WHAT IS GOING ON IN EUROPE ?
WHAT IS GOING ON IN EUROPE ?
Discours prononcé par le Consul général de France le 2 juillet 2010 à l’Alliance Française de Minneapolis-St. Paul.
Minneapolis (MN), July 2, 2010. Speech given by the Consul General of France entitled "What is going on in Europe" at the Alliance Française of Minneapolis-St. Paul.
What is Europe and What does it stand for
27 countries, a population of 500 millions, GDP : 15343 Billions euros versus 14000 for the USA and 5000 for China
16 countries with a common currency ; the Euro.
It is an integrated economic space : 2/3 of foreign trade is among the EU countries (80 % of the commercial surpluses of Germany is generated by exchanges with EU countries).
France and Germany : 33 % of the population, 49 % GDP of the Eurozone, 36 % of the EU budget.
EU/US economic relationship is very important. The EU and the US combined represent 45 % the world’s GDP and their bilateral exchanges in goods accounts for 30 % of the world’s trade. The first destination for the US exports (21 %) and investments (56 %) is Europe and the first destination for the EU exports (19 %) and investment (76 %) is the US. As an example, up to 2008 the European Unions members have invested more in California than in China. And the European Market represents for the US exports five times the size of the one of China.
France is the 3rd leading recipient of FDI in the world after the US and China, and the 1st in Europe, receiving $65 billion of inflows. The US was in 2009 the second foreign investor in France after Germany. Today there are no less than 4200 US companies established in France. On the other hand, France is the 5th largest foreign investor in America. There are over 2,800 French subsidiaries operating in the United States. French owned companies employ more than 550,000 workers in the United States and around 90,000 people in the Midwest alone, compared to 770,000 employees of American owned companies in France.
The crisis :
The collapse of Lehman Brothers on September 15 2008 has shaken the financial and banking system.
Plummeting international trade, increasing unemployment, multiplication of bankruptcies and negative growth yet a protectionist spiral did not materialize.
Redistribution of the cards : Ireland, Baltic States, Spain with rapid growth today have more difficulties than others…
The immediate responses to the crisis :
support for the banking system : too big to fail (Citibank or Commerzbank in Germany). The European countries and the ECB planned 360 billion euros to recapitalize the financial institutions and to avoid a credit crunch, including billions of euros worth of liquidity injected into the market. To bail out the banks with taxpayer money in oder to avoid a systemic crisis.
to initiate a better regulation of the banking system in order to prevent a crisis similar to the one we experienced two years ago.
international cooperation and coordination (avoid competitive devaluation 91/92)
unprecedented global policy response to the crisis : stimulus packages in China, the US and the EU where member States contributed up to 2% of the GDP. Through this collective effort, we have avoided a major break-down of the world econom
The current Challenges in Europe :
With real economic growth having fallen to negative 4,2 % in Europe in 2009 (France 2,2 %, Germany 5 %), there has been a decrease in revenues and increase in spending due to the “automatic stabilizers” (increase in public transfers and decrease in taxes) and the social safety net. The measures adopted to support the financial sector and the internal demand have added to the burden on public finances.
Under the pressure of the markets, the EU was forced to take emergency measures : 110 billion euros EU/IMF bail-out of Greece in May, followed by the establishment of a 750 billion Euros European stabilization mechanism in June 2010 (440 billion from the States, 60 billion from the EU and 250 billion from the IMF..). But there is a need to work towards a permanent crisis resolution mechanism and to consolidate the European economies, meaning :
to put our national house in order :
Overall, the French government has confronted the financial crisis with determination and authority. The French financial system is generally sound even if French banks have been hit by significant losses on their portfolio of complex products and are facing the consequences of the economic downturn.
But, the crisis is a wake-up call and a strong incentive to reduce the public deficit in France (8 % in 2010 (Germany 5 %), 6% in 2011 and 3 % expected in 2013) and national debt (84 % of the GDP compared to 85 % for the US at the federal level). We must achieve this ambitious goal without damaging growth, otherwise deficits will rise further and undermine the basis of the economy. Carrying out structural reforms (the pension reform foresees an increase in the standard retirement age from 60 to 62 years…). France is considering adding to its constitution a provision to limit public deficits. The next budget will be tough. We need to find 45 billions Euros in revenues or cuts. The amount of the cuts is still being debated but it’s clear that the successive French governments have lived beyond their means.
to put the European house in order :
1) to define a coherent and sustainable response to the sovereign debt crisis. In the EU, average general government budget deficit will reach around 7 % of the GDP in 2010. There is currently a discussion to improve the quality of the statistics, to tighten the rules of the stability pact including sanctions for Members who will not comply (suspension of voting rights for example), to extend surveillance of macro-economic imbalances (peer review), to better coordinate the fiscal and economic policies of the EU Members (“European semester) in order to improve the “economic governance” of the Euro zone.
2) to promote a smart, sustainable (efficient and green), and inclusive growth. The so called strategy 2020 was approved by the European Council mid-June. It’s a new plan of action for jobs and growth with, for example, the following EU headline targets : raise to 75 % the employment rate for women and men aged 20-64, improving education levels, combine public and private investments for research and development to amount to 3 % of the GDP. The growth rate expected are for France :1,3 % in 2010 and 1,5 % in 2010, for Germany : 1,2 % in 2010 and 1,6 % in 2011.
3) to pursue efforts to foster and regulate the financial services, including adequate supervision and the introduction of a system of levies and taxes on financial institutions. The last G20 meeting acknowledged the possibility of a “bank levy” (based on bank balance sheets), mentioned innovative financing (tax on financial transactions) to cope with climate change and development.
What we are aiming at is a more sustainable, balanced, and “green” economy … In Pittsburg in September 2009, the G20 launched what it called a “Framework for strong, sustainable and balanced growth”.
The recent crises have underlined the interdependence and vulnerability of Member States and of the euro area. The challenge is to learn from the lessons of the crisis and to strengthen the Eurozone and the EU economies.
Questions still under discussion : What is the best way out of the crisis ? When is the right time to hit the brakes ? does it imply “rebalancing those with trade deficits or trade surpluses” ? To be clear, should China, Japan and Germany boost internal demand and consumer spending ? This is a debate between the US and Europe and between France and Germany.
In the context of the financial crisis the case for transatlantic dialogue and partnership is stronger than ever as we search for ways to tackle a global issue.