Frits Bolkestein: "No time to get wobbly" (ELDR Congress)

Dear friends,

It is always tempting to focus only on bad news: deadlines missed, targets not met, promises not kept. But recently, with the celebration of the 10^th anniversary of the Internal Market, even our most hardened critics were forced to admit that an economic area without obstacles is the very basis of our prosperity. In fact, the Internal Market is a liberal concept for which liberals in Europe rarely get the credit.

Let's look at the facts. Since the removal of our physical frontiers 10 years ago, the Internal Market has created at least 2.5 million extra jobs and added some 900 billion euro to our prosperity. That is nearly 6,000 euro per household on average. Would the European Union have been able to cope with the impact of a global economic slowdown if there hadn't been an Internal Market and a euro? I do not think so. Member States would have been tempted to launch protectionist measures and the financial markets would have shown a much higher degree of volatility. We only have to refer to the oil crisis in 1973 and 1979 to see how Member States tend to diverge when there is no coherent economic and monetary framework. The European Union would have gone down the slippery slope.

But this is no time for complacency, certainly not among liberals, because the current foundation is under stress. The parameters of the Growth and Stability Pact are endangered and the targets of the Lisbon Process are under threat. Therefore, I welcome the Manifesto of the ELDR for the European Parliamentary elections next year. It reflects both political consistency and economic logic. The Manifesto underpins sound economic management by adhering to the 3 percent deficit limit of the Growth and Stability Pact. I fully agree that this parameter has to be respected in order to ensure sustainability and employment in the Euro-area. Jobs are generated by a strong and productive economy, by prosperous companies and not by government schemes.

Some say that the Growth and Stability Pact is not flexible. That is not true. There is a margin of 3 percent. In times of economic growth, governments should aim at balanced budgets or even at surpluses which would allow them to reduce debts. This would give them plenty of financial room when recession hits. Currently, in a number of member states the opposite occurs. Too many governments spend too much in good years. They are then unable to adjust when the economy slows down and risk breaching the agreed ceiling. This is very serious.

If we fail to observe the rules of this Pact, which has been solemnly agreed by all governments of the Euro-zone, then which rules are we prepared to respect?

The Lisbon process is also steadily undermined by the reluctance to meet the targets in time. In the year 2010 the European Union should have the most dynamic, the most competitive knowledge based economy in the world. Growth and labour productivity must exceed that of our main competitors. Yet, right now, we lag behind the US on both indicators; only three times in the last eleven years has the EU GDP grown faster than the US and our labour productivity is some 20 percent lower. If this trend continues, the average American will be 50 percent richer than the average European by 2050. If we look at productivity and demographics the US will even become stronger than it is now.

How are we going to overtake the US economy if we allow the ambitious Lisbon process to slip?

Fortunately liberals are well known as proponents of market economies and civil liberties. We believe in the concept that free people create more prosperity and wealth than government schemes or monopolies.

Freedom is the driving force of progress and sound economic management is a guarantee for sustainable employment. Therefore, we should not become wobbly on the Growth and Stability Pact nor on the Lisbon process. We should stick to our guns, because infinite pampering of unproductive schemes and endless round tables do not create the growth Europe needs to cope with the effects of enlargement. Next year the European Union will be an impressive economic force, with 25 member states and 500 million people. I always supported enlargement as one of the major instruments to overcome the division of Europe. But turning enlargement into an economic success will be the overriding challenge ahead.

In May the Commission set out the Internal Market Strategy for the forthcoming years. A new approach is needed because several important indicators concerning the Internal Market's functioning are beginning to "flash red." The growth in intra-Community trade over the last few years has slowed to a snail's pace. Trade with third countries is growing much faster than intra-EU trade. The process of price convergence, which we saw in the 1990s, has stalled since 1999.

And there are plenty of other indicators which are also pointing in the wrong direction. Just look at the most recent transposition figures. Eight Member States are now running a "transposition deficit" which is more than twice the target set by the Heads of State and Government (1.5% or less).

Measures do not just have to be implemented correctly and on time. They must also be applied in practice and effectively enforced. Too often, Member States fail to do this. The rising number of open infringement cases up from 700 in 1992 to over 1600 today gives us some clue as to the extent of the problem. But it is just the tip of the iceberg. For each case which results in an infringement procedures, there are literally thousands of others which do not.

Let me mention the highlights of the Strategy:

Firstly, I intend to put a proposal to the Commission which will make an Internal Market in services a practical reality.

We also need to facilitate trade in goods, which still represents more than 80% of intra-EU trade.

Second, we have to reduce the significant tax obstacles that companies encounter when engaged in cross border activities. For this to happen, qualified majority voting in the Council must replace unanimity for tax proposals necessary for the proper operation of the Internal Market.

Third, we must actively pursue further opening of the "network industries". I must say that I find some of the criticism hurled at the EU from certain quarters about our approach to Services of General Economic Interest rather disturbing. Some of the comparisons made, such as with the California electricity black-out or UK railways experience, are pure demagoguery.

Market opening in telecommunications, postal services, air transport, electricity and gas has been a success story. Prices have dropped. Quality is up. This fully confirms our political convictions. Today, one million more people are working in these sectors than was the case before market-opening. There is no evidence that market opening has given rise to unacceptable outcomes.

Fourth, we need to create a fully integrated, liquid financial market in Europe. No country can be successful in the 21^st century without a thriving financial services sector and first-rate communications networks.

In financial services, the priority is to adopt the outstanding measures under the FSAP. If this can be achieved, there will be major benefits for all sectors and geographical areas of the European economy. Studies carried out for the Commission point to potential benefits of around one per cent of GDP and an increase in employment of half a per cent. This is not to be sniffed at.

Watchdog: bark and bite

This brings me back to the issue I mentioned at the beginning of my address effective implementation of the rules. Because there is little point in adopting new legislation be it in financial services, services or any other field if that legislation is then dead in the water. Our work in Brussels will steadily shift from law making to supervising proper implementation. We will produce less Internal Market laws and watchdog more. The watch dog should be able to bark and bite. If not, we will be unable to ensure the cohesion of an Internal Market of 25 member states or more. On the contrary, the foundation of growth and wealth will turn into a patchwork guilt and unravel.

We would like to see an Internal Market "mechanism" in each Member State which would help to ensure correct application of Internal Market law. They should provide citizens and businesses with quick and effective means of redress located in their own Member State. Some Member States, including Sweden, already have such a body. Setting them up across the EU would not only help to improve the functioning of the Internal Market, it would be a tangible step towards bringing the enlarged European Union closer to the citizen.

I hope the voters in Europe will reward liberal parties throughout the Union for their work which has been so beneficial for citizens. In the European Parliament the voice of liberalism has to be heard.

The European Parliament is at the heart of Europe. It is much stronger and influential than outsiders tend to believe. It needs a strong, inspiring liberal group which defends civil liberties and sound economic policies.

That is precisely why we have to fight in every member state, for every vote. Next year we should get the credit we deserve.