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UPCOMING EVENTS

Olli Rehn on Economic Governance in the European Union

Podcast Transcript Powerpoint

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James Clarke says: 10 Nov 2010 0:34

If only Rehn said all this to FF a few years ago before distroying the country! It is good to see the recognition of the problem with private banks, but too little too late. Let the poor and disadvantage pay!

Kevin P says: 09 Nov 2010 22:30

Great event! But not so great of a situation. If GDP goes up then less cuts are needed to achieve this target. 15 Billion is based on current growth estimates. If growth is lower then GDP will be lower in 2014 so cuts will be higher. I am not so sure if the EU will stand by Ireland for long.

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About this Event

09 Nov 2010 @ 14:45

Podcast:

Download the Audio Podcast of the Keynote and Q&A here (right click link and save as)

Transcript:

The Commissioner's prepared remarks are available for download here


Press Coverage:

10 Nov 2010
Rehn says endorsement is the best help he can offer - The Irish Times

No recovery without budget strategy for jobs, Labour warns commissioner - The Irish Times

Four-year plan should be a permanent feature of policymaking, says Rehn - The Irish Times

Parties get speed date with Olli - Irish Independent

Commission won't sign off on Budget until detail published - Irish Independent

Rehn advocates medium-term economic planning - RTE (watch Bryan Dobson's interview and Prime Time's report on Rehn's visit here)

09 Nov 2010
Rehn calls for long-term Irish economic planning - The Irish Times

 

About the Speech:

In his address to a packed house at the IIEA, the European Commissioner for Economic and Monetary Affairs, Olli Rehn, outlined the main issues pertaining to the economic governance debate in Europe and appraised the challenges facing the Irish economy. The Commissioner identified the key factors responsible for the fall in Ireland's economic output, namely over-reliance on construction and an over-sized financial sector. He noted that adjustment from the current economic position will take time and requires that difficult decisions be made; political courage and social dialogue are essential for a successful outcome. 
 
Commissioner Rehn acknowledged that the financial sector had misallocated resources and was in need of reform, particularly in the area of surveillance. He said that while earlier and better surveillance might have helped in avoiding the worst excesses of private sector imbalances, many of the most problematic imbalances were not a core focus of the existing scrutiny arrangements.
 
The Commissioner also highlighted reasons why the Stability and Growth Pact (SGP) had not ensured financial and economic stability for Member States, specifically that it had not been applied as rigorously as intended and that it had too narrow a scope. He argued that the failure of the EU’s policy framework to prevent unsustainable fiscal and economic developments highlights the need for reform of EU economic governance, but also demands a commitment from Member States to prudent fiscal policy-making.
 
Commissioner Rehn then discussed the Commission’s three core proposals for economic governance reform by putting them in the context of the Irish experience.
 
The first proposal, to reinforce the SGP, would entail the introduction of the concept of "prudent fiscal policy making" and the closer monitoring of debt sustainability – setting numerical benchmarks so as to attain an appropriate pace of debt reduction. This would mean that Member States should not increase government expenditure at a rate that would exceed their medium-term growth potential.
 
The second proposal concerned the broadening of economic surveillance to identify and remedy macroeconomic imbalances and divergences in competitiveness. Commissioner Rehn noted that countries that had the largest current account deficits and credit growth prior to the crisis had experienced the worst falls in economic activity and the sharpest budgetary deterioration during the crisis. He proposed the introduction of a scoreboard system of economic and financial indicators that would be used to identify unsustainable developments.
 
The third proposal related to the effective enforcement of economic surveillance through the use of incentives and sanctions. The Commissioner argued that these would strengthen the credibility of the EU’s fiscal framework and should be introduced at an earlier stage, gradually tightening unless corrective action was taken. The Commissioner also called for more semi-automatic sanctions, which would be less prone to political deliberation. Commissioner Rehn accepted that, in principle, market discipline would be an alternative to policy action, however market discipline was not effective, as it had not managed to restrain excessive borrowing by either governments or the private sector.
 
The Commissioner then turned his attention to the Irish economy, welcoming the government’s consolidation strategy to bring the deficit below 3% of GDP by 2014. He called for the medium-term budgetary planning embodied in this strategy to become a permanent feature of Irish fiscal policy. He stated that the most pertinent component of the Commission’s proposals from an Irish perspective is the focus on addressing cumulative and detrimental macroeconomic imbalances. He claimed that the huge growth in private sector credit and rise in house prices in Ireland had required pre-emptive and preventive policy action, and that earlier recommendations from the EU would have helped to reduce the worst excesses.
 
Commissioner Rehn concluded by highlighting “the economic dynamism and relevance of the private sector” and its role as Ireland’s principal economic driver. Ireland has strong economic fundamentals and the necessary structural measures would lead to sustainable growth and job creation.
 
Finally, he insisted that Ireland does not face its challenges alone and has the support of its European partners.
 
The Commissioner then discussed issues raised by audience members including TCD's Prof. Philip Lane; former President of the European Parliament Pat Cox; former Minister for Finance and IIEA Director General Alan Dukes; former Commissioner and Attorney General David Byrne; Independent Newspapers' Brendan Keenan and UCD's Prof. Ray Kinsella.
 
On the role of domestic fiscal rules: The new economic governance framework should lead to a more sustainable level of economic development and avoid macroeconomic imbalances such as credit booms and real estate bubbles. However domestic fiscal rules are also necessary. The Commissioner cited academic research showing how countries with domestic fiscal rules and clearly defined national fiscal frameworks and medium-term budgetary objectives have more sustainable levels of growth.
 
On a Community vs. Intergovernmental approach to the economic governance reform: There is now more focus on the architecture of economic governance but containing current economic instability is also still required. There is a time frame in which to redesign and implement governance and bring stability to the eurozone.
 
Commissioner Rehn referred to the Van Rompuy Task Force’s conclusions concerning sanctions and in particular their implementation through reverse qualified-majority voting. This approach would makes it more difficult for large countries to block the commissions recommendations, giving a more level playing field between larger and smaller states. Meanwhile the permanent crisis management framework is still a work in progress.
 
What are effective sanctions and incentives?
Incentives: The real world provides the best incentives. Member States of EU that rebounded from the crisis best had sustainable macroeconomic development, prudent fiscal policy-making structural reforms to labour market. Germany is a prime example; having benefitted from export growth and keeping unemployment rates steady when any expected them to rise.
 
Sanctions: cannot be implemented after the fact. Need to have sanctions that are part of the preventive arm of the SGP. Sanctions would be enforced several months after a warning from the Commission in the form of interest-bearing deposits followed then by non-interest-bearing deposits. This sanction regime is not intended for countries already breaching the SGP but for those that may infringe on the pact in the future.
 
Will the emphasis of the Community method lead to calmer markets? The new architecture for financial and economic analysis will be introduced next year and contains three new supervisory institutions dealing with banking, securities and insurance. This new architecture in addition to the reform of economic governance will feed in to the private sector assessment for investment. The Community dimension will be reinforced through this new architecture.
 
The current status of the Commission’s approval for the forthcoming 4-year plan and EU Budget: Following recommendations of the Commission, the Council takes a decision on a common economic and fiscal policy stance for the EU before the budget and medium-term budgetary plan. It is expected that Member States will decide on their budget and medium-term fiscal plan according to this common stance. The Commission’s task is surveillance and to assess compliance. However it is the responsibility of each government to devise its own budget and medium-term economic and fiscal plan.
 
The effect of Ireland’s fiscal consolidation policy and its target of a deficit of 3% of GDP by 2014 in a contracting economy:   Overall in Europe decisions have been taken for a coordinated exit from fiscal stimulus measures that have been undertaken by several Member States over the past two years. All those countries who can afford to do so, will continue stimulus programmes until the end of 2010. Bt those with no fiscal space such as Greece, Portugal and Ireland need to begin fiscal consolidation as soon as possible. Ireland was one the first to begin this process.This was done to ensure that not all of Europe is rushing to exit stimulus at the same time and those who can continue to provide fiscal stimulus do so.
 
The Commissioner recognises that Ireland faces a dilemma keeping a balance between targeting credibility through a convincing fiscal consolidation programme while also trying to minimize the negative effect on economic growth. The Commission and the ECB agree with the Irish government that €6billion is an appropriate figure to strike such a balance.


About the Speaker: 

Olli Rehn is the European Commissioner for Economic and Monetary Affairs.  Before taking up this position, among other appointments he served as European Commissioner for Enlargement (2004-2010), European Commissioner for Enterprise and the Information Society (2004), Economic Policy Advisor to the Prime Minister of Finland (2003-2004), Head of Cabinet at the European Commission (1998-2002), Member of the European Parliament (1995-1996) and a Member of the Parliament of Finland (1991-1995).

Theme: Economics and Finance  Future of Europe 

Views: 5207

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