Summary: "The challenges and opportunities of globalisation: a European Policy response" - Speech by EU Commissioner Almunia (13 April 2007: Washington, DC)
Speech by Joaquín Almunia, European Commissioner for Economic and Monetary Affairs, "The challenges and opportunities of globalisation: a European Policy response", at the German Marshall Fund, Washington, DC
Ladies and Gentlemen,
It is a great pleasure to be here in Washington and I would like to thank President Craig Kennedy and the German Marshall Fund for giving me the opportunity to speak today.
It is an honour to address the GMF in the year of the 60th anniversary of the Marshall Plan. Today, the GMF continues the noble tradition of promoting strong transatlantic relations between Europe and the US. While it is true that the challenges facing the European Union today are very different to those we confronted at the end of the Second World War, they are no less important.
Today, I want to focus on one challenge in particular: the impact of globalisation on our economies and how we in Europe are responding to this process. I will discuss how the European Union - now celebrating its 50th anniversary - is adapting to meet the unprecedented developments taking place in the world economic system.
I think it is clear to all that we live in a time of dramatic global change. Today's economic landscape has undergone a fundamental transformation and our interconnected world is bringing new economic and social challenges.
But first and foremost, globalisation represents a huge opportunity. For European and US companies, the business possibilities opened up in China and India, to name only the biggest new players in the world economy, are unprecedented in scale. Suffice it to say that some 700 million new workers have been added to the world's non-agricultural labour force since 1995. That is 700 million people with an increased purchasing power and endless consumption needs.
However, the emergence of India as a global player in services and the consolidation of China as a manufacturing powerhouse also pose important challenges. It means adapting to new and formidable competition, which can only be done through greater flexibility and by moving up the value added ladder. Adapting to this new challenge and adapting fast is absolutely key because 20 years ago just 10% of manufactured goods came from developing and emerging countries. By 2020, the figure could be as
high as 50%.
For the EU, the challenge may seem all the greater for being a union of 27 diverse nations.
Yet on the contrary, we have found that the old adage 'there is strength in unity' is nowhere more true than when building a competitive economy for the global market place. And we have at our disposal very effective tools for this purpose.
First, we have a single currency, the euro, which acts as an anchor of economic stability and shields us against external shocks and financial turbulence. At the heart of Economic and Monetary Union is the European Central Bank charged with maintaining price stability in the Union, and indirectly supporting policies for growth and employment.
A glance at the figures clearly confirms this. Inflation has been kept at historically low levels since 2000 and was at 1.9% in March. At 3% last year, GDP growth in the EU is well above the long term average and unemployment is currently at its lowest level in 15 years.
Furthermore, EMU acts as a disciplining force for macroeconomic policies. This is particularly evident in the sphere of public finances, where the EU's Stability and Growth Pact plays a key role in budgetary surveillance. Thanks to the reformed Stability and Growth Pact, government deficits are on a steadily declining path and the trend of increasing government debt in the euro area has been halted.
This year, the 'Mid-Term budgetary review' exercise held by Member States of the euro area will be strengthened to allow for better coordination of national fiscal policies. This should lead to more fiscal discipline in the euro area, creating even better conditions for investment and preparing countries for the budgetary impact of ageing. But the review will also take account of how national fiscal developments affect other Member States and contribute to a more coherent euro area fiscal
policy stance overall.
Indeed, as Economic and Monetary Union approaches its 10th anniversary, we will increasingly devote attention to evaluating the functioning of EMU, and identifying ways in which to maximise the potential of the euro area economy.
A key element of this project will focus on how structural reforms can foster a dynamic and resilient euro area economy. But structural reforms are essential not just for countries of the euro area but for the European Union as a whole. They allow us to tackle obstacles to international competitiveness and shift Europe further towards the flexible and knowledge-based economic model that would allow us to reap the potential gains offered by globalisation.
With this in mind, we have embarked upon a process of major economic adjustment, establishing a far-reaching programme of reforms known as the Growth and Jobs Strategy that aim to tackle the broader structural weaknesses of the EU economy.
The Strategy puts boosting productivity and raising employment rates into sharp focus while at the same time fostering innovation and the human capital essential for a knowledge based economy.
I am aware that in the United States, the EU's reform process makes few headlines. This is probably linked to the fact that the reform measures tackle challenges that are often non-issues in the US. It is probably difficult to understand for an American citizen - who is used to a borderless internal market - why it is so difficult to arrive at integrated financial markets or an integrated market for services in the EU. Progress with EU labour market and product market reforms may look piecemeal
compared to the flexibility of US labour markets and competition on US product markets.
However, US public opinion should be aware that in recent years, a wide ranging reform process has been underway that has covered some of the most difficult and politically sensitive topics such as the labour market, the welfare state, including pension systems, the liberalisation and deregulation of sheltered markets and measures to integrate financial markets.
Let me give you a sample of just some of the numerous initiatives taken by EU Member States in order to boost growth and jobs:
Reforms to the labour market have been made by governments across the EU. This includes tax cuts and changes to the benefits system that provide greater incentives for the unemployed to find work.
EU countries have also introduced reforms to their healthcare and pension systems that are already proving effective. For example, changes to early retirement rules have increased the average retirement age by one year.
To raise European competitiveness, a host of measures are in place to foster research, encourage the take up of new technologies and create a supportive environment for European businesses and entrepreneurs. These include the use of targeted investment, support for start up companies and a higher availability of risk capital. Thanks to such initiatives, private research in the EU rose by more than 5% in 2005 and in the crucial area of innovation, we are progressively gaining ground on the
US.
There is evidence to suggest that structural reforms are already having their own direct and beneficial impact on the EU economy, distinct from cyclical developments. Resilient employment growth coupled with a rapid decline in unemployment rates indicate structural improvements have taken place in the labour market. Indeed, it may surprise some of you to know that despite sluggish growth during the first half of this decade, Europe has been creating more jobs than the US (9.9 million created in
the EU between 2000 and 2006 compared to 7.4 million in the US).
Furthermore, labour productivity has accelerated, averaging an annualised 1.8% in the first three quarters of 2006 in the euro area. Before 2005, over the past decade, productivity averaged only 0.7%. Much of this increase is no doubt cyclical in nature. Yet we are reasonably confident to state that reforms taken to improve the functioning of European labour and product markets, such as those I have just described, have also played their part.
Overall Europe is making clear progress to modernise and reform. Nevertheless, there is huge scope for improvement, especially in important areas such as enhancing competition in services, increasing incentives to work in the welfare system and making labour markets even more adaptable. Therefore the EU is encouraging Member States to vigorously pursue reform agendas in 2007.
Europe's endeavour as a dynamic economy, competing in the global marketplace, may seem no easy task when considering the 27 countries that the union comprises. Yet we have a very useful tool at our disposal: the Single Market.
The Single Market was established to provide freedom of movement for goods, services, people and capital among countries of the EU. It offers European companies unrestricted access to the 460 million consumers of the European Union - enabling them to achieve economies and efficiencies of scale and providing a vital springboard for EU firms to expand into today's globalised markets.
As such, the Single Market has delivered huge benefits since its launch in 1993, creating 2.5 million new jobs and generating more than 800 billion euro in extra wealth.
But the undeniable successes of the Single Market shouldn't blind us to its shortcomings. For example, the EU is still a less integrated trade area than the US. The services sector has opened up more slowly than markets for goods and there is a need to remove more red tape, the administrative and technical barriers to the free flow of goods and services. For example, certain EU countries are still reluctant to accept each others standards and norms.
As a result, we are currently subjecting the Single Market to a thorough review, examining how to enhance its role as a major, open and competitive trading bloc. This involves establishing clear priorities for further action. For example, we have identified the need for greater integration of financial markets as well as a genuine single market for innovation. This would require a clearer and more efficient intellectual Property Rights system and a less fragmented European Research Area.
Yet a well functioning Single Market is alone not sufficient to guarantee European competitiveness. Liberalising markets at home must go hand in hand with creating open markets abroad. This will ensure that EU firms are granted access to world markets but also that a fair trading system is in place that will advantage not just Europeans but citizens all over the globe. While we in the West enjoy rising living standards thanks to globalisation, we must ensure that the rest of the world can grow
in parallel. After all, if the process of globalisation is to be successful, it has to be a fair one.
Indeed, I think it is important when considering our response to globalisation that we focus not only on the opportunities to be exploited but also the responsibilities this process brings.
According to this rationale of global responsibility, energy policy and climate protection have become key objectives of the European Union and we intend to make our contribution to averting the global threat of climate change. At their recent Spring meeting, EU Heads of State and Government took on this challenge and agreed on an outline of the new "Energy Policy for Europe". Its objectives are:
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