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London, 24 January 2005
I should like to thank in particular Lord Tugendhat and Graham Mather for giving me the opportunity to address the European Policy Forum during my first visit to London in my capacity as European Commissioner for the internal market and services. It is an honour for me to speak before such a distinguished audience and in these august surroundings.
I should like to talk today about the Lisbon strategy: the topic on everyone’s lips in Brussels for the moment. I will address 3 questions: (1) why the Lisbon strategy (i.e. the commitment to make the EU the most competitive, knowledge-based economy in the world by 2010) is still the way to go; (2) where the focus for the internal market should be in the Lisbon strategy; and (3) which are the areas of the internal market where I think there are gaps which still need to be plugged.
1. Is the Lisbon Strategy still worth pursuing?
The question now being posed across the EU is a fairly fundamental one. Is the Lisbon strategy on growth and employment the right way to go? Economic growth and job creation in the EU are still too low. In spite of this, and of its slow pace, I am convinced that Lisbon is still the way to go. But it needs a shot in the arm and real determination if it is to succeed. This means reform at EU level and the Member States.
We have no choice. We have an ageing population. Competition from other parts of the world is tough – and will get tougher. Without higher levels of growth overall, we can neither sustain nor enhance our quality of life and prosperity – nor the European social model. This is what Lisbon is all about.
An Internal Market that works efficiently and properly is a vital means to this end. The logic behind the Single Market is compelling. More competition spurs innovation and competitive fitness, within the EU and globally. Companies that innovate with access to a large market grow and provide more and better jobs.
This is what happened in Ireland. When Ireland opened its economy up, standards of living went up dramatically. With the right policies (education, a sensible forward looking social partnership, economic stability and tax rates to encourage business innovation and inward investment), this is also what will happen in the new Member States if they seize the chance. I am pleased to see that this already seems to be the case since a recent study by the Centre for Economic Business and Research, places business regions in Eastern Europe in the top three fastest growing economic regions.
We must encourage even more competition throughout the EU. I intend to work closely with Neelie Kroes to shine the competition light into those market areas which are apparently underperforming on a cross border basis. We also intend to work together to ensure that internal market policies and competition policies are mutually complementary and supportive. One priority area we have identified, and which I know is of interest to you, is financial services.
2. What should be the focus for the Internal Market?
To make progress we will have to be bold. In my book this does not mean putting on our thinking caps and inventing new legislative schemes. It means that we should concentrate on doing a few things and doing them well. You will gather from this that it is not my intention to roll-out a new legislative strategy for the internal market. My overall focus will be on 2 areas.
Firstly, we must ensure that the legal framework we already have works better.
This is about timely implementation of Internal Market directives but it is even more about Member States applying and enforcing the rules effectively in practice.
Unfortunately, the UK’s implementation record has deteriorated and it is currently placed 10th or 11th in the 25 Member States. Lithuania is top of the league followed by Spain. Only a short time ago the UK was a leader on timely implementation. I hope that we can look forward to the UK making it back to the top of the league.
Secondly, we have to ensure that our rules are effective, and do not impose an unnecessary burden on business and that they can be understood by those who have to apply them. We need to get the balance right.
In so doing, we must avoid ideological debates. Every society needs rules, but good ones. They are the foundation of any economic and social organization. If we want goods, services, people and capital to circulate among our 25 Member States with their different legal and cultural traditions we need some basic internal market rules.
And we should remember that the Internal Market programme is by far the greatest deregulatory exercise in recent history. Thousands of restrictive national laws and practices have been abolished. Millions of forms sent to the scrapheap.
Compare doing business in the Single Market today to what it was only a decade ago. Life is a lot easier. Not perfect. But much better.
And where we have legislated, for those who do business in Europe, there is only a single EU rule that they need to comply with, not a patchwork of 25 different rules!
But we have to make sure that we always regulate for the right reasons. And where we have not got the balance right, and I am sure there are instances where this has happened, we have to recognise this and modify or scrap the measure in question. I also intend to consolidate and simplify wherever possible. This is the better regulation agenda. It means first and foremost a better environment for business which will foster not stifle creativity and which will leave room for entrepreneurs to take risks.
The Commission is playing its part. All legislative proposals are now subject to wide consultation and regulatory impact assessments are prepared. The regulatory culture is changing. Better regulation is with us: I applaud this.
In pursuing our implementation and enforcement agenda, we will follow very carefully and assist Member States’ efforts in transposing directives. We will also be responsive where problems arise. In complex areas such as financial services, I recognise that there is much to be done on implementation in a short space of time. I have in mind in particular the Markets in Financial Instruments Directive where implementing measures are still being elaborated and there will be a major impact on the technological infrastructure and systems of investment firms. I understand the problems which Member States and investment firms are facing. In order to ensure that the directive delivers its intended results, I intend to submit to the Commission, probably in the Spring of this year, a proposal for a directive delaying both the transposition date and the date of effective application by investment firms for 6 months ie a total of 12 months. If agreed by the European Parliament and the Council, this should give Member States and industry the necessary extra time to ensure a fully synchronised, effective and punctual implementation and application. The Commission will do all in its power to deliver this. I sincerely hope that Member States and investment firms will fulfil their part of the deal.
This brings me to my next point, namely that the Commission cannot deliver on the Better Regulation agenda alone. Both the European Parliament and the Council must play their part in improving the quality of regulation. There is little point in ensuring that the Commission’s proposal is of top-quality if it then gets emasculated during negotiations in the Council and the EP without any concern for the impacts such amendments will produce. So, I would like to see all major amendments to Commission proposals in the future accompanied by their own impact assessments. I hope that the UK, which has taken a leading role on better regulation, would support this.
Member States also need to play their part and stop blaming Brussels for every evil under the sun. Most of the rules that business needs to comply with are home-made. 62% in the UK according to the UK Chamber of Commerce. 92% in Sweden. 84% in the Netherlands. Everybody needs to put their own house in order. Are these being reformed? Simplified? Scrapped?
3. Thirdy and finally, which are the holes in the Internal Market fabric which still need to be filled?
Many of these concern issues which are crucial for our competitiveness and for showing our companies – through actions rather than words – that the EU wants to remain an attractive place in which to do business.
One key area is the provision of services within the Internal Market. We are all agreed that the provision of services across borders has to be improved substantially. The question is how? The Commission’s services proposal aims to do just this.
I will work with everyone involved, particularly with the Member States and the European Parliament, but also the social partners and business interests, to achieve a good result. There are difficult issues involved and I want to achieve the greatest possible consensus. Services after all are about 70% of GDP and employment in most Member States today – and still narrowly confined within each Member States border. That simply doesn’t make sense!
The potential economic opportunities arising from this proposal are huge. Indeed, this initiative is key to meeting the growth and employment targets which lie at the heart of the Lisbon Agenda.
A recent Dutch economic research report has underlined this by showing that implementation of the proposal in its current form could result in an increase in bilateral trade and direct foreign investment in commercial services by up to 15% to 35%.
As I have said, there are sensitive issues, such as services of general interest, health services, the country of origin principle and posting of workers, some of which are also perhaps close to the heart of members of this Forum. These require further discussion and am listening carefully to all those who have concerns. We will work to meet to those concerns.
Another major hole in the EU’s Internal Market, at least until lately, was an integrated financial services sector. The legislative phase of the Financial Services Action Plan is now drawing to a close and much has already been achieved with the full support of the Heads of State and Government.
The FSAP was one of the real success stories of the last Commission: the legislative measures delivered on time; very good cooperation between the European Institutions, the Member States, industry and consumer organisations; the establishment of the innovative Lamfalussy architecture to speed up and improve the quality of decision making.
What really counts now is the consistent implementation of the legislative measures to realise the increase in efficiency and stability that they were designed to achieve.
It will take time for all the financial measures to be fully implemented – evenly across Europe in all 25 Member States. But we can already see remarkable moves towards integration.
In the wholesale sector in particular integration is leading to bigger markets, it is creating economies of scale and it is bringing down trading costs, the cost of capital, spreads in the bond market and so forth.
As to the future the Commission has been listening very carefully to what the markets have been saying. We have being walking the talk on better regulation here. More than a year ago the Commission started an extensive consultation exercise on the next phase. It is extremely important for us to get the views of all the participants in this process: industry, consumers, the European Parliament and the Member States.
It is clear that there will be few new legislative proposals. Business needs time to digest what has already been done such as the inclusion of new IAS accounting rules from the beginning of this year.
We need, as I mentioned at the outset, to concentrate now on the proper implementation and enforcement of existing legislation – both financial and in other areas. I put considerable emphasis on working closely with Member States in this crucial area.
However, there are also a number of “leftovers” from the FSAP.
Firstly, we do need a more efficient and integrated securities clearing and settlement market for the EU. In 2005 the Commission will continue consulting with the relevant stakeholders and preparing a detailed economic impact assessment before taking any final decision in 2006.
Secondly, we need to apply to insurance what we have already done with the Capital Adequacy Directive in banking and establish a state-of-the-art and up-to-date prudential framework for European companies. This is a demanding task as we will be taking the global lead. But thereby it also gives the European industry a head-start and an excellent chance to further increase its global competitiveness.
Thirdly, while the focus for the FSAP has, so far, been on wholesale markets, over the next few years, we must also ensure the benefits extend to retail markets and consumers. At the end of the day it is Europe’s 450 million consumers that rightfully expect to benefit from an integrating European financial market. For example better, more harmonised regulation on consumer credit means that borrowers will gain improved transparency on products and can more easily compare offers on a cross-border basis. A mortgage is the biggest purchase most consumers make. So we must not shrink from the challenge of creating a true single market for home loans. An efficient single market could mean cheaper and better loans for all Europeans, whether or not they obtain their mortgage abroad.
Fourthly, we have known for some time that the current single market framework for investment funds has had its day. The other day I called it an old banger; clapped out! It is in need of considerable improvement in terms of flexibility. With the European pension time-bomb ticking in the background, we need to release the single market freedoms for the fund industry, so it can provide more innovative, better tailored and lower cost products. In this way we can smooth the transition to higher capital funding of pension schemes which is a vital necessity for many European countries. And we can give the asset management industry unique opportunities for growth, for job creation and for increasing their global competitiveness.
Finally, before embarking on what I am sure will be an interesting discussion on what London thinks should be done in Brussels, I will close by saying a few words about international relations.
Cooperation between legislators and supervisors urgently needs to catch up with the markets in the way they work together worldwide.
With the US we have commenced the Financial Markets Regulatory Dialogue. But we are also in contact with Japan and other countries will follow.
By building a closer relationship and an atmosphere of trust, we are able to detect and solve problems upstream, before regulation starts. To avoid the kind of problems that we had with Sarbanes-Oxley or the Financial Conglomerates Directive. At the moment we are working hard on reaching an agreement with the SEC on equivalence recognition for accounting standards as well as on making it easier for European
companies to deregister from the US. The motto here is simple – to work upstream with our US partners to converge our regulatory principles to the maximum in order to avoid downstream regulatory repair.
Conclusion
To conclude, we have come a long way towards integrating markets. But there is still a long way to go, much to do, and little time.
President Barroso has made upgrading Lisbon Strategy a priority for the new Commission – its key themes bring policies to enhance growth and jobs. I fully support him. The Commission will shortly deliver its contribution on the mid-term review of the Lisbon strategy which will identify core themes to enhance productivity, growth and employment and lead to “More jobs in an innovative and attractive Europe”.
Heads of State and Government at their meeting in March when they review the Lisbon Strategy must grasp the nettle and show leadership. From their leadership and their decisions will come confidence and action.
Shifting the Internal Market into higher gear. Removing dead weight in the form of excessive regulation. Opening up new business opportunities in the services field. Financial services as the oil in the European economic engine. Those, Ladies and Gentlement, are the priorities. They are at the heart of Lisbon – and our economic future.
I hope you will support us in London: the UK has much to gain if we succeed.
