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Ladies and gentlemen,
I would like to begin with a few words on today's seminar.
In recent years, I have been concerned about the lack of analytical discussion on the European Union.
To draw attention to this issue, I decided that we should arrange a series of events on the EU's current situation and its future. These events are intended to fuel discussion on the EU and provide new ideas for its development. Most of all, they also aim to give people the opportunity to come and listen, ask questions and give their views.
To this seminar in Tampere, the second in the series, we are delighted to welcome a guest speaker of the highest level. Mr Wolfgang Schäuble needs no introduction as the German Minister of Finance. However, on a more personal note, I would like to mention how much I enjoyed the privilege of working closely with Mr Schäuble over a number of years on the Ecofin Council and Eurogroup
During those years, I came to know Mr Schäuble very well, becoming a great admirer of his vision of how to develop the EU and solve its current problems. Mr Schäuble has a unique perspective on and has greatly influenced Europe's development. Such work began with Chancellor Kohl in the 1980s and 90s, and continues on an everyday basis during our turbulent times. Mr Schäuble is a true European in every respect.
Mr Schäuble and I are very likeminded and seem to agree on most issues. Even when we are not entirely of the same opinion, we fully respect each other's arguments and viewpoints. Indeed, differing perspectives backed by solid analysis provide an excellent basis for creative debate and novel ideas.
So - Wolfgang - my warm thanks for joining us here today. It will be a great pleasure to hear your thoughts about the future of Europe.
Today's third speaker is Mr Schäuble's new Finnish colleague on the Eurogroup and Ecofin, Finland's Minister of Finance, Jutta Urpilainen. As a colleague of both of you, I feel sure that you will reprise the warm working relationship that existed between Wolfgang and me, during my time as Minister of Finance.
Working together continues to be vitally important during these troubled times. Finland and Germany have a strong partnership in the European Union. This is especially true of our approaches to resolving the financial crisis and creating a more stable and competitive Union.
Before giving the floor to our main speaker, Mr Schäuble, I would like to address a few general themes. Minister of Finance Urpilainen will then share her views with us, perhaps by providing more insights on the issues I shall touch upon.
My themes for today are as follows: the big picture underlying the crisis, the cause of the EU's problems and the new paradigm required by the EU.
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Once again, the EU faces an unprecedented crisis. I say 'again' because the EU's past development has been chequered by crises.
My hope is that history will repeat itself, and the Union will emerge from this crisis stronger than ever and evolving in a new direction.
However, I also fear that we have not yet acknowledged the reasons for our current predicament. Such unawareness could lead us to repeat our mistakes.
A sound analysis of the measures required to solve this crisis is essential. IN ADDITION, we need to understand what is required to prevent its recurrence.
In the current economic crisis, we have the historical momentum enabling us to reshape the Union, particularly the Eurozone.
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The European Union is a unique project bringing peace, freedom and prosperity to our continent.
Europe has provided all of these things: not one European country can be said not to have profited from membership of the EU. Membership of European Union and the Euro area have been success stories for Finland too - regardless of the current difficulties. A single market and true freedom of movement in the Schengen area are things of which our parents could only have dreamed. When criticising the EU, these are things we should bear in mind.
But we must also be open about the problems we face, and innovative in finding solutions. Only honest and open discussion can equip Europe to face its challenges. Looking at the big picture, all of our current woes stem from a similar reason - failure to follow our own rules and fully respect the treaties that bind us.
Greece's being admitted as a member of the Euro area, while not fully fulfilling the criteria and based on inaccurate information, is one example of our failure to follow the rules. On more than one occasion in recent years, Greece's problems have come to the attention of the Commission and the Council. However, most member states chose to look the other way, hoping that the problems would solve themselves.
While it is true that Greece systematically provided misleading figures, the EU as a whole should also bear some of the blame: we overlooked the problems, failing to fulfil our responsibilities and react while there was still time.
Another example lies in stretching the accession criteria. EU enlargement was a common good and the right decision - further enlargement is required in the future. But we should also ask whether enlarging the EU before all new members fulfilled all criteria was wise in practice. Ultimately, was this a good decision for the further development of all of the countries concerned, and for the EU as a whole?
A third example lies in the Stability and Growth Pact and its implementation. While the Commission did as it should, Member States watered down the Pact. The grounds for penalising rule-breaking members, and even the moral high ground in that regard, were lost. After all, the majority of Member States felt that breaching the Stability and Growth Pact was not a problem. We now know better: that it IS a problem with potentially dire consequences.
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So what is to be done?
If we acknowledge that all or most of our problems stem from breaking our own rules and not respecting treaties, then we need to change course.
"Back to basics" thinking is sorely needed. By this, I mean that we must learn to abide by the rules we have agreed and respect treaties as they stand. If we need to renew treaties, then we should do so in a more functional and realistic, rather than an idealistic, direction.
At the end of the day the key question is: What does the EU consist of? I think the answer to this lies in a combination of shared values, coupled with rules on how to make those values function in practice. The values of peace, freedom and prosperity are the 'why' behind our common project. But rules are the 'how'! One cannot exist without the other. And I underline this: we cannot promote our values if we do not have rules, or pay insufficient respect to the rules.
Without mutual confidence that all members will obey the rules, the entire model of integration is endangered. Finland has traditionally stressed the role of supranational institutions as the guarantors of a fair and rule-based Union. Based on developments in recent years within the EU, such a viewpoint is even more topical today. One must really question whether the Lisbon Treaty fulfilled its objectives of strengthening our mutual institutions.
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Reform of the Union's economic aspects and resolving the financial crisis are of the utmost urgency. Unfortunately, this is easier said than done.
A major underlying reason for our problems is the unsymmetrical develop of competitiveness in the Euro area. Using Germany as a benchmark, it is no coincidence that the countries at the opposite end of the table are those in most trouble.
The public finances of these countries have worsened in the long term. Politicians have opted for the easy route, promising a higher standard of living, paid for with borrowed money. In this sense, if the right choices had been made, what now look like 'necessary reforms' would never have been necessary in the first place.
Why was money from the markets so cheap? The primary reason is the lack of a functioning Eurozone bond market. In its inception, the euro area did not eliminate the risk of a sovereign default. Unfortunately, such a risk was never priced into the debt held by Eurozone Member States. Compared to the economic performance of many countries, the price of debt has simply been far too low, enabling the generation of vastly excessive debt levels.
This unfortunate development has two reasons. Firstly, nobody - including the lenders - believed that a Eurozone country could default. Since a civilised sovereign western country has unlimited right of taxation, so it was thought, its liquidity is not at stake. Secondly, it was an article of faith that other Euro area countries and the ECB could not afford to allow a Euro area country to default.
Thus the banks, pension funds and other financial institutions shared the illusion that all Euro area bonds were safe havens. It is in this illusion that we can see the origins of excessively cheap credit.
In its monetary operations, the ECB has treated all Euro area sovereign bonds as, in principle, equal in terms of collateral. However, the issuance of too many bonds, without properly pricing in risk, renders such a principle dangerous in its possible consequences.
We have now taken the decisions required to ensure that risk is priced in properly. This will prevent the recurrence of sovereign debt crises of the current kind. The permanent European Stability Mechanism includes the possibility of debt restructuring. Collective Action Clauses, which must be included in all future Euro area sovereign bonds, inform lenders that there is a real risk of losing their investments. They also make such a default situation manageable. I see this as one of the European monetary union's key reforms.
It is crucial that we retain this principle, which brings market disciplines to the bond market. If you risk losing money, you price that risk in. With bond prices being based on an estimate of the economic performance of, and confidence in, the borrowing country, excessive borrowing will become too costly for poorly performing countries. Soaring loan prices at an early stage will prevent such countries from over-borrowing. Higher living standards will have to be earned, not borrowed. Cohesion funds are altogether different.
Numerous improvements to monitoring and sanctioning have already been agreed, alongside a proposal to make the SGP and economic governance more effective. Consideration is even being given to treaty changes. In general, Finland supports all changes which make the rules more credible, improve monitoring and enhance the automatic implementation of sanctions. In this sense, we are pragmatic.
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What about the current crisis?
The current crisis does not concern Euro area countries only, some of which were perhaps protected by the Euro in the first wave of the financial crisis. To survive, Iceland, Latvia, Poland and Hungary - to name a few - were forced to turn to other European countries or the IMF for support. There are also countries outside the Euro area with huge deficits and debt burdens - they will have to take decisive action to maintain their credibility on the markets.
Whether in or outside the Euro area, countries must manage three issues: liquidity, solvency and credibility. Other countries and the IMF can help with the liquidity - with certain conditions attached. On this basis, from the sidelines we can help a country remain solvent, through a deficit reduction programme. Ultimately, however, only the country concerned can build confidence within the markets in its fiscal prudence.
Some have argued that the strategy of supporting liquidity through loans and guarantees does not work. I disagree - Ireland provides strong evidence to the contrary. Ireland has executed the agreed measures and more. In addition, Irish representatives accompanied their Prime Minister's delegation to the investment capitals of the World. They have presented what they are going to do and how they are going to do it, become solvent and get economic growth back on track. By doing this, they have built confidence. It really doesn't have to be more complicated than this - do your homework, tell your partners, and stick to the plan.
A good example of regaining confidence is the fine work done in the Baltic countries during the last financial crisis.
Greece is a special case. Very tough measures are required for it to regain its solvency. Greece needs to rebuild the confidence of lenders. This is a long road, but it must be taken and there are no short cuts. Rejecting the programme would mean even more drastic cuts, while quitting the Euro would be yet more perilous for Greeks. In the light of the dramatic developments of recent days, stability must be gained quickly.
Some other countries - both in and outside the programme - face the same questions. Spain, for example, has taken many good measures. Italy must also do as it has promised. Interest rates are an unquestionable indicator of the market's confidence in such countries.
If this is a crisis of confidence, then building confidence is the only cure. Credibility is about measures, implementation and psychological factors. Markets are neither good nor bad, but they are logical. If investors have the information they need and trust you, you are credible and can borrow the money you need at a reasonable price - it really is as simple as that.
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What does all this mean for the future of the European Union? As I said earlier, the EU has always emerged from crises stronger. But we can only do this if we learn our lessons, take the necessary action and have a shared determination to develop the EU to the next level.
On a larger scale, Europe needs the same medicine as the individual Member States in crisis: we must do what is necessary and build trust in our rules. We have seen where the alternative leads us.
Everybody is familiar with the saying, 'the road to hell is paved with good intentions'. I know that the arguments that led us to where we are now were well-meant at the time. But it is now time to learn from past mistakes.
I am a highly pro-European politician, who supports further enlargement and deepening of the EU. But this must be done when the time is right, when new member states fulfil the related criteria both in theory AND in practice. It also requires the support of the citizens of Europe. The Finnish government is in favour of a strong, deeply integrated and rule-based Europe.
In the light what we have seen, the genuinely pro-European road is definitely not one on which we should go forward at any cost, in whatever area of further integration, before we are ready. If we disregard obvious drawbacks, break our own rules and ignore our treaties, we can be sure that such drawbacks will return to haunt us, looming even larger in the future.
I believe in the European Union as a project about values. For our continent, there can be no more important gift than that of the stability, in every sense of the word, provided by the EU. Even in the current turmoil, we must remember that the European Union is a success story without comparison. Now is the time, despite our difficulties, to continue building our common project. This requires a return to basics: regaining the support of our citizens, building stronger institutions and trusting the community method in a rule-based, treaty-respecting European Union.
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