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25/08/2016

Maria João Rodrigues: We should invest in Europe and expand domestic demand

Euro & Finance

Maria João Rodrigues: We should invest in Europe and expand domestic demand

Maria João Rodgrigues

[Georgi Gotev]

The European Parliament insists that fiscal consolidation and reforms are not enough and that the EU should have a strong priority in investment in Europe and expanding the internal domestic demand, Maria João Rodrigues told EurActiv in an exclusive interview.

Maria João Rodrigues is Vice Chair of the S&D group in the European Parliament and member of the Committee on Employment and Social Affairs. She was Minister for Qualifications and Employment of Portugal in the first government of Prime Minister António Guterres.

Today (25 February), the European Parliament will vote on your report on the European Semester for economic policy coordination: Annual Growth Survey 2016. Can you explain what is new in this report in comparison to previous efforts to influence the economic and social policies of the EU?

From my viewpoint this report presents a new compromise for a new type of economic policy in the EU. The first reason is the general situation in Europe. With the overlapping crises it’s much easier to understand why we need a much stronger internal cohesion in the EU. In order to do this, a much stronger economic recovery is needed. It is needed to reduce unemployment, and to reduce the divergences between member states which are also very worrying.

The European semester should again be guided by the European Strategy for Growth and Jobs – Europe 2020, and we know this strategy has almost been forgotten during the last crisis years.

I’m really surprised that you mention Europe 2020. It was launched in 2010 and I haven’t heard about it during the term of this Commission and this Parliament. In the meantime we only hear about economic governance and the European semester.

The European semester is there not only to pursue fiscal consolidation and the kind of reforms we had in the past, but to implement the European Strategy for Growth and Jobs in its three dimensions, that is economic competitiveness based on energy transition and digital revolution, and delivering more and better jobs.

Once these ideas are accepted, this would have many implications for economic and social policies being pursued for the next period in Europe. The first implication is what should be the policy mix for the next period. And the report is bringing something new, because it is saying that fiscal consolidation and reforms is not enough, that we should have a strong priority on investments, future oriented investments, and we should also expand the internal domestic demand in Europe. This is really new, this was never said before.

The reason is that the European economy now has the highest surplus against the world. On the one hand, this is positive, because this means we have a competitive economy overall. But on the other hand, this also shows that we are compressing domestic demand to become more competitive. This is a mistake.

You mean expanding domestic demand in Germany, which basically means wage increases?

It’s about expanding domestic demand particularly in the member states that have the highest surplus, and therefore have more margins to expand their domestic demand. Because otherwise they are dragging down the overall European economy. So this is the moment for us to change priorities and say – we cannot rely only on exports, we need to rely a lot more on domestic demand.

This means two things – pushing for investments in the single market, and reducing social inequalities.

Inequalities among countries?

Also within countries, but primarily it’s about tackling poverty and precarious work. This is a very important message coming from the first time from the Parliament.

But how can this be achieved given the famous EU fiscal straitjacket?

We say the investment gap remains huge. We should have €1 trillion for three years just for energy and digital infrastructure. We are still very much below this target. So why need to strengthen all the existing instruments, the structural funds, EFSI, EIB, but we should also count on the in-build flexibility in the Stability and Growth Pact, as proposed by the European Commission, as well as investing more.

So we need to focus our energy on reducing this investment gap and creating much more jobs in Europe.

But we are also proposing a second generation of reforms which should be focused on education, innovation, R&D, in order to strengthen growth potential. And another such priority is to ensure sustainable welfare systems. We consider this to be a different reform agenda from the past. In the past, reforms were too much focused on reducing the levels of social protection, in order to step up fiscal consolidation. We are saying from now on we need new priorities for reforms.

You mentioned sustainable welfare systems. Can you explain?

Another important idea in the report says that the most important sector to ensure sustainable pension systems is to raise employment rates. Member states with more fiscal room for manoeuvre should invest more for their benefit, but also for the benefit of the euro area as a whole. This is the case in Germany.

Aren’t there too many messages to Germany?

Member states with very high surplus from exports have more room to expand their domestic demand and they should do so, for their benefits and for others’. And to accept pay rises, if they are in line with productivity.

Regarding the less productive countries, we cannot go on with the solutions of the past, i.e. cutting wages and reducing social benefits. This is the wrong way. They should rather take another road, which is investing in reform for future-oriented competitiveness, based on innovation, education and so on.

This is a very important statement from the Parliament, which recognises that the road of the past was wrong.

If I understand correctly a key message is that there is a need to invest more in Europe rather than outside. How can this be achieved? Will there be an incentive?

The incentive should be twofold. We need to give companies more prospects to invest in Europe due to an extension of the domestic demand, and the second one is to facilitate the access to credit to invest, with particular focus on SMEs. This of course reminds us that it is urgent to complete the banking union.

The eurozone can play the role of the engine of the European economy. Another important element of the report is the statement that we need to have a convergence guided by economic and social targets on equal footing. This proposal coming from the Commission wasn’t well received in the Council, by the ministers of finance and of social affairs, for different reasons. But the Parliament supports the Commission. It says that we should treat economic targets on an equal footing with social targets.