Olli Rehn: EU growth partly based on illusion
Commissioner says EU countries need tighter common economic policy
Olli Rehn, the European Commissioner for Economic and Monetary Affairs, says that the Greek debt crisis revealed that part of the rapid growth and improved employment in the European Union was based on unsustainable indebtedness that built up during the first ten years of Monetary Union.
Rehn was speaking at the annual meeting of the National Defence Course Association in Helsinki.
“The boom, which was based on low interest rates and rapid indebtedness in the periphery of the euro zone, created an erroneous image of the power of the euro zone”, Rehn said.
When the Greek economy collapsed in May, the countries of the euro zone and the International Monetary Fund ended up extending loan guarantees worth EUR 500 million to Greece.
In his speech Rehn wanted to emphasise that when setting up the rescue package, the aim was not to rescue one “Greek prodigal son”, but rather to bear responsibility for all of Europe.
“At the end of the chain reaction there would have been the same kind of heavy economic collapse and rise in unemployment that happened in connection with the bankruptcy of Lehman. When the European economy was, and is still vulnerable in the aftermath of the slump, a new similar shock would have been devastating”, Rehn said.
In his speech Rehn also mentioned the intense debate that has been going on about how wasteful countries such as Greece can be brought back under control in the future.
For example Speaker of Parliament Sauli Niinistö (Nat. Coalition Party) has been concerned that the EU countries could end up taking collective responsibility for the sloppy economic management of one of them.
The European Commission recently proposed a number of punishments that could be imposed as a way of preventing future crises such as the Greek debt crisis.
The scheme would involve incremental mandatory deposits and fines if a country’s economic discipline showed excessive imbalance.
Rehn said that if the proposals are implemented, they would constitute a real change to European decision-making.
“In matters where the decisions of one country have a significant impact on other member states, decisions will be made together more than before”, Rehn said.
As Rehn sees it, something good ultimately did come out of the Greek crisis: it clarified the need for economic policy that is jointly agreed upon. “At the same time, political readiness was established for changing rules of the game.
During questions and answers, Rehn’s former teacher, Professor Raimo Väyrynen and MEP Esko Seppänen both asked if the new economic discipline and the growth in the power of the Commission might bring the EU closer to being a federation.
“Certainly not toward a federation. The EU will continue to be a unique political being in the future as well”, Rehn answered, insisting that the member states will continue to have the final word. “The power of the Commission is increasing, but decisions of the Commission can be overturned by a qualified majority.”