Prime Minister Alexander Stubb: How to Relaunch Growth in Europe

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Mr Chairman,
Ladies and Gentlemen,

It is a great pleasure and an immense privilege to speak at Medef today. I remember well my previous visit to your esteemed organization in 2012 - then as Minister for European Affairs and Foreign Trade. It is good to be with you again. But unfortunately the challenges we discussed during my earlier visit have not yet abated. Europe is still undergoing a grave economic crisis.

My subject today is how to relaunch growth in Europe. We have a three-faceted economic crisis in our hands. It all started as a global banking crisis and was then soon transformed into a debt-crisis in the Euro area. Today we are facing a European crisis of growth.

Only strong growth will put Europe on a sustainable economic path. Without growth, unemployment will remain at intolerable levels and balancing public finances will be an increasingly difficult task. Europe will be trapped by its ageing demographics.

No one is immune to the crisis – not France, nor Finland. We have all been hard hit. We can speak of a lost decade in terms of European growth. For example, Finland will probably regain the 2008 pre-crisis level of production only by 2018.

Growth is the crucial European issue - economic, political and social. We all want growth, we all need growth – this is self-evident. There is no disagreement – north or south, right or left – on this issue. But there are different views on how to achieve growth. What is feasible, what needs to be done.

My aim today is to present my vision on how to relaunch economic growth in Europe. What constitutes a sustainable and viable European growth policy. What are the building blocks of a Europe of growth.

Being in France, we are subject to high standards of logic and structure. So let me analyze European growth in three stages: first, what is our understanding of the foundations for growth in the modern economy, second, what are the areas where Europe can generate new growth, and third, what are the policies that need to be deployed for realizing growth.

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Dear friends,

A key element in building a policy for European growth is understanding the foundations of growth. How does the modern economy function, and what makes it grow.

Europe has been a great economic success, a global leader. All major economic innovations have strong European origins – commerce, banking, manufacturing, the industrial revolution. And you can also add integration to the list, since it is a European solution to the demands of a transnational economy.

But history has also shown that success depends on perpetual change, economic evolution. The only constant is change. The eminent economist Joseph Schumpeter talked about creative destruction – allowing economic structures to change with development.

I am not arguing that Europe hasn’t made mistakes as well. Some industries have simply been destroyed, without any creation. One unfortunate example is how Europe lost its leadership in information technology. Europe was the global leader in the telecoms sector during the 1990s, because we had a strong European market, leading technology and above all, common European standards. But our environment changed. The internet became the main stage. Online content surpassed the handset as the center piece. Europe lost its edge and the United States became the dominant force in the digital economy. You can all Google this information on your iPhone and then share it to your followers on Twitter.

The reasons for this European downfall are clear – there was no internal market, no common European standard for the digital economy. National boundaries were high, when there should have been none. This is a cautionary tale - we must pay constant attention to economic evolution. Success today is no guarantee of success tomorrow.

Globalization means intense competition. And it also means that the economy and our companies are no longer confined to the national or even European framework. Even mundane products are the result of global value chains, where one part is made here, the other part there, assembled elsewhere, but the greatest value is created in the creative reaches of the process. Ipads are made in China, but designed in California, as the label says. And the ‘made in’ covers only some 2% of their value.

Therefore modern countries cannot hide between duties and non-tariff barriers. Economic fortresses have been made obsolete by the cannons of globalization. Our companies and economies need to thrive in the open. Seek high value in the global division of labor.

We have to understand a brutal fact. The modern economy is like a powerful stream, forever moving ahead, never stopping. Stopping this current is not an option, neither is reversing it, nor does it make sense to swim against it. Europe has lost substantial manufacturing capacity to emerging economies. Most of this work is not about to return to Europe - no matter how much we improve our industrial policy. The only viable option is to look ahead for new opportunities.

Some people fear that reforms aimed at making our economies more dynamic will undermine the welfare society we have built over the post-war decades. I don’t agree.

I see economic competitiveness as the sole way of preserving and further improving our European model. In an open economy competitiveness and welfare go hand in hand. The two are friends, not enemies.

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Where can Europe look for new opportunities? Predicting the future is always risky, but allow me to make an enlightened estimation on some of the forces at work.

First, automation is changing manufacturing and makes it less dependent on labor. This means that the advantage that emerging countries have had with cheap labor is eroding. The balance is tipping in favor of high-skills and innovation, where Europe still has a lead. But any European industrial regeneration has to build on new horizons, not sunsets.

Second, dealing with climate change compels us to make major improvements to energy provision and resource use. We need to use energy more efficiently, produce it with less emissions, and increase the use of renewable energy. Europe has a head start with energy technology, because we have taken climate change seriously. France, host of the next year's United Nations Climate Change Conference, is a case in point. It is possible to maintain prosperity and control climate change, but this spells an end to fossil fuels and careless resource use. European expertise in clean technology will be in great demand globally.

Third, digital technology will transform modern societies. The next level is the ‘internet of things’ where machines, processes will all be connected, opening the door for countless new applications and smart solutions. The provision of public services will be transformed by e-solutions. Productivity gains, if done right, will be considerable. I am convinced that Europe with its advanced societies, skilled people and stable institutions will thrive in this new environment.

These developments may sound abstract, but we can witness them in practice. Finnish paper companies have been doing badly, because digital media has had such an impact on the demand for paper. The number of paper machines – once the measure of success – has halved in Finland. But paper companies are transforming, reinventing themselves into new companies that use the old raw material – wood – to make new products, like biofuels and advanced materials. And this may also be the story of Finnish paper companies in France. While paper mills have unfortunately closed, we hope to transform these factories into biofuel refineries.

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So, new opportunities are emerging, but we need policies that permit European companies - bid, medium and small - to seize them.

It is only our companies that can make the European economy grow again. Not states. And not the European Union. Public authority has an important role in ensuring a good business environment, but it is not in business itself.

The European Central Bank has done its very best. It was largely the ECB and Mr Draghi that got us out of the worst phases of the debt crisis. Now, in order to support growth, they are keeping interest rates down and have announced further measures. But monetary policy can only take us so far.

As I said from the outset, we are all seeking growth. There is a unity of purpose, but the debate on the means distracts us. We all agree that investing better and more is the one key step that can provide a solid exit from slow growth. But what are the essential elements for relaunching investment and growth?

The central element is the fact that this investment needs to be mostly private, not public. Our mission is to make private capital – investors and companies - believe in Europe again.

Public investment - national and European - can help. But it cannot change the picture. As average public debt in the Euro zone is already at 93% of GDP, most member states have no room to increase public spending. Public expenditure is already high – 57% in France and 58% in Finland. Our economies will choke if they are burdened by higher taxes – the inevitable consequence of more public expenditure. I know that jokes have been made about having a Cuba without sun. Then imagine what a Cuba with snow would be.

On the contrary, we should preserve the financial stability we have achieved at great cost. The Euro area no longer faces imminent risk, but we cannot be care free. Any flexibility to our economic policies has to be within the boundaries of the Stability and Growth Pact.

I would argue that the European agenda for growth has a clear cut outline, that can be divided into i) national, ii) European and iii) global tasks. Let us look at the agenda for action.

First, the essential element for growth at the national level is structural reform. There is no EU member state that would not benefit from structural reform – including my own. It is not up to me to comment French economic policy, but in Finland we need 1. responsible fiscal policy, 2. public investment in education, training and innovation, 3. productivity gains from ICT and digitalisation, 4. more efficient taxation by cutting taxes on labour and also capital, 5. higher supply of labour and higher participation rates, 6. more flexible labour markets and 7. more competition, less regulation and cutting red tape. Quite a program for the coming years!

Second, European policies need to boost our economic fundamentals. Make Europe a good place to do business, that is. The best European policy for growth is the internal market - its shortcomings need to be overcome. In essence this means taking the Single European Market to new territories. We need to make sure that there is a genuine digital single market, a well-developed market in services and capital markets and the realization of a European energy market. We need to remove barriers where none should exist.

And third, on the global level, we need market access. We should stop seeing Europe as exceptionally vulnerable to trade, since in fact we have always prospered from it. We only hurt our own successful enterprises if Europe does not have a wide and deep enough network of free trade and investment agreements.

The European Union has made good progress in opening up trade relations, but nothing can shadow the potential of transatlantic free trade. This momentum needs to be seized. I am not saying this will be easy – opening public procurement in the United States is no small feat – but the potential rewards are great. This might well be the last chance for Europe and the United States to build a common market place and set the rules of global trade.

In the political guidelines for the next European Commission, the President-elect Jean-Claude Juncker covers well all these items: focus on jobs, growth and investment, the digital single market, an energy union and climate change policy, a deeper internal market, a deeper economic and monetary union and free trade with the United States. This European program deserves our strong support. I am personally happy that both the Finnish and French members of the Commission will have key roles in delivering this agenda.

I do not talk of the European Union in the third person – it is not them, it is us. If Europe fails, it is of our own doing. We need to deliver the promise of European competitiveness in action, not just words - in the concrete, not the abstract. We have been too fond of talking about competitiveness, but not bold enough in delivering the tangible measures – the legislation, the policies – that our economy needs. This has to change for good.

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Dear friends,

Times are hard, but I have great faith in Europe. Its people, its companies, its institutions. We have all the means in our possession to reverse decline and make Europe prosper again. There is nothing inevitable in weak growth.

A Europe of growth is within our reach. But only if we have a clear understanding of what needs to be done – within the national state, at European level, and in global economic governance.

European states must pursue reform, transform their structures to help economies grow and companies realize their potential.

The European Union must extend the internal market further, deeper - ensure that we are the united economy we should be. Europe is still about removing barriers.

The world needs to be open for European exports and we should seek strength from cooperation. Transatlantic free trade would be the deal of a generation.

Dear friends,

Perhaps a fitting quote to lift our spirits comes from Antoine de Saint Exupéry:

– ‘the preparation of the future is just building the present’. (Préparer l'avenir ce n'est que fonder le present. Citadelle, 1948).

Let us build a strong Europe in the present, so that it will prosper in the future.

Thank you for your attention. I highly appreciate being here with you today.