Europe needs to avoid complacency

Olli Rehn.

PHOTO: Peeter Langovits / Postimees

According to Olli Rehn, European commissioner for economic and monetary affairs, reforms must carry on, the greatest threat to the region’s economy being excessive complacency.

How would you describe the European economic situation?

Europe is recovering from a lengthy recession, caused by debt crisis. We are seeing encouraging signs of slight growth to be expected, this year already. Next year, the growth will already stand on a more solid foundation. Still, this is no time to celebrate as yet – in many parts of Europe, unemployment runs high; economic growth being slow.

The greatest threat is excessive complacency. We cannot afford this luxury. In order to avoid a new crisis, we will have to carry on the economic reforms initiated, every member state separately and the eurozone as a whole.

What has led to the economic situation in Finland?

In Finland, there is a lively discussion around that. With our population aging quite rapidly, it is important that Finland guarantee sustainable public finances. Secondly, we will have to restore our lost competitiveness. And, thirdly, there is the problem of having two key segments of economy in decline. I am referring to the long-term decline of forestry, and the sharp decline of the telecommunications market.  

Finland needs structural reforms, and consolidation of the budget. The Finnish government has sketched a program; not it will be important to take definite decisions and carry the program out.

What would be the lessons for Estonia, from Finland’s mistakes?

Finnish and Estonian economies are closely connected and interrelated. It is therefore natural that the developments in Finland have an effect on Estonia, and vice versa.

It is better, however, for Estonians to analyse the Finnish situation for themselves, drawing their own conclusions. In my opinion, the heart of the matter is that, in order to ensure competitiveness, reforms must be continued. Both education and innovation are key in raising productivity, provide added value to our products and services, while also ensuring that labour costs would correspond to competitiveness.

What are the latest developments with the banking union? Which problems are yet to be solved?

Many citizens are worried that the European Union is overly focussed on building the banking union. We are not doing that to save the bankers; rather, to restore creditworthiness of households and companies – this being the very foundation of our economic growth. Our aim is making that growth sustainable.

Last week, the European Parliament approved the banking supervision system – the first step towards creating a banking union. This summer, the European Commission proposed to create a common crisis resolution mechanism, allowing the commission to decide which banks would be reorganised.

Also, the commission proposed to create a joint bank crisis resolution fund, which would ensure that taxpayer money is not used to save banks.

How would you describe the current situation in Greece? Will Greece need help in the future?

The picture is not black and white, here; rather, it has many shades of grey. The Greek economy has bottomed out and now positive developments may be seen in export and tourism, for instance. The good news being that Greece seems to be coming into a budget surplus, meaning that Greece is no longer living over its means, not consuming more than it is producing. Even so, in several areas Greece is still facing serious challenges, both with privatisations and structural reforms a lot remains to be done. Our delegation is heading to Greece again, to assess the situation. The conclusions can only be drawn as the work is done. That may take a couple of weeks.

With the work done and everything analysed, we will draw our conclusions – together with the European Central Bank and International Monetary Fund. After that, we will make our proposal to eurozone finance ministers. I presume we will be discussing the issue in November, or in December.

At the start of 2014, Latvia joins the eurozone, someday followed by Lithuania, probably. Could there be more, after that? 

As recently as last August, as I was in New York, meeting with financial market representatives. The talk was whether it would be Greece leaving eurozone, or Finland. After dinner, I was approached by two young traders, asking: «Will Finland be exiting the eurozone this fall – or will it take a little longer?» That was the atmosphere in world financial markets, a year ago. No wonder, then, that eurozone’s trustworthiness came under doubt. As was also evidenced by euro area bond yields rising to great heights.

Now, the situation is altogether different. Thanks to the decisive actions by the central bank, to responsible monetary politics by member states, and to economic supervision restored in the eurozone, the fear of eurozone breaking apart is gone.

Next year, we will already be having a different eurozone than now; however, it will not be smaller but rather larger, due to Latvia joining up. Latvia was admitted thanks to their success with economic reforms. Lithuania hopes to join the eurozone in 2015. I consider that a very wise goal.

I’ll bet, with conditions met, there will be more to join the eurozone in the future.

Currently, Siim Kallas sits as EU transport commissioner. As he will not be continuing as commissioner, which commission seat would you predict for Estonia, in times to come?

Siim Kallas is a very good friend of mine, and an experienced commissioner. It is not for me to speculate which seat Estonia might receive; however, as a long-time friend of Estonia, I wish you a strong seat.


Commissioners: European Union grants small states power

At this week-end’s discussion on EU economic future, transportation commissioner Siim Kallas and economic commissioner Olli Rehn stated that small states stand to gain from belonging to the union, as, in this way, decisions will not be taken over and above their heads. According to Mr Kallas, it is up to every state whether they desire to belong into the union or not; however, the issue is that togetherness grants greater strength than being alone. In the opinion of Mr Rehn it comes as a good example of small states given a say in EU – that both he and Mr Kallas, commissioners coming from small states, have been granted responsibility over important areas.

In discussing EU economic policy, the commissioners agreed that there was no alternative to the current austerity policy. «Expansionary monetary policy was what led us into this crisis,» noted Mr Kallas. According to Mr Kallas, real economic policy must always provide the basis for monetary matters. «An excellent example being the Baltic States, the problems here currently smaller than elsewhere in Europe.»