems to be a new tendency of rolling back the Single Market in areas such as financial services. Instead, we need to move forward in certain areas. We should only backtrack when it is clear that we have not succeeded in creating a true Single Market, as in the case of the Services Directive.
We can also create growth by opening up global markets. The European Union must take a new step forward by entering free trade agreements with its partners. The EU-Mercosur, EU-US and EU-Japan agreements are just a few of those which need to be accelerated.
It is undeniable that bigger markets create more wealth and prosperity. This is not a zero-sum game. More trade means a greater division of labour, which leads to jobs, growth and prosperity. A few years before Adam Smith, these economic facts of life were presented by the Finnish Anders Chydenius.
Open global trade is crucial to us in Finland, since almost half of our GDP is export-based. One could argue that the Finnish welfare society is dependent on an open global market. But the same is true of the whole of Europe. The longer we keep our borders closed, the further behind we will fall in terms of competitiveness with players such as the US, China, South Korea, Japan or emerging countries such as Brazil.
Of course, these ideas are far from being new. But it is time to begin taking them seriously. We need rapid action from the Commission within its various fields of competence. The European Council has stated these issues clearly in its resolutions. It is now time to act on them.
As I said in the beginning, Europe is fundamentally about shared values. In the future too, we in Europe must safeguard and strengthen our values of peace, freedom and prosperity. Lately, it has become popular to state that we need more Europe. I share the opinion. We need more Europe based on better and more credible rules, which are to be strictly applied and adhered to. We need more Europe to pay greater attention to competitiveness. We need more Europe to enhance the single market. We need more Europe to strengthen free trade. We need more Europe to represent our common goals in international and foreign relations.
Those demanding political union should lead the way. Resolving to follow our current rules and treaties is more important than continuously creating new ones. To me, ?more Europe? and ?political union? means communitarian methods and strong institutions. It also means consistent rules and interpretations, no matter whether a large or small member state is in question.
To protect these values, we must be decisive in our actions to regain and nurture confidence. To promote these values, we need to be a growing, not a degenerating, continent. From us, this requires the courage to face the facts, state the truth and act accordingly ? both at national level and as a European Union.