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Keynote speech at the Global Forum Spain – Session 2 “The Competitiveness of the European Economy in a Global World”

Ladies and gentlemen,

First, let me thank Luis de Guindos and the Global Forum Spain for inviting me here.

It is an honour to address you at this special time for Europe in this unique place of Bilbao.

Europe is at a turning point.

Both politically and economically.

After six years of financial crisis; and three years of sovereign debt crisis, we have carried out ambitious reforms. Some were painful, most were bold, but all were necessary. And our efforts are paying off. Spain is a good example.

However, we cannot afford to stop now. Budgetary consolidation, the new governance for the euro area, the G20 financial regulation agenda, banking union: all these steps were necessary. But they were reacting to the event.

For the first time in years, we do not have our backs against the wall.

So now is the right time to move from a reactive to a proactive approach.

We, in Europe, need to create the right tools to reduce imbalances between EU countries. We need to create the right incentives to boost our shared capacity for innovation. We need to create a new impetus for our social market economy.

In short, we need to shape a new, more competitive, Europe.

But what is our starting point?

The situation in Europe is clearly improving:

Investor confidence is starting to return.

In Spain, spreads were over 600 points in July 2012. They are now down to below 190.

And growth is picking up.

EU GDP should grow by 1.5% this year and 2% in 2015. In Spain, strong export growth has put an end to months of recession.

However, we still face critical challenges.

Some of these challenges we share with other mature economies.

Like the exit strategies of central banks. And the risk of fragility in some of our important export markets.

But alongside these global risks, other challenges are specific to Europe.

First and foremost, our economic growth is still too low and has not created sufficient numbers of jobs. Unemployment is far too high. We cannot stand still while 5.5 million young people - almost one in every four young adults in Europe and more than 56% in Spain - are unemployed. Long-term unemployment, too, is a particular concern especially here in Spain.

Our financial markets are fragmented. 87% of German small businesses who need credit get the amount they need; but only half of those in Spain do. And only a third of those in Greece. In other words, the money is not going where it is needed most.

And growth is unevenly spread in Europe. Latvia's economy is set to grow by 4.2% in 2014 while that of Cyprus will contract by 4.8%.

If we want to put Europe back on the path of sustainable growth, we need to put in place a double competitiveness strategy.

First, we need to promote convergence between Member States in the short- and medium-term. And second, we need to take the right decisions to boost our global competitiveness.

I – In the short term, Europe needs to reduce gaps in its internal competitiveness.

In recent years, we’ve seen exceptional ECB measures under the leadership of Jean-Claude Trichet and Mario Draghi.

We have created an entirely new set of rules governing the financial sector.

We implemented the G20 agenda so that every market, every player and every activity is well regulated and effectively supervised.

We have also taken bold measures to save the euro. Including a new governance framework.

And we are close to finalising the banking union, which is probably our biggest project since the euro itself. Here I want to pay tribute to the efforts of Jeroen [Dijsselbloem], Luis [de Guindos] and many others to that end. It will help us to better predict problems and manage them more smoothly. And, importantly, it will mean that taxpayers will no longer bear the burden of paying for failing banks.

All these steps were necessary, but they are not enough to reduce imbalances or create more growth. We need to go further.

1. First, we need to step up our economic and fiscal governance.

Each year, Member States receive recommendations on how they could become more competitive in the context of the European semester. Since October last year, each euro country has also had to send its draft budget to the Commission for advice, in particular to check its consistency with their national reform programmes.

We need to make good use of these tools. Fiscal consolidation and competitiveness reform should be a consistent mix specific to each country.

But perhaps we could go even further and help Member States design sustainable medium-term economic strategies.

This would be a valuable addition to the fiscal and financial efforts undertaken. And a completion of our Economic and Monetary Union.

2. Second, we need to make better use of other policies, especially cohesion policy.

My view is that, in Europe, cohesion and solidarity should always go hand in hand with competitiveness strategies.

In many Member States, especially those that joined the EU after 2004, cohesion policy represents more than half of all public investment. This money needs to be targeted better. To train people in the right skills. And to build the infrastructure we need to drive up competitiveness.

3. Finally, our single market needs to be more effective.

With the Single Market Act, we have already done a lot:

• cut red tape for SMEs,

• simplified public procurement rules,

• improved how professional qualifications are recognised,

• and pushed for a genuine digital single market.

  But there is still a lot of work to be done. Member States need to take some of the responsibility here. To look hard at restrictions and barriers to entry they may have to see if there is a more single–market friendly way to achieve the same public interest goals.

  Spain has carried out very considerable, often painful, reforms in recent years. For instance, the Law of Market Unity has made a huge difference and meant that small businesses no longer need to obtain countless local authorisations and licences to work within Spain. It has not been easy. But these structural reforms are starting to have a real positive impact. Both in terms of loosened restrictions in the services sectors and in terms of how competitive Spain is internationally.

II – In the longer term, we need to be more competitive globally.

The EU can take pride in its international standing. Taken together, the EU is the largest economy in the world. We account for 19% of world trade. 40% of the world’s top 100 multinationals are European, with many leaders in sectors such as luxury goods, software, energy and telecoms.

But we have to admit that if we want to remain a leading global player in some sectors, we urgently need to invest in them.

We also have to realise that we cannot spread Europe’s scarce resources over an infinite number of new policy fields.

I believe we should launch three genuine strategies to drive competitiveness in the longer term.

1. First, we need a fresh start for a competitive European industrial sector.

We need to give innovators in the single market the right incentives. We have started to do this with the European unitary patent. When it is operational, it will cut the cost of filing a patent by a factor of 7. We urgently need to make it a reality.

We also need to think about new common investments. The United States, China and Korea all invest heavily to support certain strategic sectors. Why should we not do the same?

Under the leadership of Antonio Tajani, we have identified key enabling technologies (KETs), nanotechnologies, micro- and nano-electronics, advanced materials and industrial biotechnology as deserving greater support at EU level. These are the technologies of tomorrow that could be vital for our economies to thrive.

2. Second, we need cheaper energy supplies through a common energy policy.

Energy gets more expensive every year. The industrial price index for electricity went up by 40% between 2005 and 2012 in Europe while decreasing by 4% in the United States. Europeans pay three times more for their natural gas than Americans. This makes it very difficult for our industry to be cost-competitive.

Energy is therefore a natural candidate for new, common, investments to secure our future competitiveness. It is time to push the single market for energy much further.

We need to invest in both generation and transport. We need to put in place truly integrated energy corridors with a European regulator for energy. In doing so, we have to balance economic development and cutting greenhouse gases.

Since 1990, we have grown our economies by 45% while cutting carbon emissions by 18%. Being green is far from being a threat to industrial competitiveness. It is an opportunity for growth, job creation and innovation; a market in which we should lead and set global standards.

3. Third, we need Europe to be a digital continent.

The digital economy is a real driver of growth and jobs with the creation of new occupations like community manager, web architect and online security expert.

Europe is well placed to compete on the global stage. We have talented professionals and there is fantastic research work going on in our technical universities.

There is great commercial success in Europe too. For instance, 22% of new smartphones apps are developed in Europe and serve a massive global market.

But the digital economy is more than a sectoral tool. It also enhances competitiveness and spreads it to other sectors. Therefore, we could do even more.

Europe could be so much more successful if we made the right investments. In networks, so that everyone could avail of fast broadband at home, at work and on the move. In safe, trustworthy cloud services. And in tools to harness big data to the benefit of public authorities and entrepreneurs alike.

Ladies and gentlemen, it is election season in Europe. And the populists are at the barricades. Calling for protectionism. Closing of borders. Returning to national currencies. We should pay attention to the questions raised by the voters but let us not be fooled by the sirens of the past: we will achieve nothing by raising barriers and turning Europe into a citadel.

The best reply to populists is to build an efficient and pragmatic Europe. A Europe that concentrates on a handful of priorities while simplifying regulations in other areas. A Europe that does not replace Member States but brings its own specific value added such as the single currency and makes us all more competitive. A democratic Europe, in which each individual, each business and each country has its say on the joint priorities. If we can succeed in building this new Europe, we will succeed in global terms. We will continue to promote our values and protect our interests in an ever more competitive world. And we should aim to build growth on both competitiveness and social cohesion.

Thank you for your attention.