Olli Rehn: in crisis, we also protected the weakest of society

Photo: Reuters / Scanpix

EU economy and finance chief, the Finn Olli Rehn (51), relates how the outgoing European Commission succeeded, against all odds, to avoid insolvency of European states, which – among other things – would have been devastating to those on social welfare and people on public payrolls.

Can the euro area financial crisis be considered as over now? Or are we to expect further news from other European countries that they need international assistance to meet their obligations?

The European economy emerged from recession in the spring of 2013 and growth has been gradually picking up speed since then. We expect a moderate recovery this year, growing stronger in 2015. The first two months of this year have offered further encouraging signs that the European economy is strengthening, including is some of the most fragile economies. For instance, economic confidence in the euro area returned to its long-term average for the first time since July 2011.

There is growing evidence that unemployment has reached its peak and, in many countries, is now beginning to come down. In parts of Europe it is still unacceptably high, but a turning point has now been reached.

Although the worst of the crisis may now be behind us, this is not an invitation to be complacent. The recovery is still modest. To make it stronger and create more jobs we absolutely have to maintain the implementation of much-needed reforms.

When will Greece overcome the crisis and re-establish its status as a country that can finance its costs on its own?

With the support of its European partners, Greece has made significant efforts to stabilise its public finances and boost competitiveness, so that the economy can return to sustainable growth and job creation. We expect positive growth this year, accelerating in 2015, as long as essential reforms continue to be implemented.

Market confidence is gradually returning but this must be nurtured. A durable return to market financing will depend on Greece maintaining its commitment to sound public finances and to implementing the necessary economic reforms. The euro area member states are committed to providing adequate support to Greece during the lifetime of the programme and beyond, provided the country fully complies with the requirements and objectives of the programme.

Your left-wing critics have found that the European Commission has been unjustifiably harsh in solving the economic crisis and that this has caused social suffering to millions of people. What do you think about such accusations?

When the current Commission took office, and I started as Commissioner responsible for economic and monetary affairs over four years ago, the debt crisis had just hit Europe and especially the Greek economy was in freefall. Macroeconomic imbalances that had been building up in the preceding decade suddenly became aggravated by the financial crisis and created extreme pressure to bring the economies back onto a credible path, without any existing functioning eurozone mechanisms to do this necessary job. Europe faced a sudden, even existential crisis and decisions had to be taken under extreme circumstances which necessarily involved difficult choices.

The aim of the economic adjustment programme was to avert a default by the countries on their social and economic obligations - which include the welfare benefits of their citizens and the wages of their public employees.

In other words, the programmes did not mark the beginning of the crises, but the start of their resolution.

In combatting the crisis, Europe's strategy has been based on extending solidarity in return for solidity. The Commission has at every step insisted on the need to protect the most vulnerable in society.
Yes, it has been a difficult journey but the economic turnaround is now tangible and visible. The European economy did not collapse, nor did the euro break up. The economic recovery is now gaining ground and firming up. Growth has resumed in Ireland and Portugal; unemployment has started to decrease; Ireland successfully completed its programme in December as planned; so did Spain its financial sector programme in January. For Portugal, the economic outlook was just revised upwards, and the country remains on track to exit its programme successfully in May.

We all know about the difficulties of getting the Greek programme on track in the first years of the programme, especially because of the lack of national unity and the strong vested interests in the country. But there are now realistic signs of the Greek economy recovering as the current account is in surplus for the first time in decades, and there is an apparent primary surplus in the country's public finances for last year.
 
What is your opinion on the increasingly severe immigration restrictions demanded to be established for citizens from other Member States by the politicians of the UK, Germany and some other countries?

Four freedoms – free movement of goods, services, capital and people – have been at the heart of the European integration process. You cannot separate one from the other. For example, you cannot have the right to establish your companies in Bucharest or Sofia but not accept workers from Romania and Bulgaria working in your country.

The debate has become emotional, too much so. We have to put it back into proportion. We are talking about 14 million Europeans out of 507 million, or 3% of the EU's population, the majority of which work and contribute to their host country. Evidence of individual criminal fraud cases has to be tacked rigorously at home. It cannot be used to suggest there is a widespread, systemic problem in Europe.
If not a problem on paper, there is still a problem in perception and this must be addressed. At the same time, I take people's genuine concerns, concerns about abuse of national systems very seriously.

The Commission is working to tackle abuse, curb fake marriages, and clamp down on benefit fraud. We will not tolerate abuse.

Should the Swiss referendum decision to restrict immigration of EU citizens be given immunity from criticism just because it was made by way of a democratic referendum?

The popular vote of 9 February calls the freedom of movement of persons into question.
The Swiss authorities told the Commission that they need time to reflect on how this could be implemented. The Swiss Federal Council has up to three years to implement the vote, so there is no immediate massive crisis.

In the meantime, both sides must continue to fulfil all their obligations under the existing agreements. A deal is a deal, and selective implementation or "cherry-picking" is not an option.

The Commission stands ready to listen to the Swiss proposals. The ball is in their court. Our marge de manoeuvre, however, is extremely limited. The core principle of the free movement of persons is a cornerstone of our relationship. It is a fundamental right. It is not simply "negotiable".       

Furthermore, it is very difficult to imagine how immigration quotas and national preference could be made compatible with the agreement on the full free movement of persons that we have with Switzerland. Quotas are contrary to the principle of free movement. This fundamental freedom is not only an essential part of the internal market, which cannot be decoupled from the other freedoms, but also at the heart of our overall relations with Switzerland.

According to the estimations of the Bank of Finland, Finnish GDP will not reach the 2008 level again before 2015. What is wrong with the Finnish economy that the growth has staggered?
There are three main factors underlying the subdued economic growth in Finland.
First is the sharp contraction in the electronics and paper industries, also linked to the global restructuring of these sectors.

Second, the capacity of the economy to reorient itself is held back by increasing costs, which have squeezed profitability and investment.

Third, while Finland is top of the league of international competitiveness and is investing about 3½% of GDP in R&D, the declining efficiency of R&D spending and slow investment make it difficult to translate the high innovation potential into new marketable products.

The competitiveness of the Finnish economy can be improved through measures to fuel innovation by making optimum use of the country's high R&D potential and providing tailored support for smaller firms, making it easier for them to export. A further focus on energy efficiency would also have a positive impact on Finland's cost competitiveness and trade balance.  

To counter the decline in the working age population due to the ageing of the population, we need to get more young people, long-term unemployed and older workers into work, as well as to increase the effective retirement age and improve the possibilities for part-time work to avoid shutting people out of the job market.

Finally, Finland has very close ties with Estonia and the Scandinavian countries, not least in the areas of trade, labour markets, investments and tourism. If Finland was more competitive in its exports, there would be additional resources to import and to consume Estonian goods as well as to spend more on tourism and offer jobs. Neighbours with strong economies are mutually beneficial!

How will the state of Finland overcome the image crisis caused by the difficulties faced by the former technology forerunner Nokia, leading to the sale of the telephone production to Microsoft?

Our in-depth reviews on macro-economic imbalances, published on 5 March, shows that Finland has continued to rapidly lose export market share, despite the recovery in global trade. Our assessment is that the industrial restructuring has not yet been able to make up for the large downsizing of the forestry industries and electronics, such as Nokia.

Regardless of the current challenges, I would not describe this as an image crisis for the country as a whole. As the son of an entrepreneur, I know that the key to success is the ability to adapt to changing circumstances.

Therefore I would rather see the current challenges as an opportunity to adapt by finding new solutions and exploring new working methods. Already today there are numerous successful start-ups and SMEs founded by former Nokia employees, while Nokia continues to develop the remaining parts of their business such as network solutions.
 
Do you think that Finnish enterprises will use the Rail Baltic for transport of goods to Europe?

Above all, Rail Baltic is needed in order to provide a modern efficient sustainable transport link for freight and passengers linking the three Baltic States together and with the heart of the Single Market in Central and Western Europe. The current line is too old and inadequate to support the development of the fastest-growing region of the EU.

Let's not forget that now Finnish foreign trade is essentially dependent on maritime transport. As you know, jointly with our Nordic neighbours, we actively work towards limiting sea pollution in the so-called Sulphur Emission Control Areas - the Baltic Sea, the North Sea, and the English Channel. According to the new directive, by 2015, the sulphur content of fuel used in the shipping industry in this area is to be lowered ten times!

In practice, this means that the ships will have to either switch to fuel with lower sulphur content, or start cleansing their emissions.

To sum up, Rail Baltic offers Finnish enterprises an additional opportunity to comply with the directives and develop their businesses – and businesses usually do seize these kinds of opportunities.
 
What are your own future plans in European and Finnish politics?

The Alliance of Liberals and Democrats in Europe approved the candidacy of Guy Verhofstadt as the party's top candidate for the Commission Presidency and my own candidacy for other senior EU posts in the areas of economic or foreign policy. We are channelling our respective skills and expertise to campaign for the liberal cause in Europe.   We are doing so to unite our liberal forces all over Europe and returning with strength to the European Parliament.

What then happens after the elections will, of course, depend very much on the outcome of the elections, as it should in the evolving European democracy. The political programme and composition of the future Commission and nominations to other senior posts will of course be decided following the elections. One thing is clear: I am committed to working further for continued reform and a stronger Europe.