Kallas evalueert de vier fundamentele vrijheden (en)

SPEECH/06/256

Siim KALLAS

Vice-President of the European Commission responsible for Administrative Affairs, Audit and Anti-Fraud

World Trade Center Association, Chateau Sainte-Anne

Brussels, 25 April, 2006

On the 1st of May it will be two years since the previous and so far biggest enlargement of the European Union. Having been operational in the accession process of my own country, and now as a member of the European Commission, I can ask myself the question - am I satisfied with life in the Union so far?

I remember two trips.

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  I visited the Verdun battlefield. It's a very honest memorial. It accurately conveys the senseless loss of thousands of young lives. It was very emotional.
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  I visited Croatia and met with the current leadership. I asked whether the country had any "ghosts" after the very bloody break-up of Yugoslavia in the 1990s - whether there is unresolved hatred poisoning relations between neighbours and communities. In my own country, such ghosts from the Second World War are still around... The reply from my Croatian hosts was that "because of the prospects of EU membership, we're not afraid of the ghosts of the past "

Of course, for us Estonians, the question of security and peace was crucial. The European project was, and still is, a most powerful project of peace in our history.

Of course, when we joined, there was the expectation of growth and prosperity coming from European integration.

But the main attraction was the idea of living in freedom. We, Eastern Europeans have lived so long behind closed fences and walls! Indeed, the Soviet Union - the antithesis of a free society - was very critical of the European Union and both anticipated and hoped for the failure of this project.

But we wanted freedom of expression, freedom of religion, freedom of mind, freedom of information, freedom of knowledge, freedom of elections, free trade, free competition, freedom to buy goods and services. The words "free", "freedom", "liberty".

"Freedom", and the desire to benefit from it was the main reason we joined the Union.

Well, certainly, these principles are the foundation on which the European Union has been built since the beginning[1]. And they have not been contested during the debates and referendums on the Constitutional Treaty. On the contrary, the Constitutional Treaty states that : "The free movement of persons, services, goods and capital, and freedom of establishment shall be guaranteed within and by the Union, in accordance with the Constitution "[2].

And it is with those four fundamental freedoms that the European Union has made so much progress during its existence.

What is the status of the economic freedoms today? Are they the problem or solution? Are the freedoms the response to the present days challenges? Or have we gone too far and should the development of freedoms be stopped? Are the freedoms sustainable by themselves or should we work hard to maintain these freedoms?

Let's start with people - the free movement of people. Free travel without visa requirements is one of the greatest benefits for every citizen. Hardly anybody wants to abandon this great achievement. But this is in particular the area, where the freedom of travel must be accompanied by sufficient work of law enforcement agencies, providing security. Free travel cannot be sustained without strong governance.

The free movement of labour is another matter. This is insufficient, poisoned by restrictions and unfair rules. We all know the almost hysterical atmosphere surrounding this area. Social dumping! Unfair competition! Taking away our jobs!

The current restrictions inside the EU are nonsense. Ireland, who do not have restrictions to the free movement of labour from new member states, has reported additional economic growth and the reduction of unemployment after taking in people from new Member States. In fact, all European countries have serious shortages of labour force in several sectors of economy. And the Member States are in fact importing people in large numbers from outside the EU. Average net entries more than tripled from around 250,000 people per year in the 1980s to more than 800,000 people per year during the 1990s. Net inflow was 993,000 in 2000 and over 2 million in 2003.

We know very well, what is the background to this. The working-age population in the EU-25 will start to decline as of 2010, and it will drop from 307 million in 2004 to 260 million in 2050. And the share of elderly population (aged 65 and above) will increase from 16,5% in 2004 to 29,4% in 2050.

How do we address this problem with restrictions on free movement of labour, especially inside EU?

Also, one has to look at the quality of immigration. Here, the US is far ahead. One of the reasons is clearly that the US flexible labour markets allow immigrant workers to keep a higher proportion of his or her salary. "You go to work; you get to keep your money". Skilled workers select countries, which are less egalitarian but in which skills are better rewarded.

How about the free movement of goods? This is the most developed area, probably. But obstacles still exist. For instance, different indirect taxation regimes can be very sophisticated tools to distort a functioning free market.

Obstacles exist in particular towards the rest of the world. The political reactions in Member states to the recent import surge in textiles and shoes from Asia show that the principle of free trade can be challenged. Growth in global trade is decelerating, and the WTO Trade liberalisation round is in jeopardy. The only reason why we're not stuck is because we're going in circles. At the same time - is Europe interested in more free world trade or not? Maybe it is rational to close our markets more? Numbers show that the European Union is the biggest exporter in the world, and it has increased its share. In 1992 EU15 and EU10 shared together 16% of world exports, in 2003 the share is 18.9%. How can trade barriers support the European Union's economic growth?

And how about the free movement of services? The critics say the Service Directive left intact many of the legal and all of the economic barriers to a genuinely free market in services. Critics say the most important economic reform in 20 years was emasculated, and that the expected benefits will now essentially be the administrative simplifications for service providers who want to do business abroad....

But here I am convinced, that the recently agreed draft version of the service directive is the best possible under the existing circumstances. And it opens chances for many service providers, especially, for instance, for providers of business related services.

Take an example of the mortgage markets. According to a 2005 study, the integration of the EU mortgages credit market would raise EU GDP by 0.7%.

Or take the example of the ports directive, defeated by a lobby of dockers concerned to maintain their monopoly of handling loading and unloading in "their" ports.

Fourthly, how about the free movement of capital? Well, it looks free, and things are not bad at all.

The European Union is experiencing a wave of cross-border mergers. In the last 5 years, 8.596 merger and acquisition deals, representing a value of more than 716 billion Euro, have been concluded between firms located in different Member States.

However, as you will have noticed, a handful of deals have attracted unwanted government attention. The Commission sees a worrying trend of national opposition and resistance to such takeovers. The examples are well-known - whether it's Italian and Polish banks, French or Spanish energy markets, or steel in Luxembourg.[3]

What is happening politically? Well, the internal market has brought the economies of Member States much closer together and has encouraged European companies to grow across national borders. That was the whole idea!

Sectors which were once closed to competition, like telecoms, energy or transport, have been gradually liberalized. A number of companies in these sectors in Member States have been privatized. This is also, at least partly - a proactive response by the European corporate world to the challenges and opportunities of globalization.

In short, the business world seems to have adjusted to the realities of the internal market and globalization much faster than national governments. The business world is adapting to take full advantage of the opportunities of an internal market and globalization.

The role of the Commission is to enforce the principles of economic freedom. This means we must remain alert to rising protectionism. There is more than profit at stake.

Indeed, the free movement of capital is linked to the role of private ownership and private property. Richard Pipes has written a wonderful book - ,The Property and Freedom", showing how private property with a comprehensive legal framework has created a basis for freedom, democracy and economic growth.

How are we doing in Europe on this point? Is state-ownership in the economy increasing or decreasing? And what was the effect of enlargement?

Interestingly, neither the OECD nor the Commission itself produces official statistics on "economic freedom". In fact, the Treaty makes it clear that the EU is "neutral" in the discussion on private versus state ownership.

But it does make a difference: If a SOE runs into economic difficulties, they are much more likely to turn to the state for protection and financial support. And the state is much more likely to play along... Countries with many and large SOEs are more likely to be protectionists and offer state aid.

The "Economic Freedom of the World Annual Report 2005", published by the Fraser Institute, seems to be the best and only comprehensive data set. It rates the extent of government enterprises and investments as a share of gross investment. Although the time series stop in 2003, before enlargement, it is still interesting to see the evolution from the 1980s to 2003.

On average, the EU15 economies have become more "private" over the last 20 years. But it is fascinating to see that this is mainly thanks to developments in the small member states and the UK. For France, Italy and Spain, no improvement is noted, and the German economy has actually become less "free" with SOEs present in energy, transportation and communication sectors of the economy and government investment above 25%. In France and Spain, there is still a substantial number of SOEs operating in many sectors, including manufacturing.

So economic freedom is progressing slowly and unevenly in the EU15, whereas the new Member states quickly privatised sectors that are still controversial in the old Member states.

Within my country I have witnessed the complicated process of privatization of state-owned assets. But according to the "Economic Freedom Report", from 1995 to 2001, Estonia went from a situation where the economy was dominated by SOEs to the top freedom rating that is only shared by 6 other current member states.

We have positive and negative examples, different by countries and within the countries. One only has to look at Russia to see how the combination of "centrally managed democracy" - to put it diplomatically - and the absence of free capital movements lead to the creation of state-controlled or private monopolies...

Of course, my point is not that Russia and Europe are similar. But I do believe the sphere of private property in Europe is more limited than we usually imagine. We have more freedom that the G8 average, but this is only because the G8 includes China and Russia. This is important, because it is often the absence of private ownership that leads to calls for protectionism. Our fight against protectionism is therefore a defence of open democracy.

Protectionism is a great danger for the freedoms in Europe. It is against free and fair competition, against freedom of providers of goods and services to extract benefits from better work. Protectionism in Europe is not about protecting jobs, it is mostly about protecting privileges -- privileges of those who do not work efficiently, privileges of the managers. Of course, no-one confesses to "protectionism" of 17th century Colbertism. Rather, it's called " patriotism économique ", strategic sectors or even industrial policy. Maybe someone could clarify the "strategic interest" a country would have in keeping a yoghurt producer under national control...?

What should we do fully develop the European freedoms?

Is there something to fight for? These freedoms have boosted the power of the EU.

Is the EU a response to the existing challenges?

What is the EU offering?

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  Liberal society
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  Market economy
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  Rule of law

We must have a bold programme of the abolition of restrictions, elimination of obstacles, hidden and obvious.

Second, enhancing private initiative in economy. Privatization, opening of closed sectors for private initiative, at the same time securing fair competition.

We don't need state intervention to create big European "champions" - private initiative can do that, under the control of a strong EU competition regulator to avoid the rise of monopolies and guarantee the access of customers to a variety of goods and services.

Third, the liberalization of labour markets must exclude all types of unfair competition, including high and hidden payroll taxes. Other sectors cannot penalize employment.

In addition to this programme, we must have a clear vision of the improvements of governance of the freedoms.

Jacques Delors' principles of the functioning of the internal market can serve as the main principles for all governance of the Union:

La compétition, qui stimule, la co-opération, qui renforce, la solidarité, qui unit.

The EU has quite a powerful system to govern the European freedoms. There's the powers entrusted to the Commission. There's a solid legal environment, but it is not cast in stone. For instance, Delors' opinion of the Maastricht Treaty was very negative - he considered it as deteriorating the European Union. Nevertheless, a number of tangible irrevocable elements seem to have been put in place - law enforcements at European level; European Courts; mutual recognition of diplomas; a single currency; the Stability pact and recently a European driving licence as an example of smoothing free travel...

This quickly gets very technical and specific, and frequent reminders of the European ideology are absolutely essential. I quote Dominique Moisi: " Could the European ideal be confronted with the same fate as communist ideology in the Soviet Union, moving from faith to dogma and from dogma to irrelevance?"

As so, as we struggle with the conflict between national and all-European interests, we must be governed by a vision.

Pure interest-brokering between 25, 27 or 40 Member states will fail. You need to share values, a vision, a starting point and walls around the negotiation space.

Finally - am I happy to work for European Union? The answer is - yes. There are risks and hopes; challenges and responses but a great deal has been achieved, and there are many things still to fight for. I am very proud to be part of that process.

[1] EC treaty Articles 3(1)(c), & 28, 39, 43, 49 & 56)

[2] Part 1, Title I "Definition and objectives of the Union", Article 1-4 "Fundamental freedoms and non-discrimination", point 1:

[3] The blocking manoeuvres by the Italian supervisory authorities last year against the proposed acquisition of Italian banks BNL and Banca AntoVeneta by other European operators; the apparent preference of the French government for a merger between Suez and Gaz de France over a possible bid for Suez by the Italian undertaking Enel; the measures adopted by the Spanish government concerning the proposed takeover of Endesa by E.ON; the statements by French and Luxembourg authorities against Mittal's hostile bid for Acelor; and the Polish government's argument that a non-compete clause is legal grounds for preventing the implementation of an approved merger between Unicredito and HVB's Polish subsidiaries.