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Ladies and Gentlemen,
It is a great pleasure to welcome you to the conference "Towards a European Foreign Economic Policy".
I am pleased to see such a distinguished set of speakers and discussants gathered here today. Knowing many of you, I can anticipate some lively and productive debates on how to strengthen the external aspects of our common economic policies.
But before we start our discussions,, I must commend DG Ecfin for their sense of timing. I can think of few more appropriate moments to hold such a conference, just a few days after G20 leaders agreed in London some important common decisions to face a crisis that is highlighting the linkages and interdependencies of our economies as never before.
Lessons from the crisis and the G20 Summit
Not only has the crisis illustrated the complex interconnections of our international financial system. But its impact on the real economy everywhere, north or south, west or east, industrialised, emerging and poor countries, is a stark reminder of just how interrelated our economies has become. With confidence collapsing and world trade plunging, no country or region will escape the consequences of what is now clearly the worst economic crisis since the Second World War.
Advanced economies are experiencing sharp drops in GDP and unemployment is rising rapidly. Despite their initial resilience, emerging and developing countries are now being seriously hit by the combined effect of declining capital inflows and exports, increased exchange rates volatility and ups and downs in commodity prices.
In this difficult period, the need for international coordination and cooperation has stood out above all else.
The very positive outcome of last week's G20 Summit is therefore an encouraging step forward. Leaders representing 80% of the world's economy reached consensus to tackle the global economic downturn and build a stronger and more stable future financial system.
As you know, the meeting produced four broad lines of action:
- First, we have agreed to implement economic stimulus measures without delay, ensuring an adequate balance between fiscal expansion and long run fiscal sustainability, and committing for an orderly withdrawal of the stimulus when the time comes.
- Second, we are decided to restore lending through targeted action, whether through liquidity support, recapitalisations or a coordinated approach to tackle impaired assets.
- Third, we have laid down important steps towards a new system of regulation and supervision of global financial markets, enhancing the role of the FSF, now transformed into FSB.
- Finally, we have agreed upon a big increase of the resources available by the IMF and other IFI's, together with some reforms of their instruments and mandates -which aims to ensure an adequate multilateral monitoring of the global economy -, and an appropriate voice and representation for emerging and developing economies.
I am pleased to say that these priorities fully reflect our key concerns. Not surprising given that the EU has been at the heart of this process from the outset of the crisis. Let me remind you that the political initiative for the G-20 summits came from Europe. And during the last 6 months we have been driving the G20 agenda forward.
- The EU's coordinated fiscal stimulus has provided a crucial contribution to the G20's short-term macroeconomic response to the crisis. Of course we were not alone in this regard, but the European firm position on the need to protect medium-term fiscal sustainability contributed to the balanced line adopted in London last week, given the need to define an exit strategy as a crucial factor to enhance confidence.
- Furthermore, Europe has been since the beginning at the forefront of efforts to reform the global financial architecture. The EU’s internal agenda in the area of financial regulation and supervision has been ahead of the curve. On issues ranging from credit rating agencies and the creation of supervisory colleges to the review of the capital adequacy rules and the development of cross border crisis management, we have been in an advanced position compared to our international partners and thus uniquely placed to lead discussion on international progress.
- And the EU has always been preaching in favour of multilateral solutions, through a stronger role of the IFI's and fora such as the FSF, to tackle the first crisis of the global economy.
Europe is clearly rising to the immediate challenges, and we are at the core of efforts to shape the world that will emerge from this global crisis.
But if we want to succeed in promoting our agenda at international level from now on, we ought to further coordinate our positions, maintain a united front and speak with a single voice to our G20 partners.
Yet, this is not always the case. Too often the EU's voice on key issues at the global level is fractured and we fail to influence policy debates as effectively as we might. There is thus enormous scope for Europe to build on recent experience, to develop more coherent positions on international policy issues and strengthen our external economic agenda.
Now is the right time for Europe to explore how to act together in the international economic and financial arena. Our task is all the more relevant given that serious, concrete progress on this front is becoming increasingly urgent.
The case for a stronger EU foreign economic policy
Why we need a stronger EU foreign economic policy?
The answer is – in my view – very clear.
The EU is the largest economic power in the world.
We represent half a billion people and our GDP and trade flows surpass those of the United States.
We are issuer of the world's second most important currency.
And we are a key player in international financial markets: our regulatory activity in the financial sphere influences standards and practices around the world.
We are also the world's second destination for foreign migrants and capital flows and the world’s largest contributor of development aid.
There can be no doubt our policy decisions have a global impact.
Further still, Europe has the policy experience, the technical expertise and the political clout to be an influential partner on the world economic scene.
Europe not only has the right, but the responsibility to take a more active role in international affairs.
Probably, everybody will subscribe this point. But action does not follow. Why?
Maybe national governments are not fully considering the serious risks of non-action. Let's have a look at those.
Economic and financial globalisation has made the EU economy more dependent on developments in the rest of the world and more vulnerable to external shocks. We can no longer approach economic challenges with an inward perspective; rather we need to frame our understanding within a global context and promote action at the international level.
The financial crisis provides a compelling argument for this shift in focus. Yet there are a whole range of trends linked to globalisation, including migration, climate change, risks to energy security and the rise in global demand for commodities that are bringing the external aspects of our economic policies increasingly to the fore.
The key economic challenges of the 21st century cannot be solved in isolation. They can only be tackled as part of an internationally coordinated approach.
However, Europe has yet to develop a clear and cohesive foreign economic policy.
Of course, there are exceptions to this pattern - consider EU trade policy for example – where the European Union has always spoken with a single voice, both in the WTO and bilateral trade negotiations.
Nevertheless, a fragmentation of Europe's external representation in economic policy complicates and even sometimes undermines our ability to play our rightful role in an age of increasing multilateralism.
The global crisis not only provides the most striking justification for strengthening EU coordination on international economic and financial policy issues. It has also opened a window of opportunity. There is huge potential to drive forward the EU’s international economic agenda and put European values and standards at the core of the new world economic order.
At the moment when the EU needs to be more assertive and influential in the global economic arena, this is the best way to play a real role in policy making at the international level. If we don't manage to act together as Europeans, the non-european interests will prevail. Therefore, we need to build a genuine international strategy for foreign economic policy.
The time is ripe for progress.
We will need to move fast.
Already we know the broad areas where we must act.
Priorities for building a European economic policy
First and foremost, I consider it crucial for the European Union to consolidate its voice in the global institutions, most importantly in the IMF.
At the G20 summit, we reached agreement on a strengthening of the lending capacity of the IMF, a strengthening of its surveillance role – notably the enhancement of financial sector surveillance – and an acceleration of reforms aimed at improving the voice and representation of emerging and developing economies.
At the Spring European Council, the EU decided on a joint contribution of €75 billion in lending arrangements in favour of the IMF. A contribution of this size sent a clear political signal. Not only of our commitment to reinforce the IMF, but also of our commitment as the European Union to contribute to a broad-ranging agreement in the area of economic policy. The importance of this commitment should not be understated – without such a contribution by the EU, some other elements of a broader deal at the G20 may well have been difficult to achieve.
However, such a combined and effective response on most issues related to the IMF is difficult to achieve, as European representation at the IMF continues to be fragmented. There are currently several European seats on the IMF board, and even the euro-area members have separate seats.
The Commission has long called for a consolidation of European representation on the boards of the IFIs. In the case of the IMF, the argument for a single consolidated euro-area chair is quite obvious. Yet, Member States concerned jealously guard their seats.
This position is becoming more and more untenable as consensus builds on the need to increase and improve the representation of emerging and developing countries in these institutions, to make them truly global. It is now time to face up to this reality and to find a solution which would be acceptable to Member States before a solution to the problem is forced upon us.
This issue is becoming even more important now, given what has been decided by the G-20. The London summit have attached great importance to the role of the IMF. A new global economic order needs strong institutions at its core. Therefore, the role of IMF is paramount; it is the first line of defence against the worst effects of the crisis on economies around the world. But also very important, the IMF is a key pillar in designing a world free of the macroeconomic imbalances that have grown to such large, and damaging, proportions during the last decade.
In this respect, I stress the importance of improving the multilateral surveillance function of the IMF. The crisis will not resolve automatically the global imbalances of recent years; indeed the immediate economic responses are likely to make those imbalances even greater. For this reason we need to engage in a serious exchange of views among the world's major economies on macroeconomic policies going forward. And the most productive way of doing this would be through multilateral consultations led by the IMF. Of course, in such consultations, the euro-area would be present along with the other major economies in the world. This is indeed another good reason to move forward in the consolidation of the European representation in the IMF.
Second, going beyond the IMF, there will continue to be macroeconomic dialogue and coordination in the G-groups of countries: the G7, the G8 and more prominently since Washington and London, the G20. Europe must also do better at consolidating our voice within these groups on questions of macroeconomic policy, whereas at the present time, the representation of euro area countries remains fragmented and incomplete. So despite our global currency and single monetary and exchange rate policy, the euro area has limited capacity to convey an assertive message on questions which directly impact our economy.
Third is the area of financial regulation. Here the existing picture is more positive. Thanks to a high degree of financial integration and regulatory harmonisation, the EU has a common line to promote at the international level.
But we have encountered obstacles in doing so. For example, we are the initiator of Community financial regulations, but until recently the Comission was not a member of the Financial Stability Forum. Although the new FSB recently extended membership to us together with all G20 countries and Spain, we are still only an observer in it.
The same applies to other key international financial standard setters where we have limited participation, while in others we have no formal membership rights at all.
Finally, there are a number of other areas which hold important implications for economic policy and where the EU needs to build a coherent position and strengthen our common voice. I do not have time to mention all of these this morning so I will focus on just one that is of crucial importance from now on: climate change.
Negotiations are moving into full gear this year in the run-up to the Copenhagen UN conference on climate change. In the December 2008 European Council, the European Union made important commitments in the area of emissions reductions, laying down ambitious targets for unilateral reductions of emissions by 20% by 2020, and a willingness to go further in the context of a bold international agreement.
Indeed, one key element of the discussions will be on financing. The financing of climate change mitigation and adaptation efforts. On the one hand we are working within the EU on the financing of climate change efforts, as part of our broader policy response to this challenge. But, this is also a crucial issue for our foreign economic policy.
First and foremost, this year we will have to be bold in shouldering our part of the financial burden, helping climate change efforts in developing and emerging countries. This is both a question of political willingness and a question of economic policy: on how to design instruments to raise these funds and on how to transfer them to developing countries to ensure that they are used in the most effective way. We will need to find common solutions to these questions, and this is an issue on which I am personally working hand-in-hand with my collegue Stavros Dimas, commissioner responsible for Environment.
A crucial element of the EU's overall response to climate change, and at the same time, one of the means of raising funds, is the European Emissions Trading scheme. This is an important element of Europe's response to the climate change agenda, first because it will help us achieve our targets, but second because it will help us to achieve our targets in the most efficient way.
We have gained a lot of experience in the first years of the scheme, mean and going forward we are able to discuss the lessons learned with other partners. Indeed, many countries are now following our lead. The US, for example, is considering such a scheme at the national level. Such steps by our partners allow us to consider the possibility of an OECD-wide emissions trading scheme. If this emerges, it will be a key policy area, with major economic consequences, where Europe is taking the lead.
Conclusions
Ladies and Gentlemen, on this positive note, let me conclude.
Europe needs to move towards a European Foreing Economic Policy. And to do so, needs to speak with a single voice in the global economic arena. We must rise to the opportunities and responsibilities that come with being the largest economic powerhouse in a globalised international system.
Recent fruits of a cohesive European stance on foreign economic policy show that we can deliver. The EU has made substantial progress to develop common approaches to the external aspects of its policies. Spurred on by the urgency of this crisis, we have devised common EU frameworks for action, which have allowed us to present stronger, more influential positions at the G20 and in other international fora. However, there remains substantial scope for progress.
Going forward, we must first of all continue to act in a coordinated manner in tackling the formidable challenge posed by the crisis. This has not proved, and will not prove, an easy task. We must first bridge sometimes considerable differences between our positions, finding a common ground and preserving a level playing field within our Internal Market. Only then can we defend our approach and our views internationally.
Secondly, in rethinking our international economic and financial presence, Europe must act with a vision and a degree of ambition that matches this historical moment. This means we must be open to fundamental changes in our representation in the key multilateral institutions and fora.
The crisis, and in particular the discussions within the G20, have demonstrated that we can be strong when we act together. The world now needs a cohesive Europe to build a more solid global economic and financial system for the 21st century.
Thank you very much for your attention.
