Ladies and Gentlemen,
It is a great pleasure to address you here in my hometown, Riga. I would like to thank Minister Reirs, and the Latvian Presidency for the flawless organisation of the meetings.
Today’s discussion in ECOFIN focused on the state of the economy in Europe. We discussed how to raise the growth potential in the EU, notably through structural reforms and investment.
Looking at Europe’s economy today, we can breathe a little sigh of relief. Recovery in the euro area and the EU-28 is strengthening.
Factors such as the drop in oil prices, accommodative monetary policy and global growth are helping the EU economy. But monetary policy alone will not solve structural problems of EU economies. Recovery from a deep crisis, as the one we have seen, requires decisive action from policymakers.
Ministers today shared the view that Europe’s recovery is still fragile. What we need to do now is to reinforce this recovery.
The strength of Europe’s recovery will depend on our Member States implementing a common growth strategy.
A growth strategy, which is based on three priorities: investment, structural reforms and fiscal responsibility.
Today’s discussion focused on structural reforms. We outlined the positive impact that structural reforms can have on EU economies.
Simulations conducted by Commission staff show that if all countries conducted ambitious reform programmes at national level, it would significantly increase the GDP of the EU. According to our simulations, GDP would be more than six percentage points higher after 10 years, relative to a non-reform scenario.
What kind of reforms are we talking about?
There are some common problematic areas in many EU Member States.
Labour markets need to be more dynamic and open to new technologies and working methods. In many countries, we need to address the problem of a segmented labour market – with strongly protected jobs for some, and very weak protection for others, mainly newcomers to labour market. This results is very high youth unemployment in several EU Member States.
Other examples of structural reforms at national level include improving the business environment; ensuring the long-term sustainability of social systems, taking into account the ageing population; and shifting the tax burden away from labour to other tax bases that are less detrimental to growth.
Reforms help create businesses and jobs; and reforms help boost innovation and productivity. A business-friendly environment, well-functioning markets and cutting red tape are the best preconditions for investment to rebound.
Reforms are already paying off in several countries. Those that followed the reform path – like my own country – Latvia – and other countries like Ireland, Portugal or Spain are now among the fastest-growing EU economies.
The experience of Member States shows reforms mostly bear fruit in the longer-term. However, they also have a positive immediate effect, which boosts confidence and creates an investment-friendly climate.
In May, the European Commission will present country-specific recommendations. The ‘Country Reports’ – the Commission’s analysis of Member States’ macro-economic performance – were already published in February. This means that this year, we had more time to engage with Member States – including social partners and other stakeholders – to discuss the main challenges identified in the country reports.
Our intention is to make sure that, this year, our recommendations are more focused in terms of policy areas covered. We look for greater differentiation between countries when it comes to key economic priorities. A special focus will be on removing bottlenecks for investment.
Adapted to the national context, the structural reforms are essential for Member States to secure sustainable growth and increase their adjustment capacity. Structural reforms are also a way of moving towards the convergence of Europe’s economies.
This is the right moment for implementing reforms. It is important now to not lose this momentum!
Thank you for your attention.