A Sting Exclusive: “Doing ourselves a favour”, Vice President Dombrovskis underscores that this time growth has to come from within the EU

Mr Valdis Dombrovskis is the Vice-President of the European Commission responsible for the Euro and Social Dialogue (Source: European Commission)

Mr Valdis Dombrovskis is the Vice-President of the European Commission responsible for the Euro and Social Dialogue (Source: European Commission)

This article was exclusively written for the European Sting by Mr Valdis Dombrovskis, Vice-President of the European Commission responsible for Euro and Social Dialogue.

Last month, the European Commission presented the spring economic package related to the European Semester. It included the annual country-specific policy recommendations to individual member states and the Commission’s latest assessment of the fiscal situation of a number of countries. With global markets making waves, and with clouds on the political horizon, the importance of this effort is great. While the economic case for maintaining the reform momentum is clear, the question remains: can we get the politics of reform right?

So far, the European Union has not allowed itself to be blown off course. The European economy continues to grow slowly but steadily. In 2015, EU GDP expanded by 2.0% and by 1.7% in the euro area, its best performance since 2010. But for more than a year we still had the benefit of a good combination of external and domestic tailwinds. According to our latest economic forecast, the euro area is expected to grow at 1.6% in this year and 1.8% next year.

Yet there are uncertainties, mostly related to global growth: while the US economic cycle is maturing, growth in emerging markets is expected to pick up marginally in 2016 as commodity prices stabilise and the recessions in Brazil and Russia ease. Besides, the challenges surrounding an orderly rebalancing and gradual slowing of the Chinese economy remain pressing and entail certain risks. Hesitant global growth, weaker global trade and – unmeasurably but unmistakably – increased political uncertainty could weigh more heavily on our prospects than was previously expected. On the positive side, there are still low oil prices and lagged effects from the weak euro exchange rate.

In all, it is clear that, internationally, no-one is doing us any favours. So we have to do it ourselves. Even more than before, the effort and the impetus for growth need to come from within.

Are we doing this? Sufficiently? The bottom line of the spring economic package was only moderately positive: the Commission’s overall assessment was that countries have made between ‘limited’ and ‘some progress’ in implementing their country-specific recommendations. On the fiscal side, government deficits in the euro area is set to fall to 1.9% of GDP this year, down from a peak of above 6% of GDP in 2009-2010. But serious adjustment efforts are still needed in a number of countries where debt is still a persistent vulnerability.

We should be making more progress across the board. On the one hand, some governments are showing a somewhat belated sense of urgency but, on the other hand, there are still those harbouring a possibly false sense of security.

This is not good enough. Safeguarding the stability of the euro area and of the EU as a whole can only be done if reforms are maintained in the areas most needed. Moving forward together is a precondition for stability. In doing so, we have to get the politics of reform right as well as the economics.

With the spring economic package, the political agenda for the next 12 to 18 months of structural reform is now outlined, with clear priorities for all countries individually. There are fewer, yet more focused, policy recommendations to Member States than in previous years, and with more attention to social and employment aspects of reform. The recommendations are based on the Commission’s analysis of the economic and social situation in each Member State, or so-called “country reports”, and they are the culmination of consultations with governments, national parliaments, social partners and stakeholders.

Because experience since the crisis has shown that a sense of ownership is the key to successful reform. Being right is not enough. It’s also about being heard. Convincing both politicians and public opinion of the need and the benefits of reform is therefore necessary.

The European Business Summit has a role to play in this.

Targeted reforms have proved to work: countries that have implemented ambitious reform programmes, such as Ireland, Spain, Portugal and the Baltic States are now catching up, with some of them even marking the highest growth rates in Europe. This translates into new jobs, less poverty and less social exclusion.

Sound public finances create room for public investment, leave room for automatic stabilisers to work and, by creating certainty and predictability, contribute to attracting private investors.

We need to tell the story of how a business-friendly environment, well-functioning labour, products and services markets, and modern and efficient public administrations are the best preconditions for investment, and hence to create jobs.

And we need robust systems in place to address and nurture an ageing European population. This is why it is so important to modernise our pension, health and social systems, making them more sustainable and cost-effective, while ensuring the best quality care for current and future generations.

All this is far from easy. Reform requires political courage to tackle powerful vested interests. It often brings costs with it, and technical complexities. Mere legislation is not enough. Effective implementation is what counts, and that is the hardest part. To support implementation, the Commission has set up a dedicated service and tabled a proposal for a financial instrument – a Structural Support Reform Programme – to provide support at the request of Member States.

Of course, such reforms are primarily to the advantage of the countries concerned, but in an EU where one economy’s health matters so much for others’ wellbeing, they are also vital to everyone’s success. There too, we’re only doing ourselves a favour.

The crisis has convinced us of the need to complete the Economic and Monetary Union’s structures. We must restore the EMU as an engine for convergence within and between Member States, providing stability and underpinning prosperity. Building a consensus that EMU works to our benefit is a prerequisite to finish that effort.

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