I welcome Commissioner Günter Verheugen who will address us on the EU strategy for growth and jobs, a very pertinent subject matter to have before the joint committee. The Commissioner's attendance is welcome and appropriate at this time. I also welcome Mr. Martin Territt, director, European Commission Representation in Ireland; Mr. Eckehard Rosenbaum, DG Enterprise and Industry,and Andreas Schwarz, a member of the Commissioner’s Cabinet. Ireland has submitted its first national reform programme under the Lisbon Agenda of 2005. The Commission published its annual assessment for 2008, as well as its recommendations to member states, including Ireland, on implementation of the Lisbon Agenda as outlined in their national reform programmes. I invite the Commissioner to address the committee, after which there will be questions from members to which he and his team can respond.
EU Strategy for Growth and Jobs: Discussion with European Commissioner.
Mr. Günter Verheugen
I thank the Chairman for his friendly welcome and the joint committee for giving me the opportunity to exchange views. I am not here to give a lecture and my introduction will be very brief. I would like to have an exchange of views and to hear the committee's opinion on the best response the European Union can find to the current crisis.
We want to discuss the European strategy for growth and jobs, its results and the challenges that remain. The strategy we have in place, the Lisbon Agenda, was reviewed and changed in early 2005 when we became aware that the objective of the original strategy could not be achieved. The objective was defined in 2000 in a very positive and optimistic mood. The meeting occurred in Lisbon during a good business cycle and when the weather was very good. Therefore, it was over-optimistic to state ours would be the most competitive, knowledge-based economy in the world. It is one thing to make such a decision and another to achieve the objective. It was clear by 2005 that we would not achieve it and the reason was also very clear. There was a lack of focus; there were no priorities and no governance structures, but we have changed this considerably since. We now have the European partnership for growth and jobs, which I am happy to say works. We are concentrating on long-term objectives such as how we can improve business conditions, organise innovation and create a knowledge-based economy, increase skills and so on.
The outlook was still very positive last year and we can claim that we were able to reduce the productivity gap between the United States and the European Union. European economies are better than they were in the past and although there is still a productivity gap, it is beginning to close. The same is true of innovation. The last innovation scoreboard showed that when comparisons were made on a country-by-country basis, four European countries had achieved better results than the Americans or the Japanese. It is only when the EU average is taken into account that the American and the Japanese fare better. However, our situation has improved. Last year employment figures were close to the target of 70%. As a result of the good business cycle and high growth rates, spending on research and development was growing but not in proportion to economic growth; therefore, it had declined in relative terms. We have been unfortunate, as we have had some bad luck. The crisis has destroyed the figures. The committee should be aware that the long-term trends and the long-term competitive competitiveness agenda we have created are not affected by this. I will come back to this point shortly. If one has to present the figures by the end of this year, unemployment will be higher than foreseen and we will not meet an employment rate of 70% as it will be perhaps 65% or 66%. Of course, research and development will be less than 2% of GDP, which is very worrying because it is far from our 3% target.
In the present situation, it is very important to make sure the measures we need to tackle the crisis, and the short-term actions we are taking, do not jeopardise our long-term objectives. The starting point for everything we need to do now is to make sure the competitiveness agenda is not questioned. We stick to the principle that in a globalised economy, European economies must compete. Competition, particularly fair competition, is the whole of the game. We cannot protect our companies from competition. We cannot reverse economic globalisation.
We should never forget economic globalisation is not something that was imposed on us. It was not China or India which were asking for it. We, the western industrialised countries, imposed it on them. We asked for the free flow of goods, services and, in particular, investment, and we forced developing countries to open their markets for investment from western industrialised countries, so we should not complain about economic globalisation. What was not foreseen when this happened was that we would create new and very strong competitors, which is exactly what happened.
We are well aware that new economic superpowers are arising that will change the whole story but, nevertheless, so far we have been able to maintain our position. Contrary to the Americans and Japanese, the Europeans' share of global trade has not fallen and we have maintained our position, including with regard to exports, which are growing fast. We could maintain our share but the Americans and Japanese could not, which shows our export industries are more competitive than the others.
I strongly believe that following the crisis the most important driving forces of the global economy will still be in place. Economic globalisation will not disappear and cannot disappear because the emerging economies have no choice. They must continue to implement policy concentrated on high growth rates and wealth creation. There are hundreds of millions of people in these countries driven by the desire to have a better life — it is as simple as that. There are hundreds of millions of Chinese driven by the desire to have a better life and they know this better life exists — it is not like the 19th century when they did not know. There is no government in the world which can stop that.
This offers a huge opportunity for us and I will explain why. The Chinese and the Indians, as potentially the biggest economies in the world, are well aware they cannot create the same level of wealth and prosperity we have in the United States and the European Union without destroying the planet. If they do that in the same way, they know they will destroy the planet. What they desperately need is a way to combine strong economic growth rates and sustainability without destroying the planet, natural resources and the environment.
This is a huge opportunity for European industries and services. We can offer them the solutions because the solutions are there and we have them. We need to demonstrate in practice that sustainable growth is possible and this is why it is so important to combine the economic agenda and the environmental agenda, and not to see the two agendas as something in parallel or even contradictory. We must see them as two sides of the same coin. I call that the green industrial revolution which we will have to organise, with the transformation of our economy into a knowledge-based economy and, at the same time, into a low-carbon environmentally friendly economy. That trend will continue.
What will also continue is the progress we will make with technology. New technologies will be developed, implemented and changed, as we have seen in the past. Of course, the demographic factor, which is extremely important in Europe and China, will also change and have a very strong impact. The driving forces which will define the economic development of the next decade are still there. We must go through that crisis in a way that does not hamper our competitiveness for a time after the crisis.
I want to discuss with the committee what is the proper response. I have a couple of ideas. Everybody in this room will agree that the key question is the financial sector, which is where the problem started. The first actions were concentrated on this area in order to restore confidence and trust in the banking sector. So far it has failed, or let me put it this way, so far we cannot say that a sufficient level of confidence in the banking sector has been achieved, particularly between banks. As a result, we still have a credit crunch, which is the main reason for the economic downturn.
I find it odd that hundreds, and later perhaps thousands, of economically viable and reliable companies will disappear simply as a result of the fact they cannot finance their activities at affordable prices. Therefore, it is clear we must continue our efforts to make the financial sector function again. The most important open point here is how we deal with bad assets. I am totally convinced we will not solve the problem without helping the banks to get rid of bad assets from their balance sheets. This has to be done quickly in a way that does not put all the burden on the shoulders of the taxpayer, which is technically very difficult.
We cannot foresee a harmonised European solution or one pan-European solution. It is impossible because we do not have the money at European level. It will be the same response that was used when the banking crisis began, namely, action at member state level under the responsibility of the national government but in an agreed European framework, which is more or less a list of "to dos" and "not to dos" — a kind of code of conduct for the crisis. The easiest way to describe it is that national measures must be designed in a way that they do not harm the neighbours or the other member states. That is the principle we wish to maintain.
International activities are needed to ensure that a properly functioning system of governance is put in place for the banking sector but that is a matter for the future and will not help us to resolve the problems that have already arisen.
In regard to the position of the Irish economy, two weeks ago the Commission presented an analysis of the extent to which the financial crisis has affected the real economy, particularly in regard to industrial manufacturing and construction. The situation is serious. The speed and scope of the crisis is unparalleled. We have never seen such events in the past and they have unfolded at unbelievable speed. At the beginning of December last year, I met representatives of the European ship-building industry, which is an important sector for the European economy, and was told that their order books were full until the end of 2012. I met them again a couple of weeks ago and was told their order books are empty and that orders have been cancelled. Today, no ships are being built in the European Union. Freight rates have shrunk to such a low level that it makes no economic sense to buy a new ship which does not recoup the investment made on it. It is cheaper to pay a fine for cancelling the contract than to buy the ship. This is but one of dozens of examples I could set out for the committee. The unprecedented speed at which the crisis has developed means we do not know where and when it will stop.
We know, however, that we are continuing to fall and that there will be social consequences which are not yet fully visible. They will be visible relatively soon. Until now, European companies have tried to retain their skilled staff while getting rid of temporary workers and cutting shifts. That will come to an end soon and we will then see the restructuring of certain industries, including the closure of factories and production sites, the relocation of production and lay-offs.
Our policy response has to comprise a defence of the most important assets for recovery, namely, the Internal Market and the monetary union. The Commission will not allow protectionist measures and it has the instruments to prevent them. If state aid given at the level of member states is not compatible with our rules, we are strong enough to stop it. However, state aid is allowed and can be substantial on occasion. A certain imbalance is unavoidable in this regard because the bigger and richer member states have more room for manoeuvre in terms of using existing state aid schemes than poorer and smaller states. Germany, for example, will find it much easier than Bulgaria or Slovakia to rescue companies. As this worries me considerably, I try to co-ordinate this type of action as much as possible but there are limits.
It is important not to panic, however, or to forget the lessons we have learned from the past. We must be clear and open with the public when we explain why we need to bail out the banking sector but cannot bail out other sectors. We must also explain why protectionism does not help workers and weakens companies and long-term competitiveness. The effect of protectionism is merely to make the death of a company more prolonged, painful and costly. We must tell the people in direct terms that only a competitive enterprise can guarantee safe jobs.
On Sunday, we will hold an emergency or special summit of the European Council at which the European automotive industry will be discussed. At the normal spring Council which will be held three weeks later we will hold a more strategic discussion on the way forward.
I thank Commissioner Verheugen for his frankness. He stated that the outlook last year was positive.
Mr. Günter Verheugen
In manufacturing.
That is correct. That sentence contained a stark warning as to how quickly events unfold nowadays. He also noted that four EU countries are among the top ten performers at present. However, the international competition is not as strong as heretofore. It is therefore not necessarily a great accolade to be placed in the top ten.
The Commissioner is correct in regard to the importance of competitiveness. We must ask where we went wrong. He also stressed the importance of our knowledge-based economy but this will require competitive manufacturing and services sectors. It has become apparent over the past 12 months that several economic projections are based on false premises, such as a lack of sustainability. I have pointed out on more than one occasion that, for example, climate change proposals alongside economic shifts could be disastrous for sectors such as manufacturing and leave Europe at a serious disadvantage. That is emphasised by the speed at which the situation has changed internationally. The Commissioner rightly pointed this out.
In recent times this committee brought to the attention of our Government the fact that the projections that prevailed here a year ago are no longer relevant. The members of the committee brought that to the attention of the powers that be and the European Commission by way of a submission. The Commissioner correctly identified protectionism as a dangerous issue for the future. One could conclude that the United States and some European countries are hinting at protectionism and that a serious problem of retribution and counter-action could arise from any precipitate measures. The Commissioner referred to state aid. From watching the members I know they will speak on these issues to a greater extent.
For some unknown reason, the financial sectors across the world jack-knifed. They crashed rapidly and modern technology lends itself to that. With modern technology and computerisation, rapid short-selling on markets is much more accessible now than it was in the 1930s. Billions of euro can be transferred from A to B in the space of seconds. This committee has felt there should be a greater emphasis on the trends developing even to a minute extent, and a reaction, and the establishment of firewalls so matters do not get out of hand in the future. They are supposed to protect markets at all times.
Low interest rates provided a great opportunity for the manufacturing and service sectors to prosper, grow and extend. However, there was no control on credit across the Union and in other markets. Credit control was available to all member states and the EU, but it did not happen for some unknown reason. I will call on members. These are the important issues the Commissioner has raised. It is clear to everybody that these issues face us now but will also face us in the future. We are accountable to our respective electorates and it is not always possible or easy to explain to the electorate the harsh punishment they might have to take if, in many cases, they feel they were not responsible for creating the problem in the first place. There are difficulties there.
I warmly welcome Commissioner Verheugen and thank him for coming. It is a pity the Commissioner's address to this committee is not to our national Parliament. There is a serious lack of understanding of the serious, complex difficulties that have been encountered in a short period of time, with the global economic situation and financial market position affecting all member states, particularly Ireland. I ask that the clerk circulate the Commissioner's address to every Member of Parliament, both Dáil and Seanad, and our MEPs. The Commissioner has been very open and frank and we appreciate that very much.
The Lisbon Agenda is critical to Ireland and the Union. Globalisation is a major challenge and opportunity for the Union and Ireland. It is a very fast moving train and there is no way we can stand against it. It exists, and we must embrace it, deal with it and rise to the challenges and opportunities therein. Innovation is critically important and perhaps the Commissioner could give some indication from his perspective of which sectors could underpin and sustain the European Union. What strong sectors for economic opportunity does the Commissioner see for the next three to ten years? How advanced or developed is research in the European Union?
In Ireland we have been beneficiaries of much American investment since the 1960s and accelerated American investment since the early 1970s when we were fortunate to become members of the Union. We are now in a serious competitive situation with major attrition among corporate America and a significant loss of jobs in the past few months. This is a significant challenge for us. Examining the European globalisation fund and Ireland's position on the periphery of Europe, we could become victims of both corporate America and mainland Europe. It is critically important that we try to embrace the Lisbon Agenda to build an all-island economy which fulfils its aspirations as part of the European mechanism for economic advancement.
Where we have to deal with two currencies, it is critically important that our vulnerable position is fully understood within the Union. The two currencies create competitive aspects through the mobility of people, goods and services on this island, and they are a serious threat to our economic situation. Perhaps the Commissioner could give us some indicator as to what prospect there may be for assistance for Ireland from the European globalisation fund to take account of the fact that we could become victims of both the strength of a growing mainland European Union and the weakness of corporate America from an investment point of view.
The Commissioner talked about the difficulty with toxic assets in banks. I am not sure if we can allow the bank management to be exonerated from creating an environment where these toxic assets have been allowed to develop. They have a serious moral, political and financial responsibility to manage that situation. The European Central Bank, European Investment Bank and European Bank for Reconstruction and Development have great capacity, experience and expertise. Perhaps there may be an opportunity to create a new European bank for refinancing and development to sustain member states through this crisis, albeit over a decade or a quarter of a century. A plan could be put in place to allow that European refinancing and reconstruction to take place for member states.
Perhaps member states in the EU may have been victims of bilateralism with the stronger and bigger countries. While as a small country and a proud member state of the EU we would always like to work on the basis of multilateralism, is there a possibility that taking into account the strength of the Union and its contribution to the European Economic Area, we could have a bilateral agreement with that area? Taking into account the experience the EU has gained from the European neighbourhood policy, would it be possible in a bilateral way to use many of the cash resources and reserves in the European Economic Area with European management to assist the member states where there is a serious shortage of capital? It is important that the banking sector accounts for its stewardship in the past and over a certain period of time — not instantly — it would have to write off all these toxic debts. Without this, one would liberalise the banking system too easily and allow others to repeat that mess in the future. We must be very mindful of that.
Taking into account that we are on the periphery of Europe and that we are the only member state in the Union that is not connected to the mainland, what opportunity will there be for us to get the necessary resources under the European TENs programme? This could ensure we, too, are connected both to the UK and the European Union in a very tangible, real way as we go forward with great optimism through the Union, for the Union and its people and particularly the critical contribution it will make to the development and sustainability of our country and economy into the years ahead.
I welcome the Commissioner. It is an honour for the committee to have him here to address us. In his address he spoke about the uncertainty and the fact that we do not know what the future holds. At the same time he says we should not panic. Some of the bigger countries are well able to cope with the crisis because they have more flexibility. We are coming from the position of being a small country with an open economy. We are facing rising unemployment with more than 400,000 expected to be unemployed before the end of the year. The Commissioner comes from the industrial heartland of Germany so he has major experience in industry. Obviously industry in Germany is very different from Ireland. One of the Members of Parliament in Germany, Doris Barnett, comes from an area in which BASF employs 65,000 people in one complex. It is totally different from Ireland. In my own area of the mid-west, 2,000 people employed by Dell are facing the summer with no job as the company is closing part of its manufacturing complex.
I ask the Commissioner about the cost of manufacturing, which is moving to low-cost countries. He spoke about the economies of India and China and the competition we have from them. It is expensive to do business here. Has the EU cut out much red tape? Many small and medium-sized enterprises are finding it very difficult to cope with the red tape which strangles business and creates many problems. With regard to job losses, the Commissioner mentioned the example of shipbuilding in his own country. The automobile industry in Germany is huge and because of the supply chain, every country is affected when something happens. I presume there are companies making components for shipbuilding in Ireland which are affected, as are various other countries in the EU. Here, many small car component companies have gone to the wall. The automobile industry is in crisis in Germany and there is a similar situation in Germany.
Perhaps the Commissioner could comment on the stimulus package announced recently by President Obama which has gone to Congress. The EU ambassador in Washington, John Bruton, said the legislation would set a dangerous precedent at a time when the world is facing an economic crisis. What effect would a "Buy American" clause have on Europe, especially on our trade agreements? That is something on which I would like the Commissioner to comment because it would have a huge effect on Europe. In my own small area of the Shannon Free Zone 65 American companies employ 14,000 people. Perhaps the Commissioner could comment on this along with the issues of competition and competitiveness. The latter may be part of the reason we in Ireland are suffering job losses.
I join my colleagues in welcoming the Commissioner and his colleagues. We appreciate that he has innumerable other meetings to attend so whenever he can come to a meeting of the European affairs committee it is particularly appreciated.
Is the Commissioner convinced that the Lisbon Agenda has successfully delivered the number of jobs it should have? There is a perception in some areas that we want to bridge the productivity gap between Europe and America and that we want more innovation and a knowledge-based economy. Does that mean fewer people making more products?
Mr. Günter Verheugen
Not necessarily.
All right. Could the Commissioner address that issue?
I ask the Deputy to continue as I do not want to have cross-talk. There are others who want to speak.
There are still millions unemployed across Europe who have not seen the benefits of the Lisbon Agenda. Somebody needs to speak for them.
I welcomed the Commissioner's contribution today which was incisive and a correct analysis. He stressed the international aspect of this world crisis. There are some commentators who seem to believe this is a 100% domestic crisis. They seem almost to take pleasure in propounding a great thesis that Ireland is somehow a bubble on its own and exists apart from the rest of the world. I would be interested to know the Commissioner's view on the extent to which the international aspect of this crisis has affected countries such as Ireland and the UK.
Allied to that are the Commissioner's comments on the financial sector. I must be honest — we should speak frankly here — and say I was a little disappointed in what he had to say about Europe coming or not coming to the rescue with regard to toxic assets and so on. He more or less said — I hope I am correct — that the money was not available at a European level to solve this problem. Deputy Pat Breen touched on this. Many people will be comparing this with what President Obama is doing in America along with the Federal Reserve. Major interventions have been made at a federal level not only to shore up mortgage providers but also to rescue banks. Now a stimulus package is being introduced and toxic assets may also be dealt with. The Commissioner acknowledged in his contribution the importance of getting banks working again and getting liquidity back into the economy, and I agree with him, but that can only happen in many banks once toxic assets are off the balance sheet. If the national banks or large banks in various countries do not have the resources to take these toxic assets off the balance sheet this year or early next year and try to do it over a period of ten years, we may be looking at ten years of stagnation in those economies.
Unfortunately I was not able to join Mr. Trichet, who is also in Dublin, for lunch today but I ask the Commissioner kindly to convey to him a message from me if not from the committee. I ask him to take his hand out of his pocket and assist European countries in dealing with their toxic assets. I do not accept that the European Central Bank and the regulatory system can step back from the problem and merely say they will take a supervisory role in what national governments are going to do. The commissioners and Mr. Trichet must get stuck in, roll up their shirt sleeves and take some money out of the big bank. They must not forget we are not in the European monetary system and we can no longer print money here, although we used to. Now only the European bank can print money. The UK can print money and America can print money. I am not asking the Commissioner to do it all but I would like a more hands-on approach with regard to getting finance back into the banks.
I ask Deputy Joanna Tuffy to speak, followed by Senators Déirdre de Búrca and Feargal Quinn. I am not saving the best wine until last; it is indicative of the high quality of all the wine.
Senator Quinn is our expert.
I thank the Commissioner for attending the meeting. He said during his presentation that it was important the competitiveness agenda was not questioned. He spoke of the need for high growth rates and said that when these come back we should combine them with sustainability. He stated that the driving forces are still in place. However, he went on to say he did not know when all this would end. Is everything not open to question, including the competitiveness agenda? The public are questioning everything, so surely for us as leaders and politicians nothing should be off the agenda for discussion. I am not being in any way prescriptive about what the Commissioner would decide if he started to question these sacred cows, but we need to consider these things. In Ireland there has been a clarion call for profit-making, privatisation and competition for the last few years. Much of that is relevant to why we are in this situation and why our economy is in such a terrible position. Perhaps we should look at issues such as state aid rules. Perhaps we must decide to have more publicly owned public services. Protection of workers came up as an issue during the Lisbon treaty campaign and is obviously still a great concern for people. What will the European Union do to meet those concerns? Has the Commissioner an opinion on why Ireland appears to be hit worse than most other European countries? What did we do wrong?
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?
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.
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.
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.
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.
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.
Governors could decide to insist.
Mr. Günter Verheugen
Yes, but we cannot give them instructions.
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.
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.
The exchanges have been extremely useful.
We will go into private session to deal with a few housekeeping matters.