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"Reforming Europe for a Globalised World" - Speech by EU Commissioner Almunia

Speech by Joaquín Almunia, European Commissioner for Economic and Monetary Policy, "Reforming Europe for a Globalised World", Spain - US Chamber of Commerce, New York

Ladies and Gentlemen,

First of all, let me thank the Spain - US Chamber of Commerce for organising this event. I am delighted to have this opportunity to discuss the European economy with you today.

The importance of promoting business ties between the USA and Europe cannot be underestimated. The United States and the European Union are each other's most important trading partners in terms of goods and services combined, and our investment relationship dwarfs all others. Bilateral investment stocks exceed $2 trillion (€1.5 trillion) and total US investment in China last year was just 25% of the US investment in Belgium alone.

It is evident that our economies are inextricably linked. When Europe prospers, the US does so too. Therefore I want to talk about the process of economic transformation currently underway in Europe that will undoubtedly have important implications for EU companies and citizens but also for businesses here in America.

A look at the recent macroeconomic figures confirms that Europe is shedding its reputation for sluggish growth and high unemployment.

Last year, growth in the EU rose to 3% of GDP, the highest since 2000 and clearly above the long term trend. And 2007 should be another good year for the European economy. In our latest interim forecast we revised our growth estimate up by 0.3 percentage points to 2.7% for the EU-27.

One of the factors underlying the robust economic performance in Europe is a milder than expected slowdown of the US economy. Demand for European exports has also been supported by sustained high economic growth in emerging Asia, and particularly China. But Europe has not only relied on external sources for its economic recovery. Domestic demand has risen sharply, amid a surge in investment spending and a pick-up in private consumption.

The performance of the Spanish economy has also been impressive. Growth attained an annual rate of 4% in the last quarter of 2006, accelerating from 3.8% in the previous quarter. Our projections suggest that economic activity would decelerate slightly in 2007, due to an easing of domestic demand.

A particular feature of the Spanish economy is that economic growth is being accompanied by strong job creation. Employment grew by 3% last year and, according to our forecasts, is expected to grow above 2.5% during 2007 and 2008. In fact the labour market in the EU as a whole has improved significantly, with the unemployment rate currently at its lowest level in 15 years.

The good performance of Europe's economy is being supported by the euro and the policies of Economic and Monetary Union which have anchored the euro area to a stable economic framework and protected the economy from financial shocks and turbulence. Low inflation and favourable financing conditions are thus supporting investment, growth and job creation.

But the upturn can also be traced to another source, which is the far reaching reform process that has been underway in Europe in recent years. This has tackled some of the most difficult and politically sensitive areas such as the labour market, the welfare system and the liberalisation and deregulation of sheltered markets.

This reform programme is known as the Lisbon Strategy and aims to raise productivity and employment rates while promoting knowledge and innovation as the engines of economic growth.

To provide you with a sense of the changes underway, let me give you some examples from Spain.

Finally, greater attention is being paid to the importance of innovation and R&D for competitiveness and policies are being put in place to build a knowledge economy. Spain has increased R&D funding and expanded public-private collaboration in order to improve research excellence. At the same time, initiatives to boost the use of ICT have stimulated a significant increase in investment.

The sample of reforms I have given you here refers to Spain, but they are indicative of the sweeping changes taking place right across the EU. These changes are already beginning to yield concrete benefits for the European economy.

Resilient employment growth together with a rapid decline in unemployment rates suggest that, thanks to reforms, structural improvements have taken place in the labour market. Indeed, despite the slow growth of the first half of this decade, between 2000 and 2006, Europe created 9.9 million new jobs. This compares to 7.4 million in the US over the same period.

There is growing evidence that reforms are also partly responsible for rising productivity. Annual labour productivity in the euro area accelerated to an annualised 1.8% in the first three quarters of 2006 compared to an average of 0.7% during the decade preceding 2005. It was the first time this decade that Europe's productivity growth exceeded that of the United States, and can in part be attributed to the better functioning of EU labour and product markets.

However, while these good results are very encouraging, we know that important structural weaknesses still remain in the EU economy. Weak competition in many markets continues to be an obstacle to growth. For example, a great deal more progress is needed to enhance competitive conditions in service markets and Europe could certainly benefit from more adaptable labour markets.

In the case of Spain, the country needs to further increase competition in the energy sector, modernise employment protection and implement education reforms if it wants to increase productivity and support its strong growth rate over the long term. Hence I am calling on Spain and all EU Member States to push ahead with reforms while economic conditions are favourable.

The need to forge ahead and continue the process of transforming the European economy is now more pressing than ever. Europe knows it cannot stand still in the face of rapid developments in the global economy. Rising economic powers, such as China and India, are changing the rules of the game and Europe will have to reposition itself if it is to remain a serious player on the global economic scene.

China has become a major competitor in manufacturing and exports. India on the other hand is focusing on service industries and high tech. Despite their different strategies, both are becoming technological powerhouses for production and services. This is putting serious pressure on the competitive advantages that European and US companies have enjoyed to date. It is a challenge for all of us. The map of the global economy is being re-drawn, and we must act to affirm our place within it.

This may sound like an alarm bell, but I should make it clear that I believe globalisation is good for Europe and for the rest of the world. It opens up unprecedented opportunities for businesses and for European and US companies in particular because of their global reach and strength.

The use of worldwide production locations provides companies with the potential for significant cost advantages as well as direct access to new and expanding markets and new technology. Consumers in the developed world also benefit from having access to cheaper imports and a wider variety of goods and services.

But to reap the potential gains offered by globalisation, Europe must continue to tackle the barriers that are an obstacle to its international competitiveness. It means shifting further towards a knowledge-based, flexible economic model and allowing production structures to adjust and move into new areas of comparative advantage, such as the high technology sector.

In addition to implementing far reaching structural reform of the EU economy we are also currently reviewing the policies of the European Single Market, in order to ascertain how better we can maximise its potential.

Europe's Single Market is a powerful tool for the EU economy. It offers investors access to 460 million consumers, enabling them to achieve huge economies of scale. As a result, in the last ten years, the Single Market created 2.5 million jobs, quadrupled FDI investment and almost doubled EU external trade as a percentage of GDP.

But the Single Market has the potential to bring even greater gains through integrating EU markets still further. For example, the services sector has opened up more slowly than the market for goods and we need to make more effort to reduce business costs.

In most EU countries it is still more difficult to start a business than here in the US and post entry growth performance among surviving firms is markedly higher in the US than in Europe. This indicates the need to remove remaining barriers to growth, such as imperfect financial markets, that restrict financing possibilities for entrepreneurs with small or innovative projects.

Nevertheless, remedial action is underway. The European Commission's review of the Single Market to be published before the end of the year, will give the process of market integration much needed impetus and establish clear priorities for further action. In doing so, the EU can become a home base that sharpens the competitive edge of European companies, providing a vital springboard into global markets.

However, this will only be possible provided global markets are open and do not discriminate against external competition. While we in Europe are working to remove elements of protectionism from our economies, we expect others to do the same. Only this way can we install a fair trading system that allows global competition to flourish. With this in mind, a successful conclusion of the Doha trade round is imperative.

Finally, before I conclude I would like to return to the subject of the strong economic ties between the EU and the US. I stressed at the beginning of my remarks just how important we are to each other's prosperity. This does not mean to say that our economic relationship has reached its peak. Indeed, there are still substantial benefits to be reaped for both sides from reducing the remaining barriers separating our economies. This could enhance our mutual prosperity and bring global benefits by facilitating market access for third countries, as long as we remain open to multilateralism.

This is the reason why I fully support a new initiative of the EU President, German Chancellor Angela Merkel, which aims to strengthen the transatlantic partnership further by increasing the effectiveness of existing EU-US regulatory, economic dialogue and cooperation structures.

Ladies and Gentlemen, the EU economy is in transformation. We are re-engineering Europe's dynamism and redefining the role of our Union in the global economy. There is good progress being achieved but much hard work lies ahead. Nevertheless, the rewards will be worthwhile and both European companies and citizens stand to gain from the opportunities of globalisation.

Thank you for your attention.

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• "The Future of the European Union: Managing Globalization" - Speech by EU Commissioner Ferrero-Waldner (31/8/2007)
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• "The euro and the dollar - pillars in global finance" - Speech by EU Commissioner Almunia (17/4/2007)
• "The challenges and opportunities of globalisation: a European Policy response" - Speech by EU Commissioner Almunia (13/4/2007)
• "A stronger Europe for a successful globalisation" - Speech by EU Commission President Barroso (25/3/2007)
• "Europe and Globalisation" - Speech by EU Commissioner Mandelson (2/2/2007)