Remarks by Angel Gurría
19 June 2018, Brussels, Belgium
(As prepared for delivery)
I am delighted to be here today to present the 2018 OECD Economic Surveys of the European Union and the Euro Area.
After years of crisis, the European economy has picked up momentum. EU-wide unemployment, at 7.1%, is below its pre-crisis level and we project economic growth to remain above 2% this year and next.
The ongoing recovery is one reason why support for the Union has rebounded. Two thirds of Europeans polled by Eurobarometer in April believed that their country had benefitted from EU membership, the highest percentage in 35 years.
While all this is welcome news, the improvements are fragile and unevenly spread. The upsurge in protectionism is a prominent risk for the European economy. And the fact that parts of Europe still have higher unemployment and lower living standards than before the crisis has boosted support for anti-EU parties in some countries.
In this context, our Surveys on the EU and the euro area identify ways to make the euro area less vulnerable to future economic crises and to strengthen the cohesion of the EU project.
Let me highlight some of the key messages.
The euro area has, contrary to many predictions, survived the crisis and improved its functioning. However, imbalances remain, and progress towards a closer monetary union has been uneven. Ensuring resilience to downturns will be critical to the future of the euro project.
We should first complete the Banking Union. This has been said many times by European leaders, but the up-coming European Council provides an opportunity to act. We see three main ways to make progress:
A banking union is not enough, though. More efficient macro-economic policies would also improve the functioning of the euro area.
The ECB helped stabilise the euro when Mario Draghi made his “whatever it takes” statement in 2012. But monetary policy proved insufficient on its own to deal effectively with deficient demand in an environment of near-zero inflation. And national fiscal policies are still constrained by high debt levels.
A shared fiscal stabilisation tool could help address both country-specific and common shocks. The Survey proposes a euro area unemployment benefit re-insurance scheme, showing that all European countries could benefit from such a fund and that it need not imply permanent transfers to particular countries. The Commission’s recent proposal of an investment stabilisation function is another possible step in the right direction.
In parallel, the overly complex fiscal rules should be simplified by adopting an expenditure rule that delivers a sustainable debt ratio. This would help ensure that governments improve their fiscal positions in good times. We also think that the rules should involve more carrot and less stick.
Finally, advancing the Capital Markets Union is also essential to allow the monetary union to function effectively. In the United States, corporate bonds outstanding are about 4 times larger than bank loans to corporations, while in the euro area, that ratio is reversed.
Another challenge is sluggish productivity growth in many European countries, which is restraining improvements in living standards.
The single market is a great achievement, but it is still incomplete. There is scope to reduce barriers in key areas to stimulate competition and efficiency. The Survey makes several recommendations, including easing regulatory burdens, addressing barriers to trade in services and improving cross-border cooperation in the energy sector.
Digitalisation is another key to faster productivity growth. The digital economy is developing quickly in Europe, but over 40% of adults lack digital skills, and continual investment in infrastructure is needed to bridge digital divides. The EU can help member states boost digital skills acquisition by supporting the development of tools to monitor skills needs, while changes to the EU’s regulatory framework could encourage investment in high-quality digital infrastructure.
The EU budget is already stretched and there are new needs. Brexit makes reform even more urgent, as it will create a gap of about 7% in the annual budget after 2020.
With the negotiations of the next EU budget underway, this is a good moment to rethink the process.
There is scope to increase member states’ contributions, including by ensuring that the financing of the European budget better reflects countries’ ability to pay.
Resources could be freed up by phasing out production-based payments in the Common Agricultural Policy and focusing cohesion policy more tightly on lagging regions.
Spending on R&D, which now makes up only 13% of the EU budget, should be significantly increased, given Europe’s low growth potential.
The EU budget could do more to help those left behind by globalisation and technological change. For example, the European Globalisation Adjustment Fund should be more agile in helping workers and its scope should be broadened to cover workers displaced by automation.
The final challenge I want to highlight is the issue of regional divides. Regional disparities in GDP per capita narrowed up to the crisis, but have widened again since.
The EU spends one third of its budget on regional policy. This spending should put greater focus on items with long-term growth benefits, including education and training, innovation and network infrastructure. Also, there is too much emphasis on spending the funds and not enough on the quality of investment. Higher co-funding rates could encourage better project selection.
Ladies and Gentlemen,
The EU is always a work in progress. As I often say: it’s about the scaffolding. You save up to visit Europe with your family, and you arrive at Notre Dame, Il Duomo, Cologne Cathedral and you see with disappointment that the monument is covered because they are repairing or cleaning it. But you come back in two years and the scaffolding is gone and you stand in awe before an amazing creation. That is what the integration process is about: constant repair, constant improvement, constant strengthening. The scaffolding is not easy on the eye, and no one could accuse the process of going too fast, but the project is creating something of great value, and an inspiration to people around the world.
The OECD stands ready to work with you and your governments to deliver on the inspiring European projects of today.