De Buck: EU budget weak on ‘competitiveness’

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The EU has funded too many short-term projects that have little or no impact on the long-term competitiveness of Europe and it is high time to target EU spending on growth-led sectors, said BusinessEurope Director-General Philippe de Buck in an interview with EURACTIV.

Philippe de Buck is director-general of BusinessEurope, the 40-member Confederation of European Business.

He was speaking to EURACTIV Managing Editor Daniela Vincenti.

To read a shortened version of this interview, please click here

With the current economic and eurozone crisis, what do you think is needed to put Europe back on track and restore business and market confidence, as well as growth?

We were quite optimistic in the second half of 2010 and the beginning of 2011. Frankly we had unexpected growth of around 2%, with some countries, Germany for example, around 3%.

Then we had to face the euro crisis, which is a huge crisis because it's a paradigm shift. It's the first time that we are confronted with such a loss in credibility. We face now a very difficult process in order to restore credibility and we are not there yet.

Since the summer, we are worried. We don't have all the figures yet, but we have to review down our forecasts for 2011. Our forecast, and we will see if it is confirmed, is that we will have a growth rate of 1.5%, instead of 2%.

But this is not the most worrying problem, because after all we will have growth in 2011.

So, you do not fear for a double-dip recession…

Not at the moment. But we have to secure sustained growth in 2012 and beyond. We need to concentrate all efforts on a growth strategy in the European Union to strengthen the economy, to strengthen our main elements of growth, and to benefit as much as possible from growth elsewhere.

The US is stagnating for the moment, but you have huge parts of the world that are growing. We need to benefit from it, but that calls for structural reforms. That was our main message from the very beginning: go for growth. The slogan of BusinessEurope since 2009 is to double the growth potential of Europe and that is needed today [more] than ever before.

Europe has launched its Europe 2020 growth strategy. But do you think EU countries are implementing the right reforms to deliver on that smart, low-carbon growth? Or are they too focused on extinguishing the flames of the eurozone crisis?

Both go together, but that is very difficult to be understood.

Austerity measures and fiscal consolidation might prevent countries from making the right investments in the sectors that would drive growth.

But austerity measures are all about putting your financial situation in order so that you are able to make the right investment policy. The question now is, how long will this process last? How to strike the right balance?

You asked the question: "Have countries done enough?" Certainly not! Some countries have done it [implemented structural reforms] and some are more successful than others. But others had to face huge pressure from the markets.

Take the case of Italy. We have known perfectly well for years that measures had to be taken there. But only through the markets and the European Union putting pressure on Berlusconi's government did we see Italy come up over a weekend suddenly with its own measures. And that is a very good signal.

However, those who have not waited until the crisis are better off today. BursinessEurope published its reform barometer some months ago and countries like Germany, Austria, the Netherlands, Sweden and even Poland and Belgium, to a certain extent, are in a better financial, fiscal and budgetary situation, but also in terms of growth and employment.

That is our message. You have to do work on both fronts: take some measures to alleviate your financial burdens, but also deliver the needed structural reform. Contrary to what Bernadette Ségol [secretary-general of ETUC, the European Trade Union Confederation] said in a EURACTIV interview, it's not only about wages. It's about investments. It's about research. It's about education. It's about all the necessary elements that will force the growth.

You talked about Europe piggy-backing on growing economies, and I suppose you meant China and India. How can Europe take advantage of this driving force if we haven’t put our own house in order?

Firstly, it's about exports, and exports are the strength of companies, and companies don't wait for what's happening in the country. Our companies have proven they can be trusted and that they are capable of benefiting from all kinds of opportunities.

It's not only Germany but also France, also Italy. We are exporting and if we are good at exporting, it means we know what other markets need from us, what they are prepared to buy from us, where we can work together.

Part of the growth we will enjoy in Europe comes from the emerging markets, because this is precisely our strength as an export-driven economy.

That brings us back to the need for Europe to strengthen its competitiveness. When we strengthen the competitiveness of a country or a region such as the European Union, you create a lot of opportunities, because we have the experience of a global economy.

Do you think 'flexicurity' has delivered the proper flexibility to increase the competitiveness of EU companies?

Flexicurity talks about systems. How do you make the company flexible? And on the other hand, how do you secure jobs for the people? Firstly, that they can keep the job even in a changing world, changing technologies, but secondly that if they lose their job, they can find a new job as soon as possible.

Because after all, it's having a job that gives you all the means to live, but also allows countries to alleviate the cost of social security so that you don't rely on allowances.

So when I read what Bernadette Ségol on behalf of ETUC is saying about flexicurity, I say they haven't understood it. If we have together discussed it at length, it is a mauvais process, to say that we are just looking at one side of the coin. That's not true at all.

Companies are looking more than ever at the security part for two simple reasons: firstly, because they need the people.

I remember 25 years ago during that crisis people were laid off and 15 months later they were taken again. This is not the rule of the game anymore. If I can refer to the crisis in 2009, we have of course seen an increase in unemployment due to the crisis but not to the extent of the importance of the crisis, because companies, with trade unions and governments, have put in place means and systems in order to keep people at work.

They have shortened working time to a certain extent in order to keep them at work for a period of time. That is a way, just one example, of flexicurity.

Another one is of course all the increasing efforts in vocational training and training at large in order to maintain workers' skills to adapt to the needs of the labour market.

The main challenge for EU companies is the ability of the workforce. That is why we are focusing our efforts on what is called the 'stem-skills': science, technology, engineering, mathematics.

This is why I don't understand the position of ETUC to be so reluctant. This is sloganesque.

Perhaps because they don't see companies investing in human capital. If there is such a demand for new skills there should be massive investment…

But "massive investment" is perhaps not really possible today because precisely of the bad situation of public finances. And increased investments cannot be overnight, unfortunately.

I'm a lawyer. You won't change me into an engineer overnight.

Public finances are in bad shape, that's true. But investing in people can also come from the private sector, through public-private partnerships…

Perhaps, and there are a lot of examples of people having been trained during the short-term work during the crisis.

We have increased numbers of investments in training and you see it also in the figures. We agree the unemployment rate is still too high and we should do everything to reduce it, but it is still at the same level. Globally for Europe there is no hike in unemployment figures. Those are positive signals that the trade unions should use.

It's not because there is a crisis that we have to give up the principles of flexicurity. This would be a strategic mistake for the European Union and I do hope that the new leadership of ETUC will review their position, because if they don't this will be a very, very bad message for the European Union and for the European economy.

Let’s look at the Multiannual Financial Framework for 2014-2020, the next period for the EU budget: the means allocated to R&D have been increased in order to mirror the goal of boosting R&D to 3% of GDP. Do you reckon this goal is matched by the finances that the Union is allocating to its budget?

The goal of 3% for research and development will of course not be matched through the EU budget, because it is only for all the purposes 1% of GDP. But the leverage that the European budget provides is key and has been, at least in the past, very important in some areas.

It is important that it goes in the right direction, that there are shifts within the budget to what we have called "competitiveness issues". This is of course key for R&D, and the competitiveness elements for SMEs and R&D are quite an improvement. It can always be more, but let us at least recognise the positive elements.

The same goes for regional funds or for cohesion funds. But there the numbers are not sufficient. We need to look more at how the funds are used. Looking at Greece, Portugal or other countries, suddenly the officials are now realising that it's not only an issue of the amount of money invested, but it's also about the areas where the funds are invested.

The qualitative test of the use of all European funds must be now increased. Are they in favour of growth? Will they create opportunities or is it just spending?

When you are looking at creating the right conditions for growth you have to look at the longer term, it's not just the spending in the year and then it's over: You must look at education, skills, R&D and which areas, and precisely at the time when Europe has to resolve very huge societal problems.

What's your qualitative assessment of the past budget period?

It is absolutely insufficient.

Was too much money put into short-term projects?

Yes, short-term projects having little or no impact on the long-term competitiveness of Europe. We will have to assess it now with our members.

Would you say social partners have not been involved enough on the ground in the allocation of cohesion and social funds?

We have quite some concerns on the European Social Fund, the way money is being spent, the extent to which we, the business community, but also our counterparts, the trade unions, are involved in the process.

The treaty establishes that as far as the ESF is concerned "social partners will be closely involved" and a certain amount of money should be spent on capacity-building projects of the social partners.

We have been discussing over the past 6-7 years with the Commission and every time the feedback from our national members was that not enough is being done to enhance the involvement of the social partners, so that people using the money on the ground are listened to, also in the selection of the projects.

Going back to the long-term budget, what is still missing?

What is lacking for the moment, and we've said it already, is to focus on competitiveness for growth. I think in the proposal of the Commission we are stuck halfway.

So for example, we asked for the doubling of the budget for research and development, but we are not there. We have asked to review the way all the means were allocated for regional development or agriculture: we are not there, even though there are improvements.

We will put pressure on the competitiveness, for sure. We have meetings with the director-general for budget, with the commissioner. But we are conscious also of the limits of this exercise.

One of the proposals is the establishment of a Financial Transaction Tax. Would you favour that, towards giving the EU its own resources?

Own resources, we already mentioned it in our press release, we don't favour it, because own resources means new taxes and it's not the time to have new taxes.

You can put an FTT and reduce direct taxes. That would be just a shift in taxation …

Yes, but that we have never seen. On the FTT we are also opposed. Because what do we want there? We’ve said it many times. Either it's really a tax to regulate the financial sector, then it should be dealt with globally, and that is an issue for the G20. Merkel and Sarkozy put it on the agenda of the G20 and we see what comes up.

But I would also add that firstly somebody will have to pay that tax: it will come to users. Users are citizens and companies. So the danger is that the tax will be transferred to companies.

Secondly, that will increase the cost of finance, at the moment when we need more investment and reduce financial costs for companies.

Thirdly, we haven't seen yet the details for the FTT. But because it's a transaction tax and not a value-added tax it will not tax wealth creation. It's just because you do something that you have to pay. So it could also discriminate activities vis à vis others and that can also be detrimental not only the financial sector, but also for other business activities. We are really for the moment reluctant and opposed.

What would make you warm up to it?

First, that it is global and then we need to see the details for such tax.

What kind of details would you like to see?

What kind of activities will be taxed? To what extent? What can be the consequences for financial markets, on the capacities of banks to lend money, and so on.

We have asked for some time for a global impact assessment and so far we have never seen an impact assessment that is comprehensively taking into account all the regulations one after the other to see what the impact it will have on the economy.

The question is: Is it enhancing growth or will it be detrimental to growth?

Have you tentatively prepared your own assessment of what would be palatable for you?

We are not good at proposing new taxes. We will react to the proposal. It could have been very easy for BusinessEurope to say we will double the European budget from 1% to 2% and we'll raise the VAT, the transaction tax and the emissions trading income, whatever it is. No.

Perhaps, there are ideas that we could develop but let us work on it in a very conscious way and a very detailed way. To say at a press conference 'we are in favour of a financial transaction tax,' fine. But do you know what it means? I don't.

Let's switch to the Working Time Directive. What will it take to go to the negotiating table? ETUC wants to go back to the negotiating table, but before deciding it wants preliminary talks …

We are always open to negotiations, especially to solve problems. Of course, we know the origin of the discussion: the case of the European Court of Justice. We have witnessed the negotiations in the Parliament and the Council for 5-6 years, which did not bring results.

And there are problems. The European Court of Justice has created huge problems for on-call work, for sickness leave and all the related costs. This is an area where the Commission has consulted and asked social partners to deal with it.

I would say working time is certainly, when it comes to European regulation, where social partners have a role to play. Believe me or not it was not an easy debate within BusinessEurope but we have a mandate to negotiate. And we expect them also to negotiate. Can we guarantee an outcome? Of course not. Do we know that we have differences of opinion? Of course we know.

There is a feeling that BusinessEurope wants to cherry-pick various parts of the proposal and not put everything on the table.

When you go to a negotiation you have a mandate, you know how to deal with that, and I suppose the trade unions will do that also. And we know perfectly [well] that the mandates are not the same…

How do you reconcile then?

We negotiate. We try to find a way and we will try to find an agreement.

How will that be?

Very tough negotiations on the issues we have to solve. And the issues we have to solve are first created by the European Court of Justice and that is where we will have to find a way out. The issue we don't have to solve are those that would hamper growth. And that is what we will say in the negotiations.

But, again, a negotiation is a process. We agree to sit at the table. We expect ETUC to come and sit at the same table and to discuss. It's by discussing issues that you solve them. I'm not old enough with long experience of social dialogue at national level: I know perfectly [well] that you can agree on some elements if there is a willingness on both sides to achieve something.

But there are no preconditions. We have a mandate. I suppose they know it, fine, but that is not a reason not to sit at the table. If they refrain from it, well I think that they have quite a huge responsibility for the social dialogue at the European level, because then they will leave it to the European Parliament, the Council. I will not be there in 5-6 years to see the failure, but why should it go better this time?

Perhaps you also have to learn the lessons of the past and concentrate more on some key elements than others.

So cherry-pick …

Why is it cherry-picking? Negotiations are always cherry-picking.

You're focusing on some parts…

Because this is what has to be solved. Because we will explain very clearly what it is all about and they will have to respond. And we will respond to their requests. I know, because it's not by saying 'we discuss everything' that it's not cherry-picking. I know what cherries they would like to pick!

Is there something that you are able to give in on?

I think it's too early to go into that now. It's by discussing that you feel the arguments and that you have find compromises. Perhaps we will find a way out. And I can tell you if we go to the negotiating table, we go convinced and with a willingness to achieve something.

It is not that we are cherry-picking. We are coming with a positive agenda to solve two issues and we will listen to the trade unions when they have made up their minds, because they have not yet made up their minds.

There is no need for preliminary discussions. Again, a negotiation is a process. The first meeting will be an exchange of broad ideas. Is that a preliminary discussion? Perhaps, but it's part of the negotiations, it's part of the process.

My plea to ETUC is to consider positively the message of BusinessEurope going into those negotiations on working time. But they will have to take decisions over the course of September and October, I think.

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