[Deputy Joanna Tuffy   ]
I ask also about fiscal stimulus. There is a danger that if Europe does not go down the route of fiscal stimulus ultimately it will not be competitive with the United States. The stimulus programme in the US is not about bailing out the banks, as Deputy Mulcahy suggested, but about creating jobs and making sure people are able to work, a resulting boost to the economy and people’s quality of life. What can the European Commission do to help Ireland in that regard, particularly in training and education? In the 1980s we benefited from the European Social Fund. Will there be initiatives of that kind again for Ireland? Senator Déirdre de Búrca: I welcome the Commissioner and thank him for his presentation. I shall take up some of the points raised by Deputy Tuffy. In his presentation the Commissioner argued that the European Union should not abandon its agenda of competitiveness and growth. Does he not accept the European Union is now facing not only a short-term and temporary setback in that agenda but profoundly changed economic circumstances? Does he accept that over the coming years we may see the semi or total nationalisation of most major banks across the European Union? That is likely to have a profound impact on the European economy. Does the Commissioner accept that now the real challenge for the European Union is to try to get the balance right between its competitiveness agenda and the sustainability agenda? In the past, and even in recent years, the leaning was much more towards competitiveness. The European Union pursued competitiveness at the slight expense of sustainability because it was trying to compete with very large blocs such as China, India and Brazil, where environmental and labour standards and labour costs were low. It was clear that if the competitiveness agenda won out sustainability would lose in the longer run. Would the Commissioner accept also that, given the nature and extent of the economic crisis facing the global community, there will be an inevitable tendency to look inwards, pull back and retrench? Does he agree that the danger for the European Union is that if member states withdraw, become protectionist and look inwards the EU may suffer? If there is not collective action and an EU-wide response to this crisis, allowing member states to feel that co-operation will benefit their individual economies rather than have the opposite effect, over time we may see the Union unravelling somewhat. This is particularly the case with some member states being in a much worse condition economically than others. They may reach that point more quickly with civil unrest and high levels of unemployment and in that way we may see weakening of the Union. Perhaps, as Deputy Tuffy and other speakers suggested, there should first of all be strengthening of the European banking system and willingness and capacity of the financial and banking institutions at a European level to provide credit and greater levels of capital to fund small and medium enterprises in particular. The EU appears to have been moving in that direction already, with its Small Business Act and the greater emphasis on SMEs. Perhaps the combination of the stimulus package and what the European Green Party in the European Parliament has been arguing for, namely, a green new deal, similar to aspects of the Obama—— Mr. Günter Verheugen: The green industrial revolution. Senator Déirdre de Búrca: Yes, the green industrial revolution or the green new deal. My party and the European Green Party have suggested that this would work and have provided figures. Obviously it would be up to the Commission to decide whether this approach is possible. A financial stimulus programme to the tune of approximately €500 billion to be front loaded over a period of five to ten years would have the potential to create up to 5 million jobs in areas such as renewable energy. This might be seen in the creation of a new energy infrastructure, such as, in particular, a pan-European grid and in the greening of European agriculture and its chemical industry, in areas such as eco-construction and design, energy efficiency, research and development. We see huge potential in these areas for job creation but the issue of credit and capital would require a major programme of public investment at a European level and this is essential. What are the advantages? First, if the financial and economic stimulus programme in the US is successful Europe will be at a competitive disadvantage in another decade. The EU must realise it needs to engage or support a similar type of stimulus programme if it is not to fall behind. Second, the European Union is always trying to convince its citizens of its relevance. If there is no European-wide response at a time such as this increasingly citizens will become convinced that the EU is not relevant and that its political system will not help them in times of serious economic crisis. That would be a very serious blow to the Union in the future. The globalisation adjustment fund and other supports, such as Deputy Tuffy mentioned, must be directed towards re-training programmes for workers. Perhaps new social economy programmes may create what one might call a third sector in which the high levels of unemployed people across the Union would at least have some type of employment. Such programmes could be provided and socially useful work could be done. Third, there is the importance of avoiding civil unrest, particularly in certain EU member states. The danger is that if the levels of unemployment continue to rise without any sign of hope we may face into a future with much greater difficulties in that regard. There is a strong and compelling case to be made for the European Union to take action both in terms of an economic stimulus package, and a much greater willingness to engage on the part of its financial institutions, including the European Investment Bank and the European Investment Fund. The European Central Bank’s reconstruction and development might include the use of euro bonds, as has been suggested. These are the type of initiatives the Commission should look at if we are to avoid the type of problems I have touched on today. I would like to hear the Commissioner’s response to some of those proposals. Senator Feargal Quinn: I do not envy the Commissioner who has a long list of questions we expect him to answer. He has the task of addressing jobs and growth. In the 1980s in Ireland there was a job creation campaign. I was chairman of a hospital at the time and the Government wrote regularly to us asking how many new jobs we had been able to create. That got us into considerable trouble because we created jobs that were not sustainable. The ultimate message, which I heard in the Commissioner’s words, is that we must create an environment which will encourage entrepreneurships to create sustainable jobs. I do not ask Brussels or the European Union to create jobs. I want the Commissioner to create an environment that will enable the enthusiasm and the spirit of enterprise and the creativity of our citizens to create those jobs. Let me provide one instance. I wear another hat as chairman of EuroCommerce and have met the Commissioner in Brussels on that basis. Mr. Günter Verheugen: The Senator gave me a very interesting book and I have read it. Senator Feargal Quinn: I thank the Commissioner. I wrote it some years ago. My wife says there are fewer copies of the unsigned than the signed version. Every time the Commissioner referred to manufacturing, he referred to services. I remind the European Union, through the Commissioner, of the importance of commerce, because very often it is left behind. There are 31 million people employed in commerce in the European Union. They work in 6 million different outlets, mainly very small shops, most of which are SMEs as Senator de Búrca stated. Let us consider the difference between the number and the percentage of jobs in Europe and the United States of America. In America, the higher number of jobs is in services, which is made up of wholesale, retail and distribution. This is because of recognition of the importance of commerce as opposed to manufacturing. Very often in many of the institutions in Europe and Brussels there is such a high regard for manufacturing and agriculture that the importance of commerce is almost forgotten. I put in a word for commerce to ensure we recognise the very significant potential and ability to create jobs in the sector. Every step taken that hinders that potential, makes it less likely to occur. One such step, on which I wish to hear the Commissioner comment, is the tendency towards protectionism. The removal of barriers is an essential part of ensuring the realisation of that which the Commissioner remarked on. I encourage the Commissioner to pursue that aim because it seems that unless we remove those barriers we will be unable to establish one large market. I was in Tallinn in Estonia some time back and I visited what seemed to be a small shop. There was nothing very interesting in the shop downstairs but the owner took me upstairs, where he had 11 people working on internet shopping. He found there are different stipulations in Latvia, Lithuania and the Czech Republic, where he was trying to sell because they still maintain the older traditions including barriers to trade. We must find a way to remove these to have one single market. My message is that there are opportunities for growth and jobs in commerce which are not fully recognised and we must remove the barriers to avail of these. One of the barriers to a single market is the tendency towards protectionism, not only in 27 different countries but even in areas within countries. It seems there are sections of countries which keep markets for themselves and do not wish outsiders to trade there. I do not refer to any countries in particular. I refer to one instance of the creation of new jobs. I visited a new very large shopping centre in Madrid. I cannot remember how many people are employed there but there are more than a couple of thousand people. I entered one bookshop in which there were 37 people employed. Those jobs would not exist if the shopping centre had not been built. The jobs were created and people were buying books that might not otherwise have done so. Some jobs would have been created by those who manufacture the books, but others came from the distribution, the transport and the whole area of ensuring the books arrive in the market. There are jobs created through encouraging people to buy and ensuring the people in the shop sell the books. There are also jobs in the coffee bars in the bookshop and so on. Those jobs would not have been created without the shopping centre and the bookshop. It seems that very often we regard those in commerce as parasites. There is a perception that they are not creating something and that it is only the printer which does so, but this is not the case. Many jobs are created in that area. I put in a word for the benefits of commerce and international trade and distribution at wholesale and retail level. I remind the committee and the delegation that these are the likely creators of jobs, rather than simply agriculture and manufacturing. I do not believe this has been recognised enough. However, I believe the Commissioner recognises this and I wish to stitch it on the record to ensure we do not ask the European Union to create jobs. We ask it to create the environment so that the creativity of the citizens and the entrepreneurs can create the jobs. Chairman: If the Commissioner was depressed before he came here, I am certain he now has more ammunition to impress his colleagues in the Commission. Having listened to the last speaker, I agree and disagree with his comments. We have had this discussion before. I predict that if Europe ceases to be competitive in the manufacturing sector, it will equally become uncompetitive in the services and commercial area and it will find itself at a very serious juncture in perhaps five years time. It would be very difficult to recover at that stage. I am not an economist. I call the Commissioner. Mr. Günter Verheugen: I thank the Chairman. My confirmation hearing in the European Parliament four years ago was less challenging than this series of very difficult questions. Let me make some introductory remarks, although they may not provide an answer for everyone. It is not possible to eat the cake and keep it at the same time, especially in Ireland. It is not possible to ask for centralised policy making and at the same time reject a centralised system, which is exactly what we have. To avoid misunderstandings, I belong to those in the European Union who are strictly against a centralised European system. I seek a Europe built on the existence of independent sovereign nation states and a European Union of independent states. I do not seek the super-State. It was implied in some of the questions that we need to have a superstructure in Europe whereby decisions can be made centrally which are then implemented everywhere, which is not the case. The committee should be aware that the European Union is the successor of the European Economic Community and it does not have a single economic policy. That is not in the treaty. It is not a competence of the European Union; economic policy is a competence of the member states. The treaty of Lisbon will not change that fact. There will be no Minister for Economics in the European Union after the treaty of Lisbon enters into force. We have the Internal Market and harmonised rules to keep the internal market running. However, we do not have centralised policy making and policies. Instead I can assure the delegation there is a relatively intelligent system of policy co-ordination, developing common principles, objectives, best practice and a code of conduct. However, the committee should be aware this is not centralised policy making. The budget of the European Commission is very limited and absolutely rigid; there is no flexibility. The budget is more or less fixed for seven years, not only for one year. Member States do not allow us flexibility, which is a sizeable issue. Last year, for the first time, we were able to convince members states that underspent money should not be given back, as is normally the case. Normally underspent money is returned to members states according to the key of how contributions are distributed. For the first time we used that money for different purposes and for something which was in the interests of the whole European Union. I do not know whether that can be repeated, but in principle the budget is not flexible. There is not one single euro available to do what the committee wishes the Commission to do, that is, to finance measures that would restructure the banking system. Nothing in the budget would allow us to give special assistance to Ireland and its situation. We can only use the instruments we have. My advice to the committee is that the next time it discusses the mid-term review of the financial perspective it should ask the Government the fundamental question of whether the structure of the European budget and the way the European community is financed is still to the point. The structure is the same as that we had in the 1950s and 1960s and now in the 21st century, we still spend more than 40% of our budget on agriculture, and close to 40% on regional policy for which Ireland is no longer eligible because it used it successfully. The programmes for which Ireland is eligible are very limited, research which involves procurement and calls for tender. There are the European social funds, which only apply when an accident happens, and the globalisation investment fund, which is the same. The possibility of organising assistance for the economy in Ireland is very limited and I do not want to create the wrong impression here. In principle our manufacturing industries are healthy. We have only one or two sectors which are traditionally weak and are still undergoing transformation, textiles, including clothing and leather, and aluminium. All the other industrial sectors are healthy and competitive. Some are world market leaders. This has nothing to do with price. It is a mistake to believe that European industries cannot compete because labour is cheaper in other parts of the world. It is meaningless in many industrial areas, for example, mechanical engineering or electrical engineering are major industries in the European Union, and are world market leaders although by far the most expensive in the world. If a company in America or Asia wants a new machine, it wants a German one. It will not ask how much it costs because it is simply the best. Quality is the answer. If one delivers top quality one must not compete on price. We tell industries that they must compete where they are strong not where they are weak. Some economists in the past said that the problem with European industry was that labour costs were too high. I have always rejected that. It is politically a no-go area. Can anyone show me a politician who would tell the electorate that it is the objective of policy to reduce wages? It is absurd but there were economists in the European Union telling us to reduce labour costs. That is stupid. The real answer is different, if we are more expensive we have to be better. If we cannot be cheaper we have to be better. We have a period of restructuring behind us in European industries so in principle they are healthy, can compete and we have a manufacturing base. Cutting red tape is my personal mission. After some difficult years we have achieved a breakthrough. It is part of the political culture in Brussels that red tape is avoided and where it exists it is reduced. The proposals for the programme I introduced to cut 25% of bureaucratic costs will be on the table before the end of this year. That promise will be kept. There are already proposals on the table at European level. I am not talking about national activities. We have already organised savings of €30 billion a year. Yesterday, I proposed to organise a moratorium on rules that would create new financial burdens for the economy. I am not saying that we stop everything but for the time being there should be no new burdens. This will be accepted. Of course, if we discover a health or environmental problem we did not know about and must take action for health or safety reasons we will do that whatever it costs. Health and safety is always more important than costs but we should not otherwise impose new costs on the economy. I share the view that the American stimulus package is more impressive than ours but fail to see what its effect will be. The reaction of the markets was negative. There are certainly some protectionist elements in it. We have told our American friends that we expect them to respect international rules otherwise we will defend our rights. The biggest problem is what the Americans do with the automobile industry. If General Motors and Chrysler go bankrupt, which many regard as the most reasonable economic solution, that will create shock waves which will have serious repercussions in the European Union, costing us several tens of thousands of jobs. We must be aware of this. We need to discuss that with our American friends. In certain areas President Obama is doing what we started to do years ago, concentrating on modernisation of the infrastructure, new and sustainable projects, energy efficiency and new technologies. We are ahead of the Americans in this respect. I agree that if they put all their weight behind that work they will be tough competitors and relatively soon they would be ahead of us. I understand the risks. For the time being they are trying to catch up with us and not the other way around, except for some high-tech networks. The figures for Lisbon were positive last year. I was careful but those responsible for economic analysis, not only in Europe but in other parts of the world, shared the view that there are two factors responsible for the upswing, the global economic cycle, and the structural reforms in the European Union as a result of the Lisbon strategy. Some economists made clear that since the beginning of the term of the Barroso Commission the business climate in Europe is more pro-business. The environment is more business-friendly. Senator Quinn knows I am strongly of the view that we must respect this division of labour. Policymakers are not responsible for job creation, except when they introduce heavy legislation that creates a new bureaucracy. Normally they do not create jobs; what they should do in the best case is create conditions under which entrepreneurs can create jobs by improving the business climate, encouraging people to run a business and getting rid of unnecessary administration. In that sense the Lisbon Agenda has delivered. Deputy Mulcahy said he was disappointed with what I had said about toxic assets. The European Investment Bank is not a Community institution; it belongs to the member states and has limited capital. If member states do not decide to expand it, there is no need to discuss it because we already have in the pipeline more lending capacity than last year — to the tune of €10 billion; it is already coming to its limits. The European Bank for Reconstruction and Development has nothing to do with the European Union — we have no influence there — and the European Central Bank is totally independent. If we want to try to change this, we must change the treaties which is impossible because it would run against the German constitution. I was in charge when that change was made to the German constitution which states the power of the German Central Bank can only be transferred to the European Central Bank if there is the same level of independence. We cannot change this. Deputy Michael Mulcahy: Governors could decide to insist. Mr. Günter Verheugen: Yes, but we cannot give them instructions. Deputy Michael Mulcahy: We can give our own governor instructions. Mr. Günter Verheugen: We are not allowed to give them instructions, absolutely not. We can discuss quietly with them if they can play a role but I would be very sceptical about the European Central Bank accepting the role of a bad bank for the European Union. It would immediately reduce the capacity of the bank. It is highly unlikely that a European bad bank can be organised. The best we can do is find a framework and a co-ordinated approach whereby member states can decide how to deal with the issue according to their circumstances. They might be very different. I have a strong personal view that we must avoid systems which place the risk on the side of the state and the taxpayer; there must be a system under which the risk stays where it belongs, with the banks, which created the problem. We must find a technical solution to achieve this. It is not certain that we must pay money for this, unless we are very unlucky. I have proposed that we create an early warning system to enable member states and industries to get together for discussions in order that we will know what will happen and where in order that we can prepare for the situation on the ground and have the necessary instruments ready. The problem is that the management of structural change means trying to help people to deal with its consequences but the instruments we have to manage structural change do not avoid it; they will be used when it happens. I was a Member of Parliament for 18 years in a constituency undergoing very difficult structural change and know what it means to go to a family in the constituency to tell them they have lost their jobs and that there is nothing I can do. We cannot tell them that it is healthy for the wider economy that they have lost their jobs because the company was not competitive; that other jobs will be created as a result but not in the same sector and not at the same time or requiring the same qualifications, in other words, that the jobs will not be for them. We cannot tell people what the economists say we should tell them. This is what university professors teach us, that it is healthy for the wider economy when non-competitive companies die and other competitive companies arise. That is wonderful but explain it to the workers who have lost their jobs and to their families. I cannot do it. It is obvious that instruments must be put in place to give them hope and help them but these are instruments that cannot avoid the closure. My policy is different; I want to avoid a company closing; I want to help it to become competitive enough to stay in business and save jobs. The instruments to do this are available but they are limited. People are questioning the market economy and capitalism. I understand this; I can see why people ask why we bail out those who are responsible for the problems, who took millions and still have them. It makes me angry also. People ask who will help their small company or shop if they have to give up. No one helps them; that is the law of the market economy and it is completely understandable that people question it. We must try to explain clearly the rules and avoid intervening as a state in economic decision making. After the collapse of the Soviet empire and the fall of the Berlin Wall, there was a change in certain minds. Some warned that the end of competing economic systems did not mean that capitalism, as the only remaining system, was allowed to do whatever the markets wanted and that there were no limits. There were warnings but that is what happened in the banking sector. Those in the sector had the attitude that anything goes; everything is allowed and can be done. A strong propaganda machine operated to the effect that people such as the members and I were told that we were not allowed to regulate the sector and that such regulation would be against the principles of the market economy. I can show members articles to that effect. I will be polite and will not quote European newspapers. I could show them such an article carried in the Wall Street Journal and articles by Nobel prize winners who told us what we must and must not do. A propaganda machine was in operation advising us that such policy was the right one. What is now needed is to make it clear that economic activities are not an objective in themselves. They have a societal objective. They must have an ethical fundamental corporate social responsibility, as was mentioned. That is extremely important. My final comment is in response to the Senator de Búrca’s contribution. I could not agree more with what she said. Certainly, we are probably not in the same political camp and I would use other words but what she said is right. It is the way forward based on a combination of the principles of competitiveness and sustainability. We need to demonstrate it is possible and that it works while concentrating on developing these technologies. These are modern technologies, high-tech ones, we are not discussing old fashioned ones. We can then offer them to other parts of the world. I call this the green industrial revolution. I said in the Commission yesterday and earlier in the European Parliament that the future of European manufacturing industries is green, otherwise there will be no future for them. I mean green in the sense that a product made in Europe must be the most efficient in terms of energy, the most sustainable in terms of resources and the environment and the best in terms of quality. That requires that we change a number of systems. We must change our communications system, training system and we must offer much more qualification. Members understand this, therefore, I do not need to explain it. I am 100% convinced that this direction is the way forward and that it will help us to overcome the current crisis. We have a crisis but we are not facing the end of the world. There is no need to be in doomsday mood. The crisis is difficult and it will take some time to address. We are complaining and suffering still at a very high level. However, there is no question but that we will manage and overcome it. What I do not forget is that at least in many sectors after the crisis we will be stronger than before in the sense that they will be more competitive and will create new opportunities. Chairman: I thank the Commissioner. We realise he has to leave promptly. I thank him for coming along to our meeting. We look forward to further meetings with him in the future. Mr. Günter Verheugen: It was my pleasure. Chairman: The exchanges have been extremely useful. We will go into private session to deal with a few housekeeping matters. The joint committee went into private session at 4.05 p.m. and adjourned at 4.10 p.m. until 11.30 a.m. on Thursday, 12 March 2009. |