Deputy Prime Minister's speech at Government Leaders' Forum Europe 2010

Speech by Nick Clegg at the Government Leaders' Forum Europe on 4 November 2010.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

The Rt Hon Nick Clegg

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There is a growing myth about Europe: It is that our best days are behind us. A cardboard caricature of the old country, which says that we can no longer lead the world in terms of technology or innovation. We are being sidelined by other, hungrier, powerhouses of global growth - India, China, the emerging power of Brazil. Our demographics - low fertility rates and aging populations - are against us. Our labour markets are inflexible, sclerotic. We tie up our innovators in reams of burdensome red tape. We spend our money on industries of the past. And, at the heart of it all, our collective advance is blocked by short-sighted national self-interest. As well as the political malaise of an out of touch, bureaucratic Brussels elite.

These are increasingly popular assumptions. But they are lazy. Many of them exaggerated. And they generate pessimism when what we need is hope for the future. Yes, Europe has its challenges. But no, we will not be written off.

Today I want to talk about how I believe Europe can use the crisis in the global economy as a catalyst to relaunch our own economy. Because we know that Europe has the best chance - it possesses the essential ingredients -to create the economy of the future: one that is digital, high-skilled and low carbon. An economy that is entrepreneurial; creative; versatile, and at the vanguard of invention and design. An economy that generates enough money to sustain our traditions of welfare and social justice.

I will argue today that we will get there through a relentless focus on growth. Recognising where future growth will come from: free trade, flexible labour markets, better infrastructure, and improved skills.

Before I do, it is worth pausing on why we should reject the cynics’ counsel of despair.

The European Union is recovering from the economic crisis. It is true that medium and long-term forecasts are not good enough. Especially when contrasted with projections for the so-called emerging economies. And Europe has not bounced-back with the vigour we had hoped. Individual states continue to advance at different rates, some grappling with high budget deficits - like in the UK - and high unemployment. And the economic crisis exposed deep-rooted problems with our economies:  An overreliance, in some countries, on the financial sector. Construction and real estate booms fuelled by unsustainable bubbles in housing and land prices.

But, that is not the whole story. Let’s not forget that the last two decades have seen European GDP grow by 30%. In the three years leading up to the collapse of Lehman Brothers, we had created nearly ten million jobs. And, when the financial crisis hit, Europe took a crucial lead in stabilising the banking system. The financial crisis revealed our weaknesses. But equally it reminded us of our strengths.

Today’s Europe is founded on our ability to come together in times of great turmoil. In the middle of last century, faced with untold loss and destruction, we did so in a way no group of countries ever has. Redefining international cooperation for the modern age.

Think of the great European achievements that have followed: the Single Market, EU enlargement, unprecedented coordination in the face of financial meltdown. For the last 60 years, at every critical moment, every global shock, Europeans have found the answer together. Now should be no different. Providing - I believe - we are decisive. Recognising that the pursuit of economic growth must supersede all else.

Some baulk at that statement. They assume such a single-minded pursuit of growth is in some way too harsh. That we mean growth at all costs, and that in turn threatens our social solidarity. Because, it is alleged, private-sector led growth is blind to peoples’ happiness and well-being, and inevitably leaves the worst off behind.

I do not agree. At a time of widespread fiscal contraction, growth is the only way to pay for the quality of life we want to deliver for our citizens. We have long been a continent committed to social justice. But, unless our economy grows, we simply will not be able to afford the welfare we want to provide. Unless we encourage business, there will be no jobs to go round. 

Of course we must protect people, through our well-developed labour laws. And through state action to help those who need it most. And of course we have a duty to encourage growth that is spread across communities, and across industries, so that prosperity is shared. But the fact remains: if we want to maintain progressive welfare systems, we have to be able to pay for them.

As we pursue growth, we must make choices. We cannot now do everything. We do not have the resources to invest in every aspiration. And nor do we have the time to get this wrong. So we need to narrow our focus to the things we know will deliver.

Clearly, growth needs stability. So we must improve the way that we look at macroeconomic policy together. To avoid a repetition of the fiscal imbalances that built up in the last decade resulting in the sovereign debt crisis that hit the Eurozone in recent months.

I do not propose to discuss these things in detail today. Economists disagree on many things - but if there is one thing which is common ground, it is that good macroeconomic policy is a prerequisite for growth. Instead I want to concentrate on the other levers available to us. Not least because our long-term prosperity should not rely on fiscal and monetary policy alone. They are: continued openness in trade; accelerated labour market reform; increased investment in infrastructure; and a relentless focus on skills. Since the 1987 Single European Act our economic union has been explicitly founded on four simple principles: the free movement of goods, of capital, of services and of people. Now, there are four key levers that we must pull.

First - openness in trade.

Last week the European Commission launched a consultation on 50 proposals designed to improve the functioning of the Single Market. Without wanting to get into the detail of the proposals, the impulse is right. We are not yet making the best of our comparative advantage. The Single Market is home to 500 million consumers. Yet in key areas like services and the digital economy we are failing to remove important barriers that inhibit trade and, with it, growth.

Of all of the people online in the European Union, about half are buying goods and services on the internet. Yet, less than half of those have ever bought anything from other member states. It makes no sense. And it is wasting a huge amount of money. The creation of a true Digital Single Market could add 4% to European growth by 2020. So we need to look very closely at the bottlenecks ensuring, for example, there is a secure platform for online transactions. Taking practical action so that buyers and sellers alike have confidence in the system and know their rights are guaranteed.

Greater openness in trade is as important outside of the EU as within it. We are, after all, the world’s largest exporter. By removing remaining regulatory barriers between the EU and US, for example, we could boost our collective GDP by around 2%. And I am not the first to point out that completion of the Doha round would add $170bn each year to the global economy. If there was any time to get on with that trade agenda it’s now. As we champion openness at home, it is our unambiguous self interest to do so abroad.

Second, labour markets.

On average, EU labour markets, including the UK’s, have been more resilient than expected. And more so than that of the US. In the face of sharp falls in demand and output. But unemployment continues to be a major problem for many states - as high as 20% in some EU countries. And what is clear after the financial crisis is that there is still much work to be done in improving the flexibility and resilience of these markets.

There is no one answer. Different nations will need to do different things. In the UK we are working very hard to reform our benefits system to ensure that it incentivises work. All countries have an incentive to ensure labour laws do not discourage employers from creating new jobs for fear that the rules will prevent them from managing their own workforce flexibly in response to changing circumstances. In the UK we are also making sure our pension system takes into account our changing demographics. Taking steps to extend working lives.

Across Europe we must confront the challenge of an ageing population too. In the EU, for every person over 65, there are four other people of working age. By 2060 that will be down to two. That creates clear consequences for our public finances, as well as posing real dilemmas for growth.

Third - infrastructure.

Historically, this is not an issue on which many European states should take lessons from a British politician. And understandably so - we have underinvested in our infrastructure for decades. However, I can assure you that the new UK coalition government is very serious about improving our infrastructure to unlock greater prosperity.

The Prime Minister last week launched our National Infrastructure Plan. The UK’s first ever such plan. And today he is on the other side of the city, in East London, where we’ve been working with big companies who will be investing in the infrastructure in that area. Creating the right environment for the kind of small high-tech businesses that have real potential to grow.

We understand that our businesses need access to broadband. We know that our position in terms of the green technologies of the future depends on us having the right domestic structures. The right networks and systems in energy, transport, and digital communications. And we have learnt that infrastructure does not magically appear without any help from government. It is our job to create the regulatory framework to attract private sector investment. And where the market fails, we should step in.

That’s why, for example, we are investing over half a billion pounds in superfast broadband. It’s why we are setting up a Green Investment bank to provide public backing and leverage private capital for important low carbon projects. And it is why, at the European level, we believe more of the EU Budget should be spent on the areas that really add value. Last week European leaders made clear that the EU Budget must reflect our consolidation efforts to deal with our debts. That constrained Budget must be targeted where it can on the things we know can generate high future growth.

Finally, skills.

Skills to avert a jobless recovery, and to guarantee our longer term fortunes. We cannot overestimate the importance of human capital. It is people that generate prosperity. People who have ideas; who take chances; who put their heart and soul into their work, reaping rewards that whole communities, whole countries, enjoy. So let’s equip our people to do that. Let’s help them compete in the new, global economy. More of them moving further up the value chain, to products that are more knowledge and technology-intensive. European workers have skills equal to any in the world, but other countries are advancing rapidly. And if we are to compete, we need to modernise.

I want the UK to be among those nations that lead the world in terms of the development of knowledge and skills. Of course, the UK is already blessed with a world-class university sector. But we need to secure it for the future.

The UK Government announced yesterday that we are reforming our currently unsustainable higher education funding system - raising the contributions made by graduates after they have left university - to ensure they retain their world-beating status. The existing system promotes neither fairness for students, nor financial sustainability for universities. Our reforms will give our universities financial stability and the resources to provide a world-class education in an increasingly global market. Graduates will pay less each month than they do now. Part-time students will no longer be faced with unfair, upfront fees. And the poorest graduates will pay considerably less than they do today.

In 21st century Britain, all our young people should have the right to a university education. Our reforms are designed to open up the doors of our universities for bright students from all backgrounds, by ensuring that those who benefit the most from their graduate status pay their fair share. That is extremely important in creating an open society, where people can rise regardless of their background. Where the doors of all our institutions are flung open for everyone. And where higher education is, finally, a right for all, not a privilege for the few.

So, to sum up: Openness in trade; more flexible labour markets; greater investment in infrastructure; and a workforce equipped to thrive in the green, digital economy of the future.  The four levers for durable, lasting prosperity. Driven by a single unswerving aim: to get all of our economies growing again.

The options that are open to us are limited. But the rewards that come with making the right choices will still be great. We must now respond to a financial crisis that has changed the world. Coming together to resurrect the spirit of our union. Ensuring that we, together, thrive.

As for the pessimists who have written off Europe, let’s show them they would be wise to think again.

Thank you.

Published 4 November 2010