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'Time for structural reforms'

Interview by Manuela Kasper-ClaridgeApril 11, 2016

Jyrki Katainen, EU Commission Vice-President for Jobs, Growth, Investment and Competitiveness met with DW’s Manuela Kasper-Claridge to discuss the state of the European economy.

Bildergalerie EU Kommissare Jyrki Katainen
Image: Reuters/Yves Herman

Consequences of a Brexit

Deutsche Welle: There’s a big debate going on here about the state of the European economy. What is your assessment?

Jyrki Katainen: The economy is growing. Next year, we expect a growth of around 2 percent, but that is not sufficient. External turmoil or external uncertainties in the United States or China naturally impact European economies but that shouldn’t be an excuse for us to ignore our own, internal weaknesses. The main weakness in Europe, its soft spot if you will, are outdated structures. That means very different things in the different member states: In some countries it means that the labor market needs to be reformed, in others, the energy sector needs to be reformed in order to achieve lower energy prices. In other member countries the judicial systems need to be reformed in order to speed up legal processes. And there are many other examples.

One fact, which is quite striking is that the literacy of 20 percent of European adults is severely limited. Europe is in the middle of a structural challenge and we have to pay more attention to structural reforms on the national level in order to improve competitiveness. External competitiveness is very important because we also have very good assets in Europe. A highly educated population, good universities, very modern manufacturing in many areas of business, etc. But in order to get the most out of our assets, we have to address the issue of our external competitiveness.

DW: But when we talk about the European economy, is there one European economy or are there many European economies and is that part of the problem?

JK: There are many European economies but they are so interlinked that those many European economies impact the European economy as a whole. That’s why it’s very important that we all live according to the eurozone rules and that everyone does their homework. Because my actions have a big impact on everyday life in my neighboring country so I have a responsibility towards my voters but also to the other European people. So that’s why we should strive towards a more harmonized European economy.

DW: With the upcoming EU membership referendum in the UK, a potential Brexit is looming over Europe and the European Union. What would be the ramifications?

JK: Right now, nobody knows what kind of an impact it would have if the majority of the voters voted ‘no’. It’s a leap into the unknown. But if you think about it objectively, the impact would be negative. There is nothing positive to expect.

DW: Does the European Commission have some kind of plan for how to react then?

JK: Not at the moment. We helped the member states to make a deal with the UK that is fair for Britain but also fair for the others. Now our role is just to follow what happens. It’s up to the British voters to decide whether they want to be a part of an integrated Europe or outside observers.

DW: Are you worried about the situation personally?

JK: Yes, I am to some extent. When you don’t know what will happen next, it’s a source of concern. There is always a place for Britain in the EU and I believe that both Britain and Europe will be much better off if we stay together and reform our member states but the EU as well.

DW: Could the Brexit be the beginning of a big break-up of the European Union that will lead to a smaller, stronger union of countries like Finland, Germany, Austria, and others as well as a larger circle that won’t really be part of the European Union anymore?

JK: When it comes to this issue, I don’t really want to speculate on ‘what if’-questions. We have to give the British voters an opportunity to decide what they feel is good for them and for their country. But there are at least 27 other member states that have made a conscious choice to be closely integrated. The member states and the business sector are asking the European Commission for further integration. For instance: They asked us to create the digital single market, to integrate the energy markets, to create a capital market union. They have said that we have to deal with the refugee crisis together instead of nationally. So member states are asking for further integration and a stronger Europe.

DW: Now, talking about the eurozone, it seems that the ECB is out of ammunition. What can Europe and the eurozone do to boost its economy?

JK: I think it’s a bit of a misconception to say that the ECB is out of ammunition because the ECB’s policy has a big impact on the stability of the eurozone and if it changed its policy that would have a significantly negative impact on the growth and the situation of many eurozone countries. But maybe there has been an exaggerated expectation of what the central bank can do. I don’t believe that the ECB can do much more than it has as long as our external competitiveness is as weak as it is in many member states. So I fully support what Mario Draghi has said several times: The ECB does its share but now it’s time for the governments of the member states to do their part with structural reforms and healthy fiscal policies.

DW: Some economists are talking about the ‘new normal’, which means little growth and less productivity than we are accustomed to. Do you see a ‘new normal’ too?

JK: I don’t see the new normal this way. It’s an obvious description of the current situation but if you look at the factors driving the world economy, digitalization, for instance, that can increase productivity enormously if governments in wealthy societies take advantage of digital opportunities. New technologies in healthcare or new technologies related to social security issues can lead to change, they can increase productivity in the public sector. Also, new business models like a collaborative economy can create a whole new wave of economic growth, so if someone thinks that the new normal is low productivity and moderate growth, then he or she is essentially saying that we shouldn’t expect to get anything out of our R&D investments, that digitalization won’t lead to a major shift, etc. and I don’t agree. It’s just a matter of doing things. Nothing “just happens,” you have to reform the societies in order to make the most of our assets.

DW: But doesn’t it take a bit too long?

JK: It takes time. Nothing happens over night.

Jyrki Katainen is the European Commission Vice-President for Jobs, Growth, Investment and Competitiveness and former Prime Minister of Finland. DW spoke to him during the annual Ambrosetti Forum in Italy.