Danish presidency: Margrethe Vestager

The Danish EU council presidency will focus on securing economic stability and cooperation at a time of serious crisis, writes Margrethe Vestager.

Solving the sovereign debt crisis is the most important political challenge we face and it is crucial for the economic, financial and ultimately political stability of Europe. EU and euro area member states have taken a number of important decisions over the past years both to solve the immediate crisis and to strengthen the economic governance framework, preventing similar crises from happening in the future. The Danish presidency is determined to do its part in order to get Europe out the crisis and on to a renewed path of growth and prosperity. This calls for both fiscal discipline and full implementation of agreed policies. In spite of the current challenges, including Europe going through the biggest economic crisis since the great depression, we avoided most of the mistakes made during earlier crises thanks to European cooperation. We avoided protectionism thanks to the single market and we avoided competitive currency devaluations thanks to the euro.

In fact the crisis is not due to the euro. The euro has delivered exactly what it is supposed to, namely price stability, strong purchasing power and exchange rate stability. Thus, the euro has served eurozone countries well and remains fundamentally solid.

However, we are faced with a sovereign debt crisis due to weak fiscal policies in a number of countries inside and outside the euro and serious structural problems, including weak competitiveness. With a crisis of this magnitude, there are no easy solutions and the effective ones have to be found in the fundamental causes of the sovereign debt crisis.

Many countries simply did not consolidate their public finances in the good years and when the crisis struck, the economic and financial crisis turned into a debt crisis. On top of that, several countries failed to address the structural problems in their economies, such as insufficient labour supply and poor competitiveness.

Denmark is also facing significant challenges with high deficits and weaker growth. In order to ensure sound and sustainable public finances and maintain the credibility of the Danish economy, we are taking decisive steps to reduce our excessive deficit and comply with our EU recommendations. Moreover, we have just adopted a retirement reform and an unemployment benefit reform in order to strengthen public finances, increase labour supply and ultimately improve long-term growth performance, and we will proceed with additional reforms.

The crisis revealed some significant weaknesses and deficiencies in the economic cooperation within the EU. The existing rules of sound and sustainable public finances were not sufficiently complied with by the member states and – equally important – they were not appropriately enforced at EU level. An important lesson is that the crisis was not due to the lack of rules, but our failure to comply with and implement the rules.

The necessary steps at national level are: fiscal consolidation in line with the EU recommendations; structural reforms that enhance growth potential, labour supply as well as competitiveness; and a focus on new sources of growth.

In our search for solutions we have to remember that the EU has already taken several right decisions, including the stronger safety net of the European financial stability facility and the European stability mechanism, the stronger rules contained in the six-pack legislation and the country specific recommendations on fiscal consolidation and structural reforms.

It is positive that the euro area is taking decisive steps to combat the debt crisis through new governance initiatives that strengthen economic and fiscal policy. It is important that these steps lead to stronger credibility and sustainability of national economic policies. Therefore, already agreed policies and rules must be implemented in a convincing and credible manner.

Implementation will indeed be a main priority for the Danish presidency, and we will work hard to ensure the full implementation of the economic governance reform in the European semester. We will particularly focus on the new rules regarding the stability and growth pact, enforcing the existing recommendations and the new surveillance of macroeconomic imbalances.

Concerning financial regulation, our presidency will focus on a rapid and effective implementation of the reforms to ensure a sound financial sector in Europe. We will work hard to reach agreement on the capital requirements directive IV and work on a number of other directives aiming to avoid future crises. Taxation is also a priority, especially progress on the taxation of cross boarder savings and anti-fraud agreements with relevant third countries. The presidency also expects to promote the energy taxation directive.

Finally, it will be a priority to ensure effective representation of all member states in the G20, and to ensure that there are agreements concerning the priorities and “red lines” of all EU member states. With decisive progress within these priorities and a significant step forward on fiscal consolidation, 2012 will hopefully be the year when Europe sees the end of the crisis.

Margrethe Vestager is Denmark's economics and interior minister