Speech to the Bruges Group on Wednesday, 17th April 2002

Theresa Villiers MEP

In a global economy, success depends on the ability to adapt quickly to changing circumstances. High levels of EU regulation are inconsistent with this flexibility. Much of the 85,000 pages of EU legislation are hindering the performance of the EU's economies. Flexibility is being sacrificed too often in the name of harmonisation.

The Economist recently described a typical EU story:
"Start by identifying a non-problem; pretend to solve it with a harmfuI non-remedy; when the drawbacks of the non-remedy become apparent, pretend to be confronting a crisis with a new and somewhat less damaging non-remedy. Oh yes and solemnly congratulate everyone on the triumph of unity and cooperation."

The EU is not only failing to drive forward genuine economic reform, it is actively going in the wrong direction.

The Lisbon Agenda
Over 2 years ago, European leaders met at Lisbon and vowed to make the EU the most dynamic knowledge based economy by 2010. The Lisbon process is laughable, while the European Parliament is still adopting directives on how to climb a ladder, mainland Europe will never cope with its high levels of unemployment if it continues to price its labour force out of the market with costly red tape. Since Lisbon, there have been no directives, which make it easier to employ people and several making it more difficult and more costly to employ people. For example:

• Physical Agents (Noise) directive would have led to a ban on music in pubs. It was seriously suggested that bar staff should wear ear plugs. It could also have led to the closure of orchestras, as the average trumpet breaches noise limits.
• Physical Agents (Vibration) directive severely limits the time during which machinery can be used and during which hard pressed farmers can use tractors.

Both were diluted and postponed but remain damaging and they are just 2 of literally thousands of directives produced by the EU every year. The dynamic of EU legislative process naturally produces over - regulation. As the directive passes through 15 different member states, each try to load on to it, their own piece of domestic regulation to ensure that their local industries are not disadvantaged by competition from countries with less regulation. Every effort is made to export regulation across the EU leading to a levelling up of red tape. Business impact assessments remain derisory in the European Commission and non-existent in the European parliament.

One size does not fit all
As well as grappling with EU over-regulation, Eurozone members have the added handicap of the inflexibility brought by the euro.

Ironically the biggest loser from a one-size-fits-all economic and monetary policy at the moment is Germany. Loss of domestic control over the German economy is having an increasingly damaging effect.

At the start of 2000, it looked as if the German economy was coming out of the doldrums in which it had found itself for so long. Later that year, the recovery stalled and the economy has continued to struggle ever since.

Unemployment is now around 4 million. The introduction of notes and coins pushed inflation up in Germany and elsewhere in Europe.

If the Bundesbank retained control over German interest rates, it would probably have cut rates more quickly and more aggressively than the ECB. Even with today's uncertainties for the US economy, its growth still looks set to outstrip the Eurozone's (by 1.7% to 1.2% according to the Economist). Little is being done to diffuse the pensions time-bomb. Germany would have to raise taxes by 9.5% to fund its pension commitments as the post war baby boom nears retirement. Further complications are caused by the Stability and Growth pact. I would not, for a moment, encourage governments to borrow unwisely or profligately but I do have serious concerns about the pact.

The German economy should have received a formal warning from the Commission under the Stability and Growth pact but the power of a big Member State meant the rules are being bent with impunity.

The most likely point at which an EU member state would get close to a breach of the rules of the pact is during an economic slowdown. It is cer1ainly not always wise to try to spend your way out of a recession and so rules constraining borrowing have something to recommend them. What does seem bizarre is that the punishment for breach is a fine. A country struggling to balance the books is therefore clobbered with multi-million euro fines. This would seem to be the least appropriate way to deal with a victim of one-size-fits-all and a piece of classic EU double-think.