Speech to the EPP-ED Study Days session on Competitiveness, Madrid
In the 1990s, Spain under the Popular Party, has performed the same economic miracle that Britain performed in the 1980s under the Conservative Party. In Spain some 4.5 million new jobs have been created since 1996. The Aznar Government understood two key principles. First: if you lower tax rates, you will increase the tax base (and probably even increase tax revenues). And second: if the state's share of the overall economy is reduced, it will lead to an economy in which jobs are created because wealth can be generated and private enterprise can prosper.
It is impressive what a reforming centre-right government can do, and I believe that real economic reform was, is and always will be something that only the centre right will undertake. As Prime Minister Aznar has proved, when centre-right governments are prepared to bite the bullet, when we are prepared to take forward painful reforms, which we know will work, we can achieve electoral success.
Competitiveness will be the key to our electoral success in future. Not because it is an end in itself, but because competitiveness is the key to wealth creation, and most importantly job creation. Eurobarometer surveys consistently tell us that jobs are among the top two or three concerns of people in Europe.
It is true that in recent years, in the face of overwhelming evidence, the left have moved to adopt some of our policies. But on the whole, these policies have only been adopted rhetorically. It was predominantly left wing governments that agreed the Lisbon goals in 2000. But what has happened since then?
Just ahead of the Stockholm Summit a year later, along with a number of colleagues from our Group, (from Germany, Sweden, Italy, Austria and Finland), I signed a letter to the Financial Times stating: "there has been no radical change of direction since Lisbon. In some areas, the climate for business, innovation and job creation in the EU is perhaps even worse now than it was a year ago. Europe's socialist governments have failed to deliver on the promises made last March at Lisbon." Well, we were right.
I believe we have gone backwards since Lisbon. Although some centre-right governments have been elected, there has been no overall decline in unemployment, and measures that destroy jobs and competitiveness are still too often on our agenda here in the Parliament.
Let me demonstrate what I mean with an example from my own country. The Labour government in the UK has played its part in creating new jobs. In fact, since Labour came to power, some 600,000 jobs have been created - and all of them in the public sector! This is not what I understood by a dynamic, knowledge based economy.
This is a classic example: so called 'new' Labour pays lip service to what we know to be true, that in the long run, governments do not create jobs, only business create jobs, and to do this they must be able to compete and make profits. As so often, Labour says one thing and does something else.
Criticising lack of progress towards the Lisbon goals is not just a partisan point. A few weeks ago, the OECD said plans to turn Europe into the most competitive and dynamic economy in the world by 2010 now look "very challenging". The OECD report singled out "structural and institutional rigidities" as being to blame for the projection that "on unchanged policies, a growth gap between the US and the eurozone will persist. With structural unemployment declining rather little and remaining, at 7.5%, 2.5 percentage points above the US rate, trend GDP growth would be 1.75% for the eurozone in per capita terms, as compared with 2.25% for the US."
As Prime Minister Aznar remarked at the European Ideas Network meeting at El Escorial at the weekend, is this difference because Americans are somehow more able than Europeans? Of course not. The differential is nothing more than a structural economic one, and the real difference is one of political will. If the EU does not discover this political will, its influence will decline on the world stage; and the key to that political will lies with us on the centre right.
So it is welcome that identifying the policies needed to implement the Lisbon Strategy is a key component in the ideas document for the Group's priorities that we are discussing this week. If anything, it should be given even greater prominence, alongside the need for more public and private investment, especially in human capital and R&D, more entrepreneurship in Europe society and more support for SMEs.
The paper correctly identifies that Small and Medium Enterprises are the engine of the European economy, that 99% of companies in the EU are SMEs and that they provide 66% of all jobs and contribute significantly to economic growth.
The development of an economy where SMEs and entrepreneurs can set up, innovate and prosper must be central to the centre-right vision for promoting competitiveness and must be based, as the paper suggests on:
• a flexible labour market;
• a systematic reduction in regulatory burdens; and
• lower taxes.
I particularly welcome the Group's unequivocal political commitment in this document to low taxes. A low tax regime, and in particular lower payroll taxes and non-wage labour costs, will dramatically increase the flexibility and dynamism of the economy.
When it comes to labour market regulation and regulatory burdens, there is much that our Group could be doing on a day to day basis.
A flexible labour market is no longer an optional extra; it is a core requirement for a competitive economy. We are of course right to stress the importance of training, lifelong learning and investing in human capital. But we must be clear that all the training in the world will not create jobs unless it is accompanies by improved access to the labour market.
A good example here is the Temporary Workers Directive. At one stage the Confederation of British Industry estimated that this legislation would have resulted in the loss of 100,000 jobs in the UK. And do not believe the myth propagated by the left that these are somehow inferior jobs and that the directive will in some way convert them into 'proper' jobs. Temporary and part time work are vital means of access to the labour market, especially for younger workers, women and older workers - on other words those on the bottom rung of the employment ladder.
Our Group should be taking a tougher stand in opposing such job destroying measures. I commend the uncompromising approach adopted by our colleague Mr Wuermeling in the Legal Affairs Committee last week. Under his leadership, the committee voted to reject the Commission proposal for a Consumer Credit Directive which, according to an independent study, could have caused GDP in the UK could fall by 0.2 per cent - £2bn a year - because of the drop in consumer spending. I know this was not the only motivation behind Mr Wuermeling's position - the failure of the directive to be a truly market-opening measure was probably more important. So I think we should introduce a new 'Wuermeling Procedure' in our Group whereby we make it our policy to reject all measures from the Commission that either do not improve the Single Market or which damage competitiveness!
I believe we should also take a more rigorous approach to insisting on a more thorough assessment of new regulations, both from the Commission and from our own institution. As you know, this has been a key campaign of my Delegation for several years. We should make sure we introduce a mechanism in the new Parliament to make clear, for legislative amendments the cost set against the desired benefit. We must also encourage the Commission to adopt more rigorously an evidence-based approach to legislation: new proposals must clearly demonstrate how their cost of their introduction outweighs the risk of not-legislating.
A concrete way to achieve this would be by setting up a 'Deregulation Committee' in the next Parliament, charged with this tasks. Look at it this way: in this term, we have had 17 committees considering new regulations. Surely we can have just one next time dealing with deregulation?
The recasting of committees also presents other opportunities. There has been discussion about the merit of a dedicated Competitiveness Committee - it is an idea which has much to commend it and deserves further consideration. The US Congress has a committee charged with advocacy of small business - this is another idea we might consider?
Over the years, the EPP-ED Group has done much to promote the cause of competitiveness in Europe, not least through the development of the Single Market. In many ways, the Single Market is the foundation of European competitiveness. Since 1999, progress that has been made in liberalising and dynamising the telecoms, energy and financial services sectors is in no small part thanks to our efforts. In fact, electronic communications is our great success story: our approach has created one single regulatory framework in Europe, compared to 87 in the US, with the result that there are now far more GSMs in use per person in Europe than in the US. We must use the credibility that this gives us to develop a new competitiveness agenda for the years ahead.
We should be clear what is at stake in the European elections. There is a clear dividing line: the left that is so preoccupied with a 'fairer' division of the wealth cake that it is oblivious to the fact that the cake is getting smaller. On the centre right, we have to show that the cake can and must get bigger, and it is with growing wealth that that there will be fairer shares for everybody.