Verbatim report of proceedings

Tuesday, 20 April 2010 - Strasbourg

12. Question Time (Commission)

  President. – Τhe next item is Question Time (B7-0207/2010/rev. 1). The following questions are addressed to the Commission.

Part one:

Question No 25 by Mr Georgios Papastamkos (H-0124/10)

Subject: Creation of a European credit rating authority

Does the Commission intend to propose the creation of a European credit rating authority for the Member States of the eurozone and/or their credit institutions?

  Michel Barnier, Member of the Commission. – (FR) Mr President, I would like to thank Mr Papastamkos for this question on a subject which, in my current capacity, I consider absolutely essential to the proper functioning of the economy and the financial markets.

Credit rating agencies play a crucial role in assessing the risks associated with the situation of companies and also, for that matter, of the Member States, and the crisis has shown – and this is putting it mildly – that their method of operating has posed and continues to pose problems, with very serious consequences at times. That is why the G20 quite rightly took tough decisions to put in place supervision and new rules of governance.

I wish to remind you, ladies and gentlemen, that at the time of the crisis, the Commission very quickly assumed its responsibilities in this regard, prioritising the regulation of the activities of credit rating agencies over the last two years. In September 2009 – in other words, one year after the collapse of Lehman Brothers – the regulation on credit rating agencies was adopted with Parliament’s support; I would like to pay particular tribute to the work of your rapporteur, Mr Gauzès, to address the problems caused by these agencies’ operating methods, which contributed significantly to the financial crisis.

The regulation of which I speak introduced a system of compulsory registration for all credit rating agencies established on European Union territory. It imposed a set of stringent requirements: firstly, to ensure that possible conflicts of interest are brought to an end; secondly, to review and improve the quality of ratings and the methodology used; and, finally, to ensure that these rating agencies operate in a transparent way.

Ladies and gentlemen, I am confident that the new rules on credit rating agencies about which I have just been speaking will definitely improve the independence and integrity of the rating process, will make credit-rating activities more transparent, and will improve the quality of such ratings, including those relating to the sovereign debt of the Member States – the countries of the European Union – and of the EU’s financial institutions. That is the stage we are at.

Mr Papastamkos, as regards the creation of a European public credit rating agency such as the one for which you are calling, it is an idea that is becoming part of the debate on possible alternatives to the credit rating agencies’ current economic model, which is known as an ‘issuer pays’ model. The effects of such an idea must be carefully evaluated, particularly in terms of responsibility.

Clearly, Mr Papastamkos, my first priority today is to ensure that the 2009 regulation is properly implemented and to make the current, reformed system work. However, I am not ruling out this idea that you support of creating a European agency. It must be considered in the light of the evaluation of the 2009 regulation and of its effects on credit rating agencies. Moreover, this evaluation is provided for in the regulation, and the Commission must submit it to Parliament and the Council between now and December 2012.

What I can confirm is that the Commission will soon be proposing an amendment to the regulation on credit rating agencies in order to entrust the new European Securities and Markets Authority (ESMA) with overall responsibility for supervising these agencies. You in Parliament requested this when the regulation was being negotiated, and the Heads of State or Government have reached agreement on this principle. We will, therefore, make this amendment. I am convinced that the transfer to the new authority for the supervision of credit rating agencies will strengthen and improve the regulatory framework that we in the European Union have at our disposal.

  Georgios Papastamkos (PPE). – (EL) Mr President, I should like to thank Commissioner Barnier for his reply and to say, Commissioner, that this is a subject on which I have repeatedly exercised parliamentary scrutiny since back in 2006, in other words, before the international economic crisis broke.

In my opinion, there are two paradoxes: there are international rating firms, but they are not subject to international supervision. The second paradox is that private schemes and interests outside Europe are acting high-handedly against European institutions and Member States.

I should like – and I call, Commissioner – for Europe to move at a faster rate and with a quicker pace and, finally, I should like to know where the geographical seat is and how the turnover of these credit firms will be divided?

  Michel Barnier, Member of the Commission. – (FR) Mr President, Mr Papastamkos, I am aware of your long-standing commitment, and that is why I welcome this dialogue that you are opening between us for the first time today, because I personally have only been in post for a few weeks.

I am taking account of this new regulation, which was proposed by the previous Commission, under Mr Barroso’s authority, and which improves matters. I have mentioned the new requirements that will be imposed on credit rating agencies and I have spoken about the latest progress that will be made on the proposal that I shall put to you, in accordance with your wishes, for supervision by the European Securities and Markets Authority (ESMA).

You are right in what you say: this is not the only area in which, in a now highly integrated common and single market, we see that there are businesses, particularly financial businesses, that are no longer nationally owned. I would remind you, Mr Papastamkos, that in half the countries of our European Union, 50% of the banking industry belongs to groups from other countries.

We are therefore in an integrated market with businesses that are largely transnational, but supervision has remained at national level. Our task, therefore, is to ensure integration, and that is what we are committed to doing. With the new powers being granted to ESMA, the international – European, let us say – supervision that you are calling for will be very much a reality.

Now, as regards your country, which has suffered this shock, we must be very vigilant. I am not going to jump to conclusions about what happened. We must be vigilant in all cases in which credit rating agencies reach decisions on the Member States, and evaluate their economic situation and that of their public role. Why? Because at stake here is, in fact, a sovereign state, the cost of its debt and, in the final analysis, the situation of its taxpayers, who I believe are too often made to bear the brunt of things. This, incidentally, was the subject of the proposals that I made to the Ecofin in Madrid on Saturday on foreseeing, preventing and managing future crises, so that taxpayers do not always have to bear the brunt of things.

I am very aware of the effects of the decisions taken by credit rating agencies and of the effect that these decisions have on the behaviour of investors. That is why we need tough, demanding legislation, and these agencies must weigh up all their responsibilities and must be supervised in order to do so. They will be supervised by the European authorities under the proposals that I will be making at the end of this year.

  Franz Obermayr (NI). – (DE) Mr President, thank you for the excellent report. It makes me feel quite optimistic that establishing the European credit rating authority will finally make us independent of private US agencies. However, what interests me in this context is not only the location, but also the functional and structural composition of this European credit rating authority. Ultimately, it is important for an organisation of this kind to have teeth. I am, of course, also interested in the expected consequences of the proceedings and in the consequences of a member of the euro area having a bad creditworthiness rating.

  Michel Barnier, Member of the Commission. – (FR) Mr Obermayr, Mr Papastamkos asked me about the opportunity, which he supports, of creating a European credit rating agency. This agency, if I have understood his idea properly, should be public.

I have not taken up a position on this subject. This is not, I might add, the direction in which the Commission was heading, since its proposal focused – through the regulation that this House adopted – on the reform of the current system of agencies, which are private, and on the very rigorous consolidation of the transparency requirements to avoid conflicts of interest, of honesty in their credit rating work. This is the stage we are at. This regulation is now on the table, it will enter into force as soon as possible, without delay – I mention this in passing – and we will then complete this plan by entrusting a supervisory role to the European Securities and Markets Authority.

As regards this new agency that Mr Papastamkos so very much wants, I am not ruling it out. Nevertheless, we really need time to evaluate the change in business model which the idea of a European credit rating agency entails. It is an idea that I find interesting, but it must be carefully evaluated. I am not, therefore, going to say who would be part of it or how it would work, because I do not know. There would also be the question of the public authorities interfering in the work of such an agency. The strict conditions applied to private credit rating agencies should also apply to a European public agency, in particular, the rules on conflicts of interest.

These issues would arise if we moved towards the creation of a new European public agency. Frankly, in order to work on this matter seriously, without improvising, we would need, firstly, to take the time and the decisions necessary to implement the reformed system that you have adopted through this regulation, and, secondly, to take the time to seriously address every issue and, in particular, those that I have just mentioned.

  President. – The rule is that, if the author is absent, the question lapses. However, given the exceptional circumstances of this plenary, what we shall do is I shall read out the names of the Members who are not present and they will receive a written reply to their questions. However, there will be no related debate in plenary.

So, the members who are absent but will receive a written reply, in the order in which the questions were submitted, are Mr Balčytis and Mrs Morkūnaitė-Mikulėnienė.

Part two:

Question No 28 by Mr Liam Aylward (H-0155/10)

Subject: Consumer choice and smart phone technology

The increasing popularity of smart phones has created a new market in terms of technology, software and applications. Certain smart phone and device service providers trap consumers and have organised the market in such a way that they completely control users’ experience in terms of their access to software, navigating programmes and applications. It would appear that, under these circumstances, consumer choice is limited. Does the Commission intend to safeguard consumer rights and choice in this growing digital market and can it tell us if open operating systems will offer a way out for smart phone consumers?

  Joaquín Almunia, Vice-President of the Commission. – The Commission is closely monitoring the developments regarding smart phones and related markets. As the honourable Member recognises in his question, in some instances, new markets are being created.

The Commission is fully committed to ensuring that general EU rules and principles relating to competition are respected, while taking account of the dynamic and fast-changing circumstances in the market. As recent cases such as Microsoft and Intel have shown, the Commission will take enforcement action to ensure that competition on the merits allows, where necessary, consumers to choose between different alternatives and therefore benefit from technical developments and innovations. In that respect, while acknowledging that proprietary technology is at the heart of Europe’s success in second- and third-generation mobile technologies, the Commission is, at the same time, aware of the excellent technical development driven by non-profit technologies.

While we have to leave it up to the industry to decide the specific business model it wants to use and up to the market to choose the winner, the Commission emphasises the importance of interoperability in encouraging competition on the merits between technologies from different companies and helping prevent lock-in. In this context the Commission welcomes the use of openness specifications that may prevent the unfair transmission of dominant positions between neighbouring markets. Open platforms serve that purpose, allowing the creation of competitive markets on top of software systems.

  Liam Aylward (ALDE). – Can I thank the Commissioner for the reply. Just changing, slightly, there have been a number of news stories recently regarding the concept of content-based censorship which is occurring with this technology. Some applications have been refused by operators and software manufacturers due to their political content.

What can the Commission do to ensure that there is increased competition in accessing information via new technologies and that the right to freedom of speech is not infringed upon?

  Joaquín Almunia, Vice-President of the Commission. – I know that the points you refer to in your second question can create problems for competition on the market.

We are closely monitoring this issue all the time but I cannot comment on particular investigations that are now ongoing or are being developed. However, I am fully aware that the questions that you raised and the concerns that you have presented to Parliament are real, and my role and that of the competition authority is to monitor the situation and to avoid a kind of dominant position with closure of the market, barriers for new entrants and, ultimately, problems for the consumers and users of these new technologies, who should benefit and not suffer from the development and improvement of technologies.

  Paul Rübig (PPE). – (DE) Mr Barnier, in the first Roaming Regulation for data exchange and telephony, we established a must-carry obligation, which means that every operator in Europe must be able to reach every customer. Conflicts are now suddenly arising from the fact that operators are removing these services from the networks and are not prepared to provide the necessary support. Do you think it is necessary for the national regulatory bodies to take action in this case?

  Franz Obermayr (NI). – (DE) I welcome the fact that the Commission is dealing with this subject from a competition perspective. My question is: Has the Court of Justice of the European Union ruled on similar cases and could these cases be cited in the context of this type of access restriction? Are there any users of smart phones who have already attempted to take legal proceedings against their service providers?

  Joaquín Almunia, Vice-President of the Commission. – In relation to the question, I think we should combine, where appropriate, regulation and competition instruments.

In terms of some of the aspects that were raised in the questions and in your intervention, competition instruments have been useful and shall continue to be useful, but I am not excluding that at any moment, the Commission, where appropriate, will use the regulatory powers that we have. We did this in the past and we can do it again in the future.

I think the best solution is an adequate mix of competition and regulation, not as alternative instruments, but as complementary ones. And, regarding your question, excuse me, honourable Member, I am not a lawyer; I do not know the least thing about the complaints of individual citizens before the courts. In any case, we receive some information and sometimes complaints, and every time that we need to react where we consider that the information we have received or the complaints that have been sent to the Commission deserve a reaction on our part – and you have seen our instrument – we do just that.

As I said in my previous answer, in this area, in this question, with these problems, we are now dealing with some investigations but I cannot publicly confess because by nature, I have to be discreet.

  President. – The next author, Mr Toussas, who is absent, and Mr Ziobro, will receive written replies, as explained earlier.

Question No 32 by Mr Nikolaos Chountis (H-0125/10)

Subject: Activity of credit rating agencies

The day after the harsh measures taken by the Greek Government were announced, the credit rating agency Moody’s is threatening to downgrade the five biggest banks in Greece.

According to the international credit rating agency, the rise in unemployment and the fall in disposable income may cause additional pressure on the Greek banking system, which is already facing lower profits and further depreciation of its assets.

As announcements of this sort and the time at which they are made feed speculation, what comments does the Commission have on the situation in the Greek banking system?

What measures does it intend to take on the ‘activity’ of credit rating agencies?

  Karel De Gucht, Member of the Commission. – The financial crisis in Greece did not originate in the banking sector but in the public sector. Banking sector vulnerability has increased, however, due to the exposure of the banks to Greek government bonds and, more importantly, due to low economic growth prospects.

The Commission, in making its own analysis of the Greek economy and financial system, takes into consideration multiple sources of information, including the credit agencies. In this context, the Commission is carefully monitoring implementation of the additional fiscal measures announced by the Greek authorities on 3 March 2010 and adopted by the Greek Parliament on 5 March 2010, with a view to achieving the 2010 budgetary targets.

The Commission is closely monitoring developments in the Greek banking sector. Some 8% of the banks’ assets are in the form of government bonds or loans, although the government and non-performing loans arising are not expected to top eight per cent in 2010 due to the weak economy.

Furthermore, Greek banks are heavily dependent on the ECB refinancing operations for short-term funding being shut off from the international money markets. The Commission takes its responsibility to ensure macro-financial stability in the euro area and the EU as a whole. Indeed, banks in other EU countries are exposed to the Greek crisis mainly through their holdings of government debt, with France and Germany the most concerned.

While these exposures are not very large in terms of GDP, they are likely to be more significant in terms of the balance sheets of individual banks. Meanwhile, about 10% of Greek banks’ balance sheets is invested in southern and eastern Europe, implying another transmission channel.

  Nikolaos Chountis (GUE/NGL). – (EL) Mr President, I thank the Commissioner for his reply. Obviously, there are problems with the banks in Greece. There is the liquidity that has been produced by the Greek public sector which, unfortunately, is not moving towards the real economy; but what I should like to point out to you is that every time that Greece announces certain measures, certain forms of borrowing, these famous credit rating agencies come along and downgrade the credit rating of Greece and the Greek banks.

This is a sad role. A debate was held earlier, and I have no wish to recycle it. These credit rating agencies, which are private US firms, are truly unreliable and I consider it unacceptable for the European Central Bank and the European institutions to consider them – even today – to be important. The question which arises, and the answers which were heard earlier, are this: alright, the issue may be regulated in 2013. Right now, can the European Union and the institutions stop taking account of these agencies’ ratings?

  Karel De Gucht, Member of the Commission. – As I have just said, in its own analysis, the Commission is taking into account not only the credit rating agencies but also its own analyses. The European Commission is following events very closely in the public and in the banking sector in Greece, so we come to our own conclusions and make proposals to the Council on the basis of those conclusions. There is something else, of course, and that is the activity of the credit rating agencies. These are private companies, which are very influential with respect to the financial markets, but that, of course, is not the responsibility of the European Commission.

  Morten Messerschmidt (EFD). – (DA) Mr President, we are all very concerned about what we can do to relieve the problems arising from the financial crisis. Commissioner, I saw that in the media the other day, you suggested that, in future, the Member States should submit their draft budgets to the Commission before they are debated and adopted by the national parliaments. I would like you to give us more details as to how the Commission will, in future, be given opportunity to comment on the Member States’ draft budgets before the national parliaments do so. It sounds extremely interesting. I would like to hear more about it.

  Georgios Papanikolaou (PPE). – (EL) Mr President, Commissioner, thank you very much for your reply. I listened with a great deal of attention to the information which you gave us and how you explained the Commission’s position.

I am trying to reach a conclusion. If, at some point in the immediate future, another country in the euro area faces similar problems with credit rating agencies and market pressures, will we proceed along the same well-trodden path? Will we adopt a ‘wait and see’ approach? Will we assume that, with the approach that we have applied to date to the problem of Greece, we are dealing overall with structural problems in the euro area which may, at some point, be of concern to other Member States?

  Karel De Gucht, Member of the Commission. – Let me first of all recall that I am answering these questions in place of Commissioner Rehn, who is ill, so this is not my particular portfolio, but I can say, on the questions that have been raised with respect to the national budget that we discussed for the first time last week in the college, what measures should be taken for the future monitoring. That is, of course, one of the topics that will be addressed, but it is clear that at this moment, there is no decision on that yet. There has only been a debate to make sure that the matter is duly discussed in the college and the competent Commissioner will come with proposals shortly. Then you can, of course, discuss it with him directly.

On the second question, there is no reason for the Commission to take a different stance vis-à-vis Greece and vis-à-vis whatever other Member State, so I hope these questions are not put to us any more; if they were put to us again, we would have exactly the same stance.

  President. – Question No 30 by Mr Brian Crowley (H-0172/10)

Subject: EU broadband strategy

Can the Commission clarify what measures it intends to take in order to promote high-speed Internet access throughout the territory of the European Union, especially in rural areas?

  Neelie Kroes, Vice-President of the Commission. – In a world that is moving fast into a new digital age, Europe needs to be prepared with the state of the art broadband infrastructure that will indeed drive the growth of tomorrow. The Council of March 2009 fixed an indicative target of achieving 100% coverage by 2013. The Europe 2020 strategy has taken the challenge one step further by setting the 2020 high-speed broadband targets as 30 megabits per second for all Europeans, including people living in rural regions, and as 100 megabits per second for 50% of households subscribing to the Internet.

The Digital Agenda for Europe, which is one of the seven flagship initiatives under EU 2020, sets out a strategy to promote high-speed Internet in Europe and is scheduled for adoption not that long from now. The agenda will be followed by three documents on broadband: firstly, broadband communication, which details the implementation of the agenda with respect to broadband; secondly, the recommendation on new generation access (NGA), which aims to clarify the basis to encourage investment in high-speed Internet; and thirdly, the first radio spectrum policy programme, which will form the basis of the Commission’s strategy to generate enough spectrum for wireless broadband.

The actions to promote high-speed broadband in the Digital Agenda comprise not only the Commission commitment but also suggestions to the Member States. Those suggestions will bring into focus the development of national broadband strategies covering the promotion of private investment using town-planning rules, mapping of infrastructure and clearing of rights of way; and by doing that, the Member Sates can substantially cut investment costs and make them more viable. They will also focus on bridging the financial gap by fully using the available Structural Funds to fund high-speed broadband and, where there are no incentives for private funding, direct public financing.

The Commission, for its part, is looking at the options available to increase private and public investment in NGA to reach the agreed targets. Financial engineering will be among the considered options to reduce the gap between what is required and what the market is prepared to invest.

  Liam Aylward, deputising for the author. – Given the fact that we live in an increasingly digital world, as you have acknowledged, where so much of our daily business is carried out online, one group that, in my view, has been left behind are older citizens, who have limited or no access to the Internet. What can we do to ensure that they are not excluded from society, and what can we do to help them?

  Neelie Kroes, Vice-President of the Commission. – It is not only the Commission but also the Council which took the wise decision, so to speak, to have an indicative target of achieving 100% coverage by 2013. 100% is 100%, so whoever you are thinking of should be covered by the 100%.

  Malcolm Harbour (ECR). – I very much welcome this question by Mr Crowley, and I am interested indeed that in Ireland, there is a new wireless broadband roll-out to provide first-generation access to rural communities, which I think is an exciting initiative.

I wanted to ask you specifically about an issue that has come up in work I have done, which is on the State aid criteria for supporting local broadband initiatives. Some local authorities that I know have been trying to work with public authorities to consolidate demand together to give a viable package for an investor.

But apparently, in some cases, this is considered to infringe State aid criteria. So could I ask if her services could support some of these community projects by giving some clear guidelines about State aid criteria to help those public/private partnerships which would, I agree, be crucial to achieving universal broadband.

  Silvia-Adriana Ţicău (S&D). – (RO) Commissioner, the Economic Recovery Plan provides a sum of EUR 1 billion to cover up to 100% of the broadband infrastructure. I would like to ask you what stage this project is at, bearing in mind the importance of establishing this infrastructure.

  Neelie Kroes, Vice-President of the Commission. – I am grateful for the first question because, indeed, when talking about broadband, it is not only about cable fibre, but also wireless, via satellite and so on. So, when I answer the honourable Member by saying that it is 100% coverage, I do not mention in which way the problem will be dealt with or solved.

But I am quite positive about Ireland and their investment level. When there was the opportunity to spend structural funds, especially focusing on and investing in this type of issue, Ireland made the most of that opportunity. It was a bit under 50%. Compared with other Member States, I felt dismayed as sometimes it was a third, or even this opportunity was not taken. Investing in this type of infrastructure is really working for the future and the recovery of the economy and creating jobs.

But, sometimes, I count my blessings and also my past experience. In my former portfolio, I had the privilege to review State aid rules. One of those reviewed State aid rules was connected with, for example, broadband. What we did with the review was to give more guidance as to how, when and in what way it could be dealt with.

By the way, it is also investigating, with the European Investment Bank, possible ways to take advantage of their funds and support the funding of civil engineering. I think that, at the moment, with the recent review of the State aid rules, it is quite clear what is possible and what is not acceptable. You can always ask the staff of Joaquín Almunia to give you guidance, so do not hesitate when there is any uncertainty.

All in all, we need to be aware that this is really public-private partnership that is making a big difference in this type of issue. Of course, it depends on the Member State and what is at stake, but all in all, I think that with the 100% coverage – and I am repeating myself – we are serving an excellent goal by talking about the 50%. I know what 100 megabytes are, but what can I imagine? Well, a blink of an eye is less than 100 megabytes so we are talking about a tremendous step forward. So broadband measures and what concerns us in this debate is really scheduled to take place earlier than 2011.

  President. – Question No 33 by Mr Bernd Posselt (H-0128/10)

Subject: Great Britain, Sweden and the euro

How does the Commission evaluate the dangers to the EU as a single economic area from the fact that Member States such as Great Britain and Sweden have still not introduced the euro as their currency and what measures and initiatives are being planned for the new term of office of the Commission in this sector?

  Karel De Gucht, Member of the Commission. – The economic benefits of adopting the euro accrue to both the Member States that join the euro area and to the euro area as a whole. Detailed analysis and argumentation on this matter can be found, for example, in the Commission’s EMU@10 report of 2008.

Under the treaties, all EU Member States are obliged to join the euro area once they fulfil the necessary conditions. However, Denmark and the United Kingdom have negotiated an opt-out clause that allows them to remain outside the euro area.

If Denmark and the United Kingdom decide to apply for membership of the euro area, they will be subject to the same convergence assessment as any other candidate, as happened with other Member States that have already joined the euro area. The Commission would support their preparations fully, including preparations for the actual cash changeover.

Sweden does not have an opt-out clause. For the time being, Sweden does not fulfil all the criteria for introducing the euro. In particular, it is not a member of the exchange rate mechanism tool, and some elements of its central bank legislation would have to be made compatible with euro area membership. Nevertheless, the Commission considers that those Member States not currently in a position to fulfil all convergence criteria for joining the euro should strive to meet these conditions.

  Bernd Posselt (PPE). – (DE) Mr De Gucht, I just have two supplementary points to make. Firstly, will the Commission attempt to encourage Sweden to fulfil its obligations? Sweden has an obligation under the treaties and this cannot just be interpreted arbitrarily.

Secondly, what is happening about Estonia? Do you think that Estonia will become a member in the foreseeable future, perhaps even this year?

  Karel De Gucht, Member of the Commission. – As I rightly mentioned, Sweden does not fulfil certain criteria. I mentioned the two criteria: it is not a member of the exchange rate mechanism, and some elements of its central bank legislation would have to be made compatible with euro area membership. It seems to me that these are, let us say, criteria which are possible to fulfil. They are not economic criteria with respect to debt or with respect to deficits. Whether or not the Commission will take action in that respect is a matter for you to put to the Commissioner who is competent for this, Mr Rehn, who unfortunately is ill at the moment.

With respect to Estonia, as far as I know, this is still under reporting with respect to the convergence criteria and there is no definite stance of the Commission on this.

  President. – Question No 34 by Mr Georgios Papanikolaou (H-0130/10)

Subject: Extending cuts to the private sector

On 4 March, your representative, Amadeu Altafaj, stated that cuts in the Greek public sector might well be followed by cuts in the private sector.

From an economic point of view, any such development would exacerbate the recession by cutting domestic demand and internal consumption. The immediate impact of this cyclicity is a reduction in state revenue. I should like to ask the Commission where the optimism that disarming consumer power will guarantee Greece a way out of the recession comes from. I think that no one needs any particular knowledge of economics to say with certainty that limiting consumer power leads to even deeper recession.

  Karel De Gucht, Member of the Commission. – Indicators reveal that over the last decade, there has been a disconnection between wage and productivity developments in Greece. This has generated competitiveness losses, reflected in persistent current account deficits and a fall in export market shares. Labour market rigidities and wage setting have been identified as an important factor behind the excessive wage growth in Greece and the resulting gap in unit labour costs with its main trading partners.

In recent years, domestic demand has been the main contributor to economic growth, fuelled by buoyant growth in general government expenditure and household incomes. Private final consumption expenditure per capita increased by more than 80% over the last decade. This model has clearly been unsustainable, resulting in the build-up of significant fiscal, which means a high general government deficit and growth debt stock, increasing interest payments and macro-economic, which implies a high current account deficit and external debt outflow of income imbalances.

The increased financing needs of the government have resulted in the public sector absorbing a large part of the available financing, thus ruling out the private sector and adversely affecting the economy’s growth prospects. Economy-wide wage moderation, with public sector wage cuts playing an important signalling role to the private sector, and fiscal austerity measures are thus indispensable to put the Greek economy on a stronger footing by restoring competitiveness and achieving fiscal consolidation.

The Commission is aware that fiscal austerity measures and wage moderation may have a negative short-term impact on demand. Nonetheless, given the current situation that Greece is facing, these measures are necessary to restore market confidence and to lay down the foundations for a more sustainable growth model for the Greek economy in the long term.

Greece has adopted an ambitious programme to correct its deficit and to reform its public administration and the economy. The consolidation measures taken by Greece are important for enhancing fiscal sustainability and market confidence and have been strongly welcomed by the Commission, the Eurogroup, the European Central Bank and the International Monetary Fund.

The courageous measures included in the stability programme and the packages announced in February and March 2010 include not only the envisaged wage cuts through a reduction in allowances paid to civil servants and Easter, summer and Christmas bonuses, but also measures to improve the tax collection mechanism, widen the tax base and increase tax compliance.

In the communication adopted on 9 March 2010, the Commission concluded that Greece is implementing the Council Decision of 16 February 2010 and that, based on available information, the fiscal measures announced by the Greek authorities on 3 March appear sufficient to safeguard the 2010 budgetary targets.

  Georgios Papanikolaou (PPE). – (EL) Mr President, Commissioner, the National Statistical Service of Greece announced in its most recent – I think it was today’s – announcement that unemployment in Greece has risen to 11.3%, of which nearly half (45%) are young people up to the age of 34. At the most productive ages, from 25-34, unemployment is 14.6%. I would also point out that this generation of young people in Greece receives extremely low wages, well below the European average. They are the EUR 700 generation, as they are called in Greece, and we are worried that wages will go even lower.

So I think that we must be very careful when we make these generalisations, especially at such a difficult time for unemployment because, as you will understand, Greek society is worried. Do you think that, while there is such high unemployment and all these problems in Greece, we can get back to growth with new cuts and new redundancies?

  Karel De Gucht, Member of the Commission. – Of course, we are very much concerned by the unemployment in Greece, and not only in Greece but also in the rest of the European Union. On the other hand, it is also quite important that economic fundamentals are respected and when, over a certain period of time, wages go up faster than productivity, then you have a problem, and that is essentially what has happened in Greece. I realise that this is a massive problem, especially for young people, and we are actively monitoring the situation, but we are also of the opinion that long-term financial sustainability of a Member State of the European monetary union is essential.

  Nikolaos Chountis (GUE/NGL). – (EL) Mr President, my question is about the principle behind and reason for my fellow member’s question.

He said that Mr Rehn’s representative suggested that cuts should be made in the private sector in Greece. The question, Commissioner, is this: with what right do Commission surveillance officials, Commission spokespersons and possibly Commissioners talk, suggest, forecast and exert pressure as to what Greece should do in sectors unrelated to Community policy, such as wages, pensions, public administration and health? Who accredits these statements and where does the competence and jurisdiction come from to question, to pursue or to suggest such provision for the Greek economy?

  Karel De Gucht, Member of the Commission. – We are certainly not asking for employment in the private sector to be reduced, but we are seeing unemployment rise, not only in Greece but also in a larger part of the European Union as a result of the financial economic crisis.

What we are saying is that we have to redress the Greek economy if we want the Greek economy to be sustainable over the longer term. We should also preserve the economic monetary union, which is of invaluable importance for the whole of the European economy: that is what we are saying; we are certainly not saying that unemployment should rise. Unfortunately, this is the result of policies that have been conducted over a certain period of time.

  President. – Question No 35 by Mr Ádám Kósa (H-0133/10)

Subject: Conflict of responsibilities of Member States and the EU in connection with IMF agreement(s)

In order to prevent a broader crisis, the Commission has provisionally amended the rules on State aid, by considerably simplifying the terms of eligibility of SMEs (European Economic Recovery Programme). Hungary recently went through a very difficult financial crisis, as a result of its economic policy. On the basis of the EUR 20 billion agreed with the IMF, Hungary is obliged to come into conflict with values such as high levels of employment and protection for minority groups, values enshrined in the treaties which Hungary, as a Member State of the EU, considers to be of paramount importance. Can such an agreement be legal? Who is responsible if, in a Member State of the EU, further to an agreement with an international organisation which has nothing to do with the European Union, the employment situation deteriorates drastically, including in respect of aid for the employment of people with disabilities?

  Karel De Gucht, Member of the Commission. – When the global financial crisis hit Hungary particularly hard in autumn 2008, the Commission and the Council decided very quickly to support Hungary with a major EU support package of up to EUR 6.5 billion, which exceeded half of the available funding for non-euro area Member States at the time and, together with the loans from the IMF and the World Bank, made a total of EUR 20 billion.

I would like to stress that without this assistance, Hungary would have faced much larger disruptions to its economy than the 6% decline observed last year and the expected stabilisation this year. Moreover, given that the government had lost access to financial markets, no support would have meant that fiscal policy would have been even more restrictive than has been the case under the programme, and expenditure restraint would have been more severe. Thus, by limiting the magnitude of the recession, avoiding a sharper increase in unemployment and supporting the financing of the deficit, that international assistance has directly contributed to limiting the social consequences of the crisis, including among the vulnerable sections of society.

Of course, in order for the economic programme to be credible, and to reassure investors that over time, Hungary would be back to sound public finances and sustainable growth, it was important that the government implemented an economic strategy that included financial consolidation measures. Under the principle of subsidiarity, Member States are responsible for the design and implementation of social policy measures. That being said, the assistance supported the actions of the government aimed at making budgetary savings and at better targeting expenditure and, in particular, at assisting poor and low income earners.

  Kinga Gál, deputising for the author. – (HU) Thank you for the answer. On behalf of Mr Kósa, I would like to add a remark. After all, the reason why Hungary could not take advantage of the multi-billion euro stimulus offered by the European Economic Recovery Plan was precisely because rules such as these did not make possible a larger scale economic stimulus, and this went hand in hand with the further deterioration of employment. In particular, support for the employment of people with disabilities could not be realised, and so a strange contradiction arises here. I would ask for your opinion on this.

  Karel De Gucht, Member of the Commission. – I am not responsible for this Commission file, but it would seem to me that the honourable Member is hinting at a EUR 100 billion package, but that it is a package that was financed by the Member States themselves, and which the Member States got the authorisation to put into practice. It was not money that was put at the disposal of the Member States. You will find the EUR 100 billion on the debit side of their national budgets.

What has happened with Hungary, because it was necessary, is that additional aid of EUR 20 billion was put at the country’s disposal, which is something that has not happened with the other economies. They have only been authorised to take measures so that they could overcome the crisis, but no actual disbursement has been made to those Member States.

  Nikolaos Chountis (GUE/NGL). – (EL) Mr President, Commissioner, the reply which you gave does not, in my opinion, reflect the problem and speculation behind the question and, given the situation in Greece, I should like to ask you this: have you any concerns about the entry of the International Monetary Fund, an external organisation, into the internal affairs of the European Union? Wherever the International Monetary Fund has been, it has – one might say – sown destruction. So the question is this: has the Commission any concerns as to why the International Monetary Fund has entered the European Union and in which treaty and in which article is provision made for the participation of the International Monetary Fund in the procedures of the European Union? Why does it not opt for a European solution in the case of Greece, as provided for in Article 122(2) of the treaties?

  Karel De Gucht, Member of the Commission. – Very briefly, if the IMF were to intervene in Greece, that, of course, would be at the request of Greece. They do not intervene unilaterally and, as the honourable Member knows, there has been a European agreement among the Member States and the members of the economic and monetary union to have a joint effort of the Member States of the European Union and the IMF. But it is only at the request of a Member State, in this case Greece, that this will actually happen, and that is what I understand is presently being discussed.

  President. – Question No 36 by Mrs Eleni Theocharous (H-0139/10).

Subject: Budget deficit in Cyprus

The economic crisis has hit the entire world, including the countries in the eurozone.

Does the Commission have any information on the budget deficit and other indicators of the Cypriot economy?

Are developments in the Cypriot economy and its indicators a cause for concern? Do you consider that measures need to be taken in respect of the budget situation in Cyprus and, if so, what measures and for how long?

Has there been an exchange of views and have the positions and recommendations of the EU, by which I mean the Commission, been conveyed to the government of Cyprus?

  Karel De Gucht, Member of the Commission. – Mr President, let me kindly ask you whether this debate could come to an end. I am replacing Mr Rehn, and normally Question Time stops at 8 o’clock. I have other engagements so I cannot stay. That is a real problem for me. I have no time and cannot stay.

  Gay Mitchell (PPE). – I travelled here with great difficulty from part of the European Union and I do not accept the response from the Commissioner that he has no time. If you have no time, walk out that door now. I am a Member of Parliament, I have a question down for answer here. I have a lot of engagements as well. I have sat here for a very long time waiting for my question while all sorts of supplementaries were answered. I should have the courtesy of a reply in this House. I think it is very arrogant of you to say you have no time.

  Karel De Gucht, Member of the Commission. – It is up to the President to decide on this. Let it also be very clear that I am not at present answering questions that are put to me but am replacing Mr Rehn, who cannot be here because he is ill. You have to say that to the President. I respect the authority of the President in Parliament. It is not up to me.

  President. – You are right to point out the problem. You are replacing Commissioner Rehn, which is unfortunate, of course, given the importance of the questions. Nevertheless, Question Time is scheduled until 8.30 on our agenda. Given the circumstances, whereas I cannot tie you down on that chair, I can tell you that what is expected is for you, having received the unfortunate role of replacing Commissioner Rehn, to do so in the full range of his questions.

  Karel De Gucht, Member of the Commission. – I had understood it was until 8 p.m., but, as I have already said, you have the chair and it is up to you to decide what I should do, so I shall continue.

The financial crisis which has also evolved into a macro-economic crisis has been the worst in post-Second World War history in terms of both magnitude and global coverage. The crisis took a heavy toll on the global economy, including the EU and the euro area countries. As such, it unavoidably affected Cyprus, a very small, open economy.

According to provisional estimates released by the Cypriot Statistical Service, the gross domestic product of Cyprus appears to have contracted by 1.7% in real terms in 2009. This is the first time economic activity in Cyprus recorded a negative growth rate over the last 35 years.

These unfavourable economic conditions, coupled with the fading-out of the asset boom and an expansionary fiscal policy partly due to measures adopted within the framework of the European Economic Recovery Plan, led to a deterioration of the public finances. According to the latest notification of GDP-related data from the Cypriot authorities transmitted in March 2010 and currently under validation by Eurostat, the general government balance reached a deficit of 6.1% of GDP and the general government gross debt attained 56.25% of GDP in 2009.

The Stability and Growth Pact requires the Commission to prepare a report whenever an actual or planned deficit of a Member State exceeds 3% of GDP reference value. Currently, the Commission is in the process of preparing such a report for Cyprus. Once the report is ready, it will be presented to the Council, which should decide whether the deficit is excessive. If the Council concludes this is the case, it would make recommendations to Cyprus and would establish deadlines for effective corrective action to be taken.

In the meantime, the Cypriot Government has also sent its updated stability programme. The programme spells out the medium-term budgetary strategy until 2013. Currently, the Commission is in the process of assessing the update and preparing its recommendation for a Council opinion on the programme.

  Eleni Theocharous (PPE). – (EL) Mr President, Commissioner, it would be extremely embarrassing if you did not give an answer right now to the question asked. Be that as it may, I should like you to tell me if Cyprus is in danger of being put under supervision and if you are satisfied with the convergence programme. Of course, you said something about estimates, but I should like to know if you are satisfied with the convergence programme tabled by the government.

  Karel De Gucht, Member of the Commission. – Well, I can only repeat what I said, that there will be an assessment and this is the normal procedure that we apply to all Member States including Cyprus.

If the Commission comes to the conclusion that this is an excessive deficit, then it will make recommendations to Cyprus.

  President. – Question No 37 by Mr Morten Messerschmidt (H-0142/10)

Subject: Greece and the current crisis in euro cooperation

Greece is revealing the other side of euro cooperation at the moment. In the good old days, the impression was that everything in the EU was peachy. However, as soon as the consequences of the financial crisis hit Europe, the situation deteriorated drastically. The Greek public deficit was 12.7% of GDP in 2009, well above the 3% ceiling permitted under the Stability Pact for countries in the eurozone. Athens is now forced to impose an austerity package which makes provision for cuts of EUR 4.8 billion to the national budget. The Greeks are being forced to tighten their belts and the austerity measures are hitting everyone indiscriminately, from civil servants to pensioners.

Generally speaking, fluctuating exchange rates are not a good thing. They are of no benefit to anyone, nor do they resolve fundamental, structural problems. However, we are obliged to acknowledge that money, like everything else, has a price. The price of money in Greece is being felt in the form of massive interest rates which are freezing all forms of economic activity. When the situation becomes that drastic, a country needs to be able to apply the emergency brake and ‘slash’ the price of money. Does the Commission not agree with this and does it not therefore accept, by extension, the inherent weakness of the euro?

  Karel De Gucht, Member of the Commission. – The honourable Member seems to suggest that having an independent monetary policy in Greece would be a way of alleviating the crisis affecting the country. This is not correct; the high interest rates from the Greek Government are not due to monetary policy factors but rather to high risk premiums related to market concerns about debt sustainability.

ECB interest rates are at a historical low and the Central European Bank has been providing very ample liquidity to the euro area financial system, including the Greek institutions. Of course, participation in the euro requires that economic adjustment of course via channels other than the exchange rate, as shown in many Commission documents, for example, the comprehensive 2008 report on EMU@10.

Adjustment in the euro area has not been sufficiently smooth in the past. This is why the Commission has highlighted the need to reinforce EU multilateral surveillance procedures based on intensified peer pressure to identify and tackle vulnerabilities in Member States at an early stage. The Commission is currently preparing proposals to this end, as I already mentioned in reply to a previous question.

  Morten Messerschmidt (EFD). – (DA) A wealth of possibilities exist for regulating a country’s currency – provided that country has its independence. However, that is precisely what members of the euro area do not have, because they dumped a great many of the instruments they used to have in Frankfurt. Moreover, it is not correct that interest rates do not differ within the euro area, for there is great variation in private interest rates for both medium- and long-term borrowing, and the Greek bond rate is much higher than the Danish bond rate, for example – despite the fact that we have our own currency.

What I would like the Commission to give an answer to or concede here is whether it will face up to the fact that were Greece not bound by the position set out by Frankfurt, then Greece would have devalued, and this devaluation would have remedied a large part of the problems that Greece is facing.

  Karel De Gucht, Member of the Commission. – Certainly not. The whole idea of a monetary union is of course – and everybody is perfectly aware when they become a member of the European monetary union – that you can no longer devalue your currency because you do not, in fact, have a currency any more. There is only the common currency.

There is no longer such a thing as a Greek currency. The Greeks have the euro as their currency. So an individual devaluation is completely contradictory to the whole idea of a European monetary union, and it is not by accident that Greece is a member of the European monetary union. It is a member because they did everything – really everything – to get in.

  President. – Question No 38 by Mr Gay Mitchell (H-0145/10)

Subject: European Monetary Fund

The idea of a European Monetary fund was refloated over recent weeks as a mechanism for addressing crises like the crisis that hit Greece at the start of the year.

What is the status of this proposal? How could such a fund operate in practical terms? What are the main obstacles to the creation of an EMF? For example, is it feasible to create it on the basis of the provisions of the current treaty?

  Karel De Gucht, Member of the Commission. – The crisis has demonstrated the need for establishing a crisis resolution framework for the euro area.

Due to the need to consider all economic, legal and institutional implications, this is an issue for the medium term rather than the immediate view.

The Heads of State or Government of the euro area gave a strong signal on 25 March by calling for the establishment of a task force to work on measures for the euro area framework for crisis resolution before the end of the year.

The public discussion regarding a European Monetary Fund has touched a number of elements that are relevant in this respect. In particular, the Commission agrees that there is a case for establishing a framework for emergency financial support under strict conditionality and subject to incentive-compatible interest rates.

However, no new body is needed to provide it or to define and monitor conditionality. Consistency with the stability-oriented governance framework of the EMU needs to be ensured. The Commission is considering the scope of proposals to this effect. More generally, a firm commitment to sound policies by all euro area Member States remains the cornerstone of the successful functioning of the EMU.

In this context, the Commission is in the process of preparing for the proposals on reinforced economic policy coordination and country surveillance building on the proposals presented in the recent Commission communication on Europe 2020 strategy.

  Gay Mitchell (PPE). – First of all, can I apologise to the Commissioner. We are all suffering a little bit of cabin fever because some of us have not been able to get home and are trying to help some of our families to move around the place. I realise that the Commissioner has other appointments and is substituting for a colleague.

Could I ask the Commissioner, in relation to his reply, what would constitute the medium term? Are we talking half-way through the lifetime of this Commission? Are we talking a year, 18 months? What sort of period does he see for some more definitive response in this issue to materialise?

  Karel De Gucht, Member of the Commission. – You should put the question on a specific timeframe to Commission Rehn, but when you look at the recommendations that we have been making and the agreement that has been made to support Greece, in particular, by a combination of bilateral loans and International Monetary Fund support, it is clear that the Commission is of the opinion that what happened now in any case could not be resolved by the putting into place of a European Monetary Fund because this would certainly take much more time than we have with respect to Greece.

So this is a medium-term project that we are sympathetic with, but with respect to a specific timeframe, I really suggest you put the question to Mr Rehn.

  President. – Question No 39 by Mrs Rodi Kratsa-Tsagaropoulou (H-0150/10)

Subject: Financial monitoring procedures for the Member States

The Commissioner for Economic and Monetary Policy, Mr Olli Rehn, said that the key lesson of the crisis is that we urgently need broader and deeper monitoring of economic policies, including action to promptly identify and address imbalances, with a view to safeguarding macro-economic stability in the eurozone. Given that the Commission has the tools, under Articles 121 and 126 of the treaty, to monitor the Member States’ financial policies and given that the majority of them have a deficit which well exceeds 3%, does the Commission intend to strengthen the preventive character of monitoring and, if so, using what means and procedures? Does it intend to table proposals to strengthen economic convergence in the eurozone? Does it intend to promote the necessary structural changes in the Member States so that they are already applied at a time when their public finances so permit?

  Karel De Gucht, Member of the Commission. – The Commission has long argued in favour of deepening and broadening euro area economic surveillance. The importance of this issue was recognised by the European Parliament in its report on the 2009 annual statement from the euro area and public finances.

The Commission intends to make full use of the new treaty instruments to achieve stronger policy coordination and governance. A forthcoming communication will outline new proposals in order to frame the development of a comprehensive framework for crisis prevention and correction in the euro area through recourse to the new Article 136 of the Treaty on the Functioning of the European Union. The communication may include proposals to reinforce the preventive and corrective arms of the Stability and Growth Pact – proposals for more effective and broader surveillance of intra-euro area macro-economic imbalances – and explore the options for the creation of a crisis resolution mechanism for euro area countries.

Regarding fiscal policy, a reinforced emphasis on fiscal sustainability is warranted because of the impact of the crisis on debt and growth potential, as well as the demographic factors kicking in. The incentives for compliance with the preventive and corrective dimensions of the Stability and Growth Pact need to be made stronger. The commitment to consolidation needs to become stronger in good times. Underlying vulnerabilities of public finances should be taken properly into account when designing the optimal consolidation part. New focus should be given to debt dynamics and sustainability and quality of public finances, including national fiscal roots. There is also a need to address cases where the rules are continuously broken; penalties could be made more deterrent and incentives strengthened.

Competitiveness developments and macro-economic imbalances, on top of fiscal imbalances, are a matter of concern for all EU Member States. However, surveillance of macro-economic imbalances and competitiveness diversions are particularly warranted for EU Member States that linked to the euro because of the higher degree of economic and financial spillovers across euro area Member States; less market discipline; the absence of exchange rate risks and more challenging adjustment with potentially high cost for the euro area as a whole.

Competitiveness divergences are a cause of serious concern for the functioning of the European Monetary Union. During the decade preceding the crisis, divergence has been underpinned by a worrying build-up of a range of domestic economic imbalances in some Member States including, inter alia, high debt and housing bubbles in some current account deficit countries, as well as entrenched weakness in domestic demand in some surplus countries. Diverging wage and cost trends, the accumulation of a sustainable external debt position and the protracted mythical allocation of resources raised the stake for adjustment and increased vulnerability of public finances. At the same time, countries heavily relying on trade surpluses have fallen victim to the sharp contraction in world trade in the early stages of the global crisis. Therefore, complementing fiscal surveillance, the Commission intends coming forward with proposals for the broadening of economic surveillance in the euro area, addressing macro-economic imbalances and competitive developments. The aim is to set up a framework for early detection, prevention and effective correction of intra-euro area imbalances.

The third main element in the Commission’s proposal will explore the options for setting up a crisis resolution mechanism. The ad hoc mechanism for possible financial assistance for Greece serves the immediate need. However, it is necessary to set up a permanent crisis resolution mechanism with strong built-in disincentives for activation. Establishing ex ante clear, credible and consistent rules and procedures for the provision of exceptional and conditional support for a euro area country in serious distress will bolster the fundaments of the EMU.

The proposals for enhanced economic surveillance and coordination in the euro area are an important complement to the EU’s comprehensive 2020 strategy for growth and jobs. The Commission will ensure the efficient articulation between the two frameworks.

  Rodi Kratsa-Tsagaropoulou (PPE). – (EL) Mr President, Commissioner, thank you for your reply; allow me to come back to the subject of surveillance and imbalances. What I was hoping to learn from my question is whether divergence will now become a serious item on the agenda; not only financial imbalances, but economic divergence, and not only the surveillance mechanisms, but also action to address divergences. International crises, the Greek crisis, have brought all the weaknesses in the euro area to the surface.

  Karel De Gucht, Member of the Commission. – First of all, I would also like to apologise to the interpreters but I am in a somewhat exceptional situation. You could also interpret that I tried to answer all the questions within the timeframe of 20.30.

With respect to the additional question, I think you should go back to the origin of the crisis in your country, which is, in fact, that these imbalances have been created over time. There is a very big imbalance with respect to competitiveness. Wages went up much higher than did competitiveness and this is, of course, in the first instance, also a matter of national policies.

Regarding whether it is better to have closer monitoring, the answer is yes. That is why we are proposing a new scheme for that. You should not forget that in 2002, the European Commission made a proposal that auditors could be sent to a Member State to check the numbers, for example, but it was not accepted by the Member States. So the Commission has always been aware that monitoring was a very important part of the national budgets being compatible with the European Monetary Union, especially in the case of Greece.

  President. – All I can tell you is that Olli Rehn owes you a big one, apparently! So you have something to negotiate with him next time there is a Question Time, perhaps when it is your turn to stand here.

Question time is closed.

(Questions which have not been answered for lack of time will receive written answers (see Annex)).

(The sitting was suspended at 20.25 and resumed at 21.00)

IN THE CHAIR: MR MARTÍNEZ MARTÍNEZ
Vice-President