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European Union/economic policy

Published on November 21, 2014
Speech by M. Michel Sapin, Minister of Finance and Public Accounts, to the Senate (excerpts)
Paris, November 19, 2014

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Europe today faces a major threat: growth that is much too weak, inflation that is much too low, and the risk that this situation will take hold for much too long – with, at its centre, unemployment and social crisis, as in Japan since the 1990s.

The first lesson of the Japanese experience is that by the time you’re aware of the situation, it’s too late; you must act straight away and use all the levers available. France is calling for a response with five central objectives.

First of all, monetary policy: at 0.4% in October, inflation in the Euro Area is well below the 2% target set by the ECB, which launched unprecedented measures in June and September – asset purchases and loans targeted at banks – that helped curb the level of the euro but had no impact on inflation.

Next, fiscal policy. Investor mistrust during the sovereign debt crisis led European countries to massively and simultaneously consolidate their public accounts – which curbed growth and, according to the Commission itself, cost between 3% and 8% of GDP depending on the country: 5% in France. In Brisbane, our G20 partners called on us to act, with the American Treasury Secretary even worrying about the risk of a “lost decade” in Europe; we must apply the rules intelligently, with a flexibility matching the situation, and adapt the fiscal governance framework, which is less a system for guarding against a Euro Area break-up than a guarantee of balanced, sustainable growth.

Third objective: structural reforms. This term implies not some neoliberal injunction but thorough reforms of the economic mechanisms – the 2012 ANI [National Interprofessional Agreement] is a structural reform. They’re being discussed among the Europeans, as is right. A common currency creates interdependence and common interests. I’d like more discussions on the direction of the reforms and more assessment of their impact, both for each country and for the Euro Area as a whole. The OECD puts the impact on French growth of the reforms already embarked on or announced at 0.4% per year over 10 years.

Fourth lever: the Juncker plan for European investment. Today, private and public investment in the Euro Area is 16% below the 2007 level.
Even in Germany, this is one of the main causes of weak growth. Investment is what reconciles supply and demand, the short term and the long term. We’d like to target, as priorities, the digital sector, energy and transport infrastructure and the energy transition, with special focus on the fabric of SMEs and mid-caps. Let’s not pit public and private finance against each other. Public funds can attract private funds, bear a share of the risk and emphasize the long term in the face of the frequent short-sightedness of private investors. Public resources must be harnessed; we’ll have to use structural funds better and think about using other tools.

Finally, the fifth lever: we must gear ourselves to future integration. Our project is Europe. Marking out the way ahead for this project means restoring confidence and therefore supporting the recovery. The first project is fiscal harmonization with, at the end of the year, the financial transaction tax stage, proof that we can build enhanced cooperation. I have confidence in the new Commission. Second project: the fight against tax optimization by companies. I’m waiting for swift proposals from the Commission for transposing the OECD’s BEPS rules. Finally, the integration of financial systems.

Our economic policy is consistent with our European vision. It’s not about asking Europe to be more flexible to make up for our insufficient efforts. We found deep deficits, we’re reducing them, we’re slowing down public expenditure as never before, we’re conducting reforms that others haven’t conducted in 10 years.

We’re shouldering our responsibilities, for both France and Europe./.

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