Fostering Economic Recovery: The EU Moves from Crisis Management to Reform

Thursday, September 23, 2010

Speaker

José Manuel Barroso

President, European Commission

Presider

James D. Wolfensohn

Chairman, Wolfensohn & Company, LLC; Former President, World Bank

MODERATOR: Ladies and gentlemen, it's a great pleasure to welcome you all here this evening for a very privileged evening with Jose Manuel Barroso, the president of the European Commission.

And I'd like to welcome you, Mr. President, and also, Mrs. Barroso, and members of your team who are here with you in a very busy week.

If I may, I will just remind you the technical aspects of tonight, which is please turn off your cell phones is the first requirement. And the second requirement, which normally is, is to tell you that this meeting would be off the record. But, in fact, tonight, it is on the record.

And the framework of the evening will be that we'll ask the president to speak, and we will have, then, a short conversation. And then it'll be open for questions from all of you in relation to the subject tonight of the president, which is stabilize, consolidate, reform E.U. moves from crisis management to reform agenda. And we all very much look forward to hearing from you, Mr. President, on this very important subject not just for Europe but for the world.

I think many of you know something of the background of the president which is, indeed, distinguished both as a scholar and as a politician. His work and scholarship includes his starting his career in Portugal and then working at the University of Geneva, then spending some time as a visiting professor at the Department of Government and School of Foreign Service at Georgetown University. And, subsequently, he became head of the international relations department at Lusiada University in Lisbon and the founder of the University Association of European Studies.

But then politics attracted him. And in 1980, he entered that field in the Belgian political scene in the Social Democratic Party. He was elected three times. And in April 2002, he was elected prime minister of Portugal. July 2004, elected president of the European Commission which he is now serving his second five-year term.

He holds many honorary degrees and honors of which I shall not, if you don't mind, repeat this evening. But take it that he is well recognized in the international community.

His coming here tonight is deeply appreciated by us because it is a very important time, I think, for all of us as we look at the global economy. And to have the leader of Europe come to speak to us gives us an opportunity not only to learn about what is going on in the countries that he represents and speaks for but also to look at our own situation within the context of global economic and political development.

So if I may, Mr. President, I would like to call on you immediately so that they don't have to listen to me. And then when you're finished, we'll have a short conversation and we'll open it for questions.

President Barroso? (Applause.)

EUROPEAN COMMISSION PRESIDENT JOSE MANUEL BARROSO: Ladies and gentlemen, first of all, thank you very much -- (inaudible) -- someone Ivery much admire and respect for the kind words of introduction.

Let me start by thanking you for inviting me to speak today. In fact, I came several times to the Council on Foreign Relations, and when I last spoke to you, you were still showing the full force of the financial and economic storm.

Certainly, the European economy was then in deep trouble. It had, so far, the most severe stress tests imaginable. And there was a climate of fear. People were worried about their pensions. Companies could not get credit. If they had capital, they could not risk the investment. Business dropped because no one knew of the future health.

The storm damage is still all around us. More than 6.3 million Europeans have lost their jobs since 2008. Many families have been pushed towards the poverty line. European Union member states have seen their deficits rise to 7 percent of GDP on average, and debt ratios rise to more than 80 percent of GDP.

Many doubt Europeans' determination to respond. Many doubt our capacity to act. I think I can say they were wrong.

The nations of Europe looked for answers, and they found them in European Union. We are the overcoming difficulties together. The economic outlook in European Union is now better than when I last addressed you, not least because of our giant action.

The recovery is gathering pace, although, admittedly, progress is uneven within the Union. Growth this year will be higher than initially forecast. The unemployment rate is similar to the U.S. rate, and while it is still much too high, it has at least stopped increasing.

A degree of cautious optimism has taken root, but we cannot sit back and relax yet. It is too early to write the epitaph of what some call the "Great Recession." Uncertainties and risks remain outside as well as inside the European Union. The after-pains of the crisis are likely to remain with us for quite some time.

So to consolidate the progress we have made, it is now vital that Europe moves from crisis management to reform agenda. Budgetary expansion has played its role in countering decline in economic activity. Now, in the context of an accommodating monetary stance, only significant steps to reforms will prevent medium-term growth prospects from being disappointing.

The priorities of the to-do list of Europe economic policy making are: completing financial regulatory reform, continued fiscal consolidation and tackling macroeconomic imbalances by frontloading structure reforms. That's quite a challenge.

But as I look at how this crisis has changed Europe, there are plenty of reasons to believe we will succeed. First, extremely difficult but necessary and unavoidable decisions have already been implemented at the national level. Greece is the obvious example.

But 10 other member states have also embarked on a path of convincing structural reform and fiscal consolidation.

Second, there is striking concensus about the way forward forged in a large part by the need to develop a common European position for the G-20. European Commission has been putting forth proposals that have received overall support among our 27 member states.

Traditional policy divides between key member states have narrowed considerably. There is now a broad commitment to a balanced exit strategy and a return to fiscal sustainability, particularly as demographic challenges start to bind.

Member states agree that fiscal consolidation should involve expenditure cuts, if necessary, that are enforced by tax increases. They also agree that priority should be given to growth-friendly budget items.

The third reason for confidence is that the traditional architecture of Europe will be substantially stronger as we exit the crisis. The reform system of fiscal rules, a new system to tackle macroeconomic imbalances and European systemic risk board will help to make the -- (inaudible) -- work more effective.

With better enforcement of rules and earlier warning of problems comes greater treatability. In fact, just yesterday, the European parliament gave its final approval to the supervisory package that the commission had put forward last year.

Up until now, our market was interdependent but oversight was purely national. From 2011 on, Europe will be the first region in the world to have in place top-notch supervision that is up to the challenges of the future.

Moreover, financial facilities which were created to respond to the Euro crisis which amount to 500 billion Euros have put a major hole in Europe's economic and monetary union. And this opened the possibility of developing a more permanent solution.

And the adoption of the so-called European semester, which concentrates in one semester the bulk of economic purveyance of the European Union will encourage greater coordination, economic transparency between member states as they plan, discuss and adopt their national budgets. So it will be even before they present budgets to their respective parliaments and then decide of collective and monetary.

Taken together, all this represents quite a leap forward for European economic governance. Mechanisms to combine European-led economic reform programs with European financial solidarity have been created which were simply inconceivable before the crisis.

Two or three years ago, if you asked me is this possible, I would say not in the forseeable future. In fact, it was probably the greatest driver for accepting reforms that were simply not possible some time ago.

So these are historical times for Europe, but they will also have an important impact on global financial markets. In parallel, we are now frontloading growth enhancing structural reforms through a strategy we decided to call Europe 2020, a program to guide our economy towards new sources of growth and social cohesion in order to achieve smart, sustainable -- (inaudible) -- growth.

Business is at the heart of this strategy, small and medium enterprises in particular, which is not surprising. Defined as companies employing one to 250 people, SMEs represent more than 99 percent of all the European firms and provide two out of every three private-sector jobs.

Getting credit flowing again, investing in innovation and attacking red tape are priorities here. Another priority is Europe's international market. This is a well-developed web of financial and economic relations, but there are still some missing links and bottlenecks acting as a drag on growth and entrepreneurship. We are now mapping all of them out.

We will come with an emerging new package of measures. This is necessary because, since 1992, the date of its launching the internal market, like our societies, have changed beyond all recognition. Back then, few people had mobile phones. Even fewer had heard of the Internet. E-commerce had not been invented.

Now, we are truly a service economy. The internal market makes itss presence felt in all sectors of the economy, and this is boosting competitiveness across the board with a new push because it is the strongest driver for growth that Europe has.

There is no time to lose. So this fall, we will bring forward a single market act that we will be presenting -- (inaudible) -- of measures that stimulate growth. Flanking these priorities are a whole range of measures that add up to a comprehensive reform and modernization program at all levels of government.

At the European level, we are launching a number of flagship initiatives. Examples include the digital agenda to create the right environment and infrastructure for emerging high-tech sectors and innovation -- (inaudible) -- improve Europe's innovation performance along the whole chain from research to retail, and industrial policy for the organization era that recognizes the new realities of cross-border production and a jobs and skills agenda.

Finally, trade remains an important engine for growth and also for jobs. And trade is very important, also -- (inaudible) -- innovation competitiveness. So a renewed trade policy is also in the pipeline, and we will present our proposals in October.

We will open up more markets for Europe and more job opportunities in Europe through new and better free-trade agreements with all corners of the globe. Just now, we have concluded the trade agreement with South Korea.

We will open more markets by joining our regulatory rules with our key partners so that we do not have different energy-efficiency or -- (inaudible) -- sanitary standards. And European goods do not sit at foreign ports waiting for extra security clearance.

Of course, all these would have been greatly facilitated had there been an agreement on the Doha Trade Round already. So we'll maintain momentum for a successful conclusion.

In European Union alone, an agreement will boost GDP by around $40 billion. Trade also has huge potential as a means to enforce a transatlantic partnership -- (inaudible) -- that are quite impressive. European Union and the United States account for the largest trade relationship in the world with 33 percent of world trading goods, 44 percent in services. Transatlantic trade and investment is responsible for 14 million jobs in Europe and America.

And I will further discuss these matters together with the president of the European Council, with President Obama in the next European Union-U.S. summit which will take place in Lisbon on the 20th of November.

Ladies and gentlemen, I have sketched out the briefest of outlines describing how Europe is moving from crisis management to reform agenda. I could summarize all of this even further with just three words: stabilize, consolidate, reform.

But now it is time for others to have their say, so I'd like to discuss these matters with you. These were just some words of introduction.

Thank you very much for your attention. (Applause.)

MODERATOR: Well, thank you very much, Mr. President, for those very incisive comments.

I wonder if I could take you a little bit outside the U.S. and Europe for a moment to direct your attention to a challenge that I know you are well-informed about and, perhaps, can tell us a little bit about, which is how do you see the future with China, with India, with Asia as affecting both the growth of Europe and, indeed, the growth of our country?

BARROSO: (Inaudible) -- has been and I hope it will continue to be positive engagement. China and India are the biggest countries in the world in population terms, so it's only natural that they have a bigger share of the world output.

What was interesting was why was not that possible before regarding China. And where China's -- (inaudible) -- policy of opening -- in fact, they were benefitting a lot from this opening, and they are, I think, I can say, among at least the key partners, the great beneficiaries of globalization.

And as we say to them very often -- and I've been discussing these matters -- (inaudible) -- with the Chinese leadership for many years now, if they are the biggest beneficiaries of this process, they also can contribute more for its success because the reality is -- and, of course, we have to be open and frank about this -- there are some concerns in other parts of the world about what is the consequence of this rise of China.

So the point is to make it a win-win situation. And I think the Chinese leadership is perfectly aware of this issue. The leadership is extremely well informed and prepared. And now it's always a question of negotiation.

We have -- (inaudible) -- negotiated with the Chinese, as you know very well yourself. And -- but making it as open a situation and expecting not -- I don't think we can expect a kind of a sudden change, but from a gradual point of view, some improvement in the situation.

So we tried to engage positively with China and we've, so far, been urging -- (inaudible) -- market not only in Asia. Brazil is a very important case in point, by the way. We have established now what we call strategic partnerships with those countries.

And we think, of course it is important to work with them for -- as much as possible a global system of openness, and a system of openness means, as we say very often, open economies need rules so that, as much as possible, you have a cooperative, coordinated approach.

That was -- (inaudible) -- the instinct or the intuition behind the G-20. The G-20 -- (inaudible). Of course, there are some successes about it, but I believe that -- (inaudible) -- at least it was possible to have a cooperative approach instead of a crisis and not just a confrontational approach.

MODERATOR: And when we talk -- and I should, perhaps, have asked this first -- not just about the competition about China -- we need to be thinking about how strong is Europe today. And in May, authorities, together with the IMF, put together a thousand-billion-dollar fund essentially for backing up Europe in terms of difficulty.

And there were a number of countries that were seen as vulnerable. Your remarks were very positive, I thought, in terms of your own assessment of the economic outlook. Do you think we're through the problems of the so-called pigs of Portugal, Italy, Ireland, Greece and Spain?

Is this something that we can forget about, or just move forward?

BARROSO: Yes. I thought, from the beginning, that all this language and this analogy assessments regarding the difficulties of Europe -- (inaudible) -- taken together, your area, as a -- (inaudible) -- lower than American are much lower than the Japanese model. Overall, there is a position of balance.

And the Euro has been a great success for Europe. So all this talk about the instability of the Euro -- in fact, if you ask most people who think the Euro is too high, they will not mind if the Euro will be lower because -- now, the point is -- and this is new -- that in Euro area, we have now 16, very soon 17 countries -- one of them will join.

There are -- (Inaudible) -- and so what happened was, in fact, that the markets started to discriminate against, in terms of sovereign debt, of some weaker members of Euro. And you've mentioned that.

And that's why now we are acting and we have established this fund. From the European Union, only 500 billion Euros. The IMF said that they are -- (inaudible) -- 250, so we can make $1 trillion. It was not just talk.

I'm saying that because, frankly, sometimes people are -- outside of Europe, they underestimate, from my point of view -- including some analysts in the market -- they underestimate the interdependence of the European economy and the absolute need for them to act together.

I was working on this matter night and day during the worst moment, most difficult moment, and I never had a doubt that, at the end, we would establish the program for Greece and, also, to -- (inaudible) -- because I knew perfectly well what Angela Merkel thinks about it, and all the others despite of all the politics involved.

So this is a necessary move we want to convey to you here, our friends -- (inaudible) -- from the United States. I think the Euro is a strong currency and is there to stay and to be reinforced.

Now, there are, as you said -- and I'm very -- (inaudible) -- and that's why some of those most vulnerable situations are now facing it. Greece, I have mentioned, took a very important, draconian program, which is now the Greek expression -- draconian program. Other countries like Spain and Portugal are taking those measures as well. Ireland, a case in point.

And so I believe we are going to overcome those difficulties and, in fact, all the system is working for that. And the fact that they are in the Euro area is a driver for it because there is some kind of discipline that is now reinforced by the Euro and, also, by the markets.

MODERATOR: And we here should overlook the comments that are made about the excessive strength of Germany and the occasional statement by the president of France that maybe the balance is not there to keep Europe cohesive? That's behind us, is it?

BARROSO: No, I think it's very good that Germany is strong because Germany is, in fact, the engine of the European economy. And it is -- if Germany was not so strong, there we could have a problem regarding the Euro because the last argument of protection of the Euro is, in fact, also German.

And so until recently, I think it was the number-one export in the world alone, which is amazing, a country, as I mentioned, of Germany. The European Union, taken together, is still the number-one exporter in the world. Now China has come up.

And so the -- (inaudible) -- is not the export sector of Germany but, also, the culture, the financial culture of Germany, I think, is a great effort not only for Germany but for Europe. And Germany's the number-one client or investor of almost all the other countries in Europe. People should not forget that.

So usually, if Germany goes well, that's a signal that others can join in if they are not yet there. It's always the first or the second importer of almost all, if not all the other 26 member states of European Union. So it's -- (inaudible) -- that Germany is doing well.

But, of course, as your question suggests, we have a very high benchmark. So when you compare, of course, the performance of other countries while, in other parts of the world, the comparison is not so high as Germany. It makes, of course, things more difficult for other governments, but systemically, it's good that Germany is now having such a successful performance.

MODERATOR: In our country, Mr. President, a number of people are saying that we have grown up thinking of the relationships between the United States, Europe and Japan. And people of my generation typically only thought of that -- the billion people that had 80 percent of the world's GDP.

Today, as we look out for the next 40 years, we're going to have another two and a half billion people on the planet with less than 100 million going to European and American countries. We're going to see a swing of the middle class significantly towards Asia, but there are going to be a lot of countries left behind.

Is Europe concerned about the great differences between the standard of living in the United States and Europe and, at the other end, 2 billion people in Africa that will have maybe standards of living that are 4 (percent) or 5 percent of what it is we have in the West?

To what extent is Europe thinking about these markets and these people?

BARROSO: We are more than ever now. I can't tell you now. I can make the comparison with situations sometime before. I remember six years ago when I was elected the first time for the European Commission, there was a discussion in European -- (inaudible) -- where all the emphasis -- (inaudible) -- was the commission president.

And the discussion was only about the internal issues. This time, five years afterward, the top subject in the discussion, I would say more than 50 percent was China.

MODERATOR: Really?

BARROSO: So people are completely aware of the new geoeconomic and geopolitical factors.

Having said this, we believe it's better to engage and try to make this as cooperative and positive sum game. Africa is mentioned. Africa is another kind of issue, of course. The links with Africa and Europe are extremely strong because post-colonial -- (inaudible) -- links and we tried to do our best with that region.

Just now, I came here for the MDG also where I announced -- (inaudible) -- our support for the MDG and our most important partners in cooperation are the African countries and so-called NCP (ph) -- (inaudible) -- countries.

And so we are aware of this.

In Europe, I want to be very frank with you. In Europe today, there is gloomy -- it's fashionable to be pessimistic. This probably is not so very different. I call it the intellectual -- (inaudible) -- of pessimism. Someone wants to pretend it's intelligence, it should be more pessimism than the other because that -- (inaudible).

I do not agree. I simply do not agree with that -- (inaudible). I believe Europe has the intellectual, critical resources to overcome the difficulty. I think the rise of others is not necessarily our crisis. I mean -- and very often, I think about the United States and Europe after the Second World War when the United States -- (inaudible) -- great vision. Europe was destroyed and they -- (inaudible) -- in Europe.

And the rise of Europe afterward, great moment was not -- (inaudible) -- the United States. So I mean, the rise of Africa -- in fact, there are hundreds of people in Africa -- I don't think that. On the contrary. I think it can be a great opportunity.

So that's why we are very committed to keep markets open, to work with those emerging countries, also, to respect intellectual property rules, procurement rules, to establish, as much as possible, some common standards. But that is our vision.

Some will say it's idealistic -- (inaudible) -- will be realistic. So, probably, but it worked. So I think it is our enlightened self-interest, to work with those emerging markets, of course, trying to keep, as much as possible, our common values.

Now, if you think about the United States where the United States are looking, I hope the United States will not forget Europe and Europe will not forget the United States because we have a very deep bond, not only economically. Still, the most important economic relationship in the world -- (inaudible) -- trading investment, relations between United States and Europe.

And those in the business community really want as much as possible to keep a real transatlantic economic market, and I think we should do for that for a kind of agenda for growth and job both sides of Atlantic. But it's much more than that.

It's what happens between Europe and United States -- some people say old-fashioned to speak about it, but I will speak -- (inaudible). Today, President Obama, in a very, I think, inspired speech about trying to -- not only the issue of Middle East, but he was speaking about liberty and freedom and that we should not forget about it. And he invited those that remember when their countries were not democracies not to forget to fight for democracy.

I think we should remember, and I think we should keep this kind of special relationship.

MODERATOR: Well, I think we certainly welcome it, and I know that my colleagues will, no doubt, have many questions. I could keep on this bilateral conversation, but I'll never be asked to chair a meeting again. (Laughter.)

So may I call on the audience? Yes, sir? If you could give your name for the president, it might be helpful. Thank you.

QUESTIONER: Bill Drozdiak, president of the American Council on Germany.

Mr. President, I wonder if you could explain to us why it is so difficult for NATO and the European Union to work more effectively together. I mean, here you have the two principle institutions of the West based in the same city, facing many of the same problems these days as economic issues blend into security issues and now facing the challenge of Asia.

Wouldn't it be a practical and sensible step to find a way to bring these two institutions much more closely together in order to solidify the transatlantic link in dealing with the modern-day problems and, also, take advantage of the fact that there are 22 countries that are now members of both institutions?

BARROSO: We are in favor of this, and we are working for this. In fact, what you can -- (inaudible) -- just some days ago, it was another conclusion, and there is a -- Cathy Ashton, the high representative, she received a mandate to work, and the secretary is already working -- the secretary general of NATO has listened. And they are doing it.

But you certainly are aware of what is the difficulty with -- diplomatici difficulty that has nothing to do with Turkey and Cyprus; Cyprus, a member of the European Union and Turkey a member of NATO. And that is the real -- going to be -- and diplomatic, but that's the real difficulty sometimes.

I remember well, I worked for a minister of my country for some time, and we have some difficulties because there are all kinds of procedural obstacles to any kind of establishment of a more pragmatic partnership between NATO and European Union. But the European Union aside, the commission, we are extremely open to it and, in fact, we are already working because now, as you know, the new concept of defense is more and more comprehensive. It's not just about military power, it's about humanitarian aid, it's about state building, about justice, training police.

In the commission, we are funding many, many programs where, by the way, our people sometimes are running the risk of their -- (inaudible) -- because we could get -- achieve the proper protocol with NATO. And the reason was because of those diplomatic difficulties among some members of -- I mean, let's say two members of either the European Union or NATO. It will be good if they could overcome this difficulty because of what is -- it's basically a bilateral issue that is putting difficulty in the cooperation -- (inaudible) -- cooperation between NATO and European Union.

MODERATOR: Right here.

QUESTIONER: Lucy Komisar. I'm a journalist.

Various European countries -- Germany in the lead -- are cracking down on massive tax cheating, much of which is affected through the secret bank accounts and offshore financial centers such as Lichtenstein. The OECD effort has failed to significantly change the system.

Do you have a strategy for dealing with the global offshore system that facilitates not only massive tax cheating but corporate corruption, bribery, the movement of terrorist money and money of organized crime throughout the world?

BARROSO: Yes. Very important point. In fact, that's one of the issues that the G-20 should look at. And we are -- (inaudible) -- trying to go on with that fight against this kind of activity in Europe and some of our partners because of some laws of banks security that, in fact, make it easier, this kind of behavior.

And we are doing it, also, in a bilateral context with those countries. Myself has been discussing with some of our partners, European partners and non-members of the European Union. But it will be important where it's not only OECD but also globally.

And so far, it has been a difficult issue. It's been a difficult issue. Some of our partners are not reacting very positively with the idea of having, as much as possible, a lateral playing field globally in that matter. But, of course, we will keep our negotiation effort on the table.

MODERATOR: Yes, ma'am?

QUESTIONER: (Inaudible). Mr. President, one of the big differences between the U.S. and the E.U. is the strength of small businesses and the ease with which people can start companies in the U.S. And you mentioned in your speech the importance of small and medium businesses in the European economy.

What would it take for Europe to make it easy for entrepreneurs to start their companies, to make money and to grow so that Europe becomes competitive on that level with the U.S.?

BARROSO: That's definitely one of the issues that we have been looking at, namely, in our -- (inaudible) -- with American -- (inaudible) -- a great influence in Europe. Many countries in Europe now adopted programs of simplification. It's now possible, in many of our member states, to create a company -- (inaudible) -- hours to be -- (inaudible).

It is, in fact, a great -- (inaudible). There was benchmarks, and there was some kind of looking at best practices. And now, it's much simpler to create -- (inaudible) -- point of view. The huge bureaucracy of the past has been eliminated.

The real problem -- the real difficulty in my point of view of the United States -- (inaudible) -- financing. Venture capital in Europe is not as evolved as in the United States. And let's be awful frank about this, the entrepreneurship culture here is different because of -- (inaudible) -- capital factors, cultural factors, the way the state, the public financing. So there are several cultural factors as well that makes the life of a company in Europe a little -- entrepreneurship in Europe different from the United States.

Sometimes it's not just about to create an enterprise; it's about to put an end to it when it's no longer profitable or no longer adequate. And precisely, one of the points I was mentioning this in my introductory remarks was about reforms. And this is one of the reforms we are trying to achieve.

Some member states are now appreciating ambitious reforms for simplification -- conditions but, also, the labor-market reform. (Inaudible) -- flexibility of their economic -- (inaudible) -- and there, the American -- (inaudible) -- can be -- (inaudible) -- of course, having in mind that we have, in some areas, difference.

In Europe, we have -- (inaudible) -- what we call social-market economy. And that comes from Germany because, after the Second World War, social -- (inaudible) -- with the idea that we want a dynamic market, but we want relatively high levels of social inclusion. We also think it is relatively strong compared to the United States.

So and this is -- Europeans want to keep it. So I have to be clear about it. If you go to Europe to propose so-called American model, it will not work. Politically, it will not work. There is not support for this. But if you go to Europe and say, look, we have to -- (inaudible) -- the Americans and others in terms of cultural entrepreneurship -- (inaudible) -- some of the best -- (inaudible) -- interactive relation, simplification of -- (inaudible) -- then people are receptive.

And, therefore, that is the line we are following in the commission. So to modernize our social market economy without making a revolution but making a reform.

MODERATOR: The gentleman here? I guess not. It's a lady. Madame?

QUESTIONER: Hello, Mr. -- (inaudible). My name is Catherine Hagan (ph) and, Mr. President, I come from Geneva where I work on multi-state culture dialogue. And I'm here because of the MDG summit, but we are also very interested in trade and have been monitoring the activities at the WTO where the issues have been moving beyond the Doha Round to issues of food security, climate change, innovation.

I was intrigued by your remark about a new trade proposal coming from the European Union, and I would like to know if you could share with us some of the thinking that is going into that proposal, not necessarily what will be coming out of that proposal because that's to be announced in October, as you said.

But it would be very interesting to hear if you are reviving the Singapore proposals or whether there are other issues that have come into the floor and you're thinking about trade and how to take a new approach to this.

BARROSO: Look, I cannot anticipate what they are going to propose. We have to first discuss it in the commission. In fact, we have been asked to come with some ideas, and that's what we are preparing. But I can give you the background -- political background of the proposal, why --

To be completely honest with you, in Europe and some of the member states, also a perception that sometimes we are too naive in trade matters. I think the same applies here in the United States sometimes.

We open our markets, but we don't -- (inaudible) -- some of our partners, maybe in terms of the monetary experience to make a -- (inaudible) -- effort. And our companies that are in some other parts of the world, they are complaining to us very strongly. They feel discriminated, namely in terms of investment in terms of intellectual property rights and in other matters.

And so what we are now trying to do is to reassure also the European public opinion that we'll pursue a trade policy that is more open and we will, at least the commission, will pull any, let's say inflation of protection. I think protection in itself -- (inaudible). Europe is the biggest supporter in the world. So it's quite obvious that it is's also fitting.

But at the same time, the assurances to the Europeans, what they have to gain from this kind of open market and linking these issues, also, with our overall interest.

And this is what -- political background. Now, political, let's say environment for our proposal that we are now preparing to -- (inaudible) -- so very soon you will be informed about it. But my -- (inaudible) -- is to get more support for open markets and expanding into other areas, not only trade on goods but also on services.

Likewise, easier -- (inaudible) -- investment. I think this is very important. And the points you made are also very important. In fact, in European Union now, there is a great concern with many of our stakeholders and member states, and there's a considerable -- (inaudible) -- regarding, for instance, worker's rights regarding the norm of environment protection or fighting climate change. And this is very important and difficult debate because the point is we now have -- (inaudible) -- regulations, very ambitious -- (inaudible) -- to fight climate change. By the way -- (inaudible).

It's 20, 20, 20, by 2030. So we have committed and it's in our law -- regulation -- to reduce greenhouse gas by 20 percent in 2020, 20 percent of energy should come from renewables, and 20 percent energy efficiency.

And some of those -- (inaudible) -- say okay, but you are competing with others that don't do that. So how can we -- so that's why we have to give some assurances to those sectors -- (inaudible) -- energy sectors that they will not be the victims of this kind of regulation. And that's what we are working.

And, in fact, we have some mechanisms for climate change program to avoid them putting in an uncompetitive position. And this is the kind of assurance we want, also, to give to our stakeholders in Europe, but the purpose should be to keep markets open and to open more markets.

MODERATOR: Yes?

QUESTIONER: This is Bernie Ferrari. I'm a management consultant.

Mr. President, this morning in the FT in the front page, there was a discussion of Siemens' extraordinary agreement with its union workers of 150,000 for job security. Given your aspirations for European economic performance around the world, what is your reaction to that agreement?

BARROSO: Look, it was exactly following my remark before when I said to you very honestly, I think, Europe is different from the United States in some aspects of economic culture. We are basically open economies and want to -- but this is typical of -- (inaudible) -- disagreement. But that's part of the social-market economy.

And it's impressive to see that Germany, for instance -- not only Germany -- but in terms of the criss, the trade unions have accepted something that was impossible to have before in terms of reduction or freezing of their salaries. That was possible, also, because of the culture of compromise in -- (inaudible).

So I'm not suggesting that that should be the model, but in that case, apparently, it's working, and so I hope it will work. But it depends. Other countries have a different culture of negotiation. Europe is very complex. We have 27 countries, sometimes very different in its relations.

But this is one of the examples. We also have -- as you know, it was -- (inaudible) -- what we call flex security. So it means flexibility in terms of the labor relation but, at the same time, a very developed system of social guarantees -- (inaudible).

And so in that case, people accept that enhanced flexibility so you can lose your job, but you are sure that, if you lose your job, you get, let's say, an important contribution from society for some time that you may stay unemployed.

This is one of the issues that makes, sometimes, our system different from the American one. And I certainly think that it is important to move the assurances to our workers that they are taken care of because, in the Europen societies now, many people are angry. They have seen what happened coming from financial sector, and they are seeing now huge bonuses again. They are seeing -- I'm going to be very frank with you -- that some people are coming back to business as usual as if nothing had happened.

And so the perception in many of our countries -- (inaudible) -- we tax payers, we have to save those banks, and now they are coming back to business as usual and we don't have any guarantees with the worker or with the -- (inaudible). And that's why I think some level of social consensus is extremely important; namely, in some countries where there was a tradition of, let's say, sometimes, social polarization or more conflicting industrial relations.

Germany has that German tradition. And if it works for that company, it's a good thing. I wish them the best.

MODERATOR: My goodness. Ambassador -- (inaudible).

QUESTIONER: Mr. President, the European Union countries have made very drastic commitments at deficit reduction, fiscal consolidation. At the same time, in the United States, our government and many economists fear that too drastic fiscal consolidation risks a double-dip recession.

And our Federal Reserve is engaged in major efforts to increase the money supply and expand and lower interest rates. Are we in danger of getting at cross-purposes here in the macroeconomic policy?

BARROSO: We discussed this issue in the G-20 in Toronto. And, in fact, I think there was a real consensus that Europe should do exactly that. Before the G-20, there was some discussion. There was some cross -- let's say, analysis and assessment and sometimes trying to put it in context.

But I will say I was in the G-20 and discussed this, also, there. And I think people understood the European position. I have no doubt that, for Europe, there is no other way to be completely -- (inaudible) -- now to those programs in Europe when we have both countries that are actually, I mean, vulnerable in terms of -- because that's the difference between us and the United States.

I mean, you are one country. Europe is 27 countries. We are a union of states with some macro-integrated, some policies integrated, like in your area, monetary policy. But we have one monetary policy but, afterward, the budget may be national.

And so for us, it's fundamental to restore confidence of the markets. And the confidence of the markets will not be there if we go on with this -- (inaudible) -- policy. This is -- (inaudible) -- here. (Inaudible), but next year, it will not be.

And so -- and I think it will be, I repeat, massive for Europe to go for expansive policy at this moment. And nobody, I mean, in Europe is now proposing an incredible, at least -- (inaudible) -- possibility.

Having said this, United States is in a different position. Also, the dollar has a different position in the global market. It's for the Americans -- up to them to decide which way. But, for Europe, we have no doubt that this is the way.

Having said this, it's not just about this proposal. Actually, it's about structural reform. It's about being more selective. It's not just to look at the expenditure, the quantity but also the quality of the expenditure. It's possible -- we believe it's possible to have some growth-friendly measures of fiscal consolidation. That's what we are trying to do through fine tuning of the policies.

But in Europe, I repeat, now if we don't do this -- (inaudible) -- will increase instability of the markets, and I don't think that's good for the United States. If Europe or the Euro starts now -- and that point was made by all of us at the G-20 very clearly, by myself and the heads of government of the European Union member states there and others.

And then what it can do, for instance to stimulate demand is not by expansion -- (inaudible) -- reform. For instance, Germany, we are speaking -- (inaudible) -- very much. Germany, they have the potential for growth coming from a reform of their service sector. The service sector in Germany is, I mean, it's less competitive than others in Europe.

You know, and that, by the way -- (inaudible) -- the Germans know that perfectly well, and their committed to do it.

So there are other ways different from budgetary and stimulus to stimulate demand in Europe.

MODERATOR: This lady is next. Go ahead.

QUESTIONER: Laurie Garrett from the council.

I want to come back to trade and to Africa. From the perspective of many African countries, the very policies that are in place at the E.U. to protect workers, to protect health, to deal with lower pesticide use, all those sorts of things are, in fact, keeping African agricultural products out of the European marketplace.

And in particular, in the context of GM food restrictions and requirements for annotation of fertilizer use, pesticide use, blah, blah, blah, blah, blah, blah, seed derivative, everything -- how can you break this down so that the European feels they're eating a same tomato and the African feels they can grow large quantities of tomatoes and become rich selling them to Europeans?

BARROSO: Look, first of all, European Union is, by far, the largest importer of agricultural products from developing countries. Europe imports more from the developing countries -- United States, Russia, Canada, Australia -- put together.

So that idea that Europe is closed to agricultural products is simply not consumed by fact.

Having said this, it's true that we have some reservations that are there because the European public wants us there that are relatively high levels of protection of consumers. And this is something that we discussed not only with Africa but in other parts of the world today.

And what we tell our partners is that they should try to get their exports competitive with those conditions that are there not for protection, but because in the European society, people are simply not ready to lower their standards.

The issue of GMO is an extremely difficult issue. I think that you are probably an expert on that. You have probably followed my -- and the commission's recent position. We - from one side, we want to respect fully the WTO rules, and we have been doing that. On the other side, in fact, there are some sectors of public opinion in Europe that are extremely concerned about GMOs.

What we have now in the system with the -- (inaudible) -- the European Food Agency that gives us, the commission, the scientific opinion, and then we decide. And our position has been to decide in favor of introduction of GMOs if that independent agency confirms there are no risks for environment or for the health.

But it remains extremely controversial in Europe. That is why, recently, we have proposed, the commission, to keep the system but, for cultivation, to visit our national level.

So the so-called -- (inaudible). So if we go -- (inaudible) -- the introduction of a GMO product in Europe -- (inaudible) -- but we cannot force one country to cultivate a GMO against its own will. And I think this is a good, fair compromise because there are some controversies.

I will give you an example -- Austria -- where this issue is really very strong. We've been discussing this at several governments -- (inaudible) -- how can we be forced to cultivate something that our population does not want? And this has been a very difficult issue for us.

It has nothing to do with protection. It has nothing to do with the restrictions to Africa. I can tell -- (inaudible). It has to do with the public concern on the issues of public health, issues of environment protection. And this is why we have to keep those standards and try to find a fair way of making our rules competitive, of course -- (inaudible) -- WTO.

MODERATOR: The gentleman in front?

QUESTIONER: Thank you. I'm Paul Jather (ph), financial advisory business.

One relationship that remains important, I would think, that hasn't been mentioned today is that between Europe -- the European community and Russia. And, of course, there are many aspects of it.

The one that I wanted to hang out and see what your thoughts are on the overall relationship with particular emphasis on the fact that, in the last few years, the Russians seem to have used or tended to use their energy exports, sometimes, to exert political pressure.

And I wonder what your thoughts are on the relationship, its context and where it's going.

BARROSO: You are right it's a vital relation for us and for them. For the Russians, we are the number-one partner in trade and investment. European Union is the number-one partner. And they are also very important partner for Europe.

And that's why we try to establish or develop diplomatic -- a good relationship with them.

Things are improving. There were, in fact -- some issues were difficult, some political issues. The issue of Georgia, of course, but other matters relating to -- (inaudible). Restrictions of exports from Poland to Russia.

But, for instance now, the relationship between Poland and Russia is much more constructive than it was before.

And so -- and don't forget that -- (inaudible) -- the Russian leadership, we meet every time -- every year at least twice in a formal summit serving all these years, meeting President Putin and now President Medvedev. I'm speaking for the 27, not only for -- I have to take on board the concerns not only of the countries that are exporting to Russia but those who -- some concerns of some countries, somtimes some small countries that express some concern regarding the relationship.

But nowadays, I see there is good potential in the relationship with Russia. President Medvedev wants the result of the developing work because -- (inaudible) -- organization in Russia, and we want to be partners in this effort. And if he's -- repeat, once again, a win-win situation.

The relations with -- we have lived with this crisis-- (inaudible). In fact -- it's already public. More than 30 phone calls I have to make to President Putin at the time -- or Prime Minister Putin -- and the leadership in Ukraine -- President Yushchenko, Prime Minister Timoshenko and, also, some talks with President Medvedev.

And, of course, this was a great impact and a great impact on public opinion in Europe. What was happening was that European people were suffering a clash between Russia and Ukraine, it was -- and I believe it was not directed against European Union.

But was no interest at all in Russia or in Ukraine to make problem with European Union. But, in fact, we were suffering from that, let's say, interruption of the flow of gas. And now we are working more constructively with Russians and Europeans -- European Union -- to try to achieve, once again, a win-win situation, also, in energy.

And I think it is, of course important also for our Russian -- (inaudible).

MODERATOR: We have two minutes only, I think, Mr. President. Is there a very quick question taking seconds and then we'll give a minute and a half to the president to reply?

QUESTIONER: I don't know if this will be quick, but I'll ask --

MODERATOR: It has to be quick.

QUESTIONER: You talked about reform, and that's the time for reforming in Europe. But I mean, the banking sector in Europe doesn't seem to be reformed still, and there are some countries where the banks are still weakened. And for many critics, this is why, you know, some of the debt problems are not -- are worrying markets even more.

Is there an effort to really get to the bottom of the banking sector in all the countries where the banks are weak and to lead a reform so that there's no -- you know, the way the U.S. sort of really forced the banks to come up with more capital -- and then there were stress tests, but there was really nothing that came out of it is that critic say.

So is that -- I mean, is there more effort? Or do you think that you're satisfied?

BARROSO: No. I mean, first of all, the stress tests were, I believe, a serious, competent at this time. In fact, we have been pushing for some years to do it every two years to have these open stress tests.

Having said this, I want to make it clear we believe that, fundamentally, the banking sector in Europe is healthy. We believe it's healthy, our banking sector. That does not exclude that there were not some cases that should be addressed, and we will address them and, in fact, we are working on that matter.

We are working that matter with the possible -- (inaudible) -- difficulties that may happen in the banking sector. But the idea that European banking sector is unhealthy or very vulnerable is completely wrong, completely wrong.

Having said this, we also welcome very much the latest decisions of the Basel, and we believe they are going in the right direction to reinforce the quality of capital for our banks. And we are now putting in place, also, the proper mechanisms of coordination of what has been done by international supervisors because, as I said in my introductory remarks, in Europe, until now, supervision was purely national. And this when many of the banks are, indeed, cross-border banks. They are not -- they have had -- (inaudible) -- of course, of member states, but, in fact, they are. European are sometimes mobile banks.

And this -- some of the reforms -- (inaudible) -- and that will be coming very soon to improve, I think, the overall credibility of our financial sector.

MODERATOR: Mr. President, I think we are all very grateful to you for the time and for the quality in your answers and your openness. And we thank you very much, indeed. We feel very confident about Europe now. Many of us will probably want to come and settle there. (Laughter.)

And we thank you very much. (Applause.)

UNAUTHORIZED REPRODUCTION, REDISTRIBUTION OR RETRANSMISSION CONSTITUTES A MISAPPROPRIATION UNDER APPLICABLE UNFAIR COMPETITION LAW, AND FEDERAL NEWS SERVICE, INC. RESERVES THE RIGHT TO PURSUE ALL REMEDIES AVAILABLE TO IT IN RESPECT TO SUCH MISAPPROPRIATION.

FEDERAL NEWS SERVICE, INC. IS A PRIVATE FIRM AND IS NOT AFFILIATED WITH THE FEDERAL GOVERNMENT. NO COPYRIGHT IS CLAIMED AS TO ANY PART OF THE ORIGINAL WORK PREPARED BY A UNITED STATES GOVERNMENT OFFICER OR EMPLOYEE AS PART OF THAT PERSON'S OFFICIAL DUTIES.

FOR INFORMATION ON SUBSCRIBING TO FNS, PLEASE CALL CARINA NYBERG AT 202-347-1400.

THIS IS A RUSH TRANSCRIPT.