The Blog

Four Principles for European Economic Recovery

I see four principles as laying the foundations for the kind of economic recovery Europe needs: fairness, efficiency, solidarity and growth.

Over the next twelve months, European leaders must handle this paramount priority - to make 2013 the year of economic recovery. It is now five years since the global financial crisis started and in that time output has declined, living standards have stagnated and jobs have been lost on an unprecedented scale across our continent. Meanwhile, public confidence in our political systems has eroded dramatically. European citizens need to know that these last five years will not become a lost decade otherwise the social contract that underpins our democratic achievements will be put at risk.

This fundamental issue of legitimacy is at the forefront of my mind as prime minister of a government that has just been elected with a large majority. How can I convert the enthusiasm of voters into a practical programme of action that meets their desire for economic security and greater prosperity? I see four principles as laying the foundations for the kind of economic recovery Europe needs: fairness, efficiency, solidarity and growth.

The first principle that compels us is fairness. The people must know that politicians and civil servants are working hard on their behalf and sharing the pain of adjustment as living standards come under increased pressure and scrutiny. Without this, the gap between government and the governed will widen and the legitimacy of the system will be undermined in a way that fuels populism and extremism. That is why I will be proposing in Romania a constitutional amendment to ensure that judges and members of parliament cut their summer break in half and sit throughout July. No public official should expect a two-month summer holiday when there is so much work to be done.

Likewise, we've started to analyse and take action to reduce politicians' privileges and various abuses in the system at a time when so many people are struggling to make ends meet. It is absolutely unacceptable that some politicians and public officials take advantage of their positions to enrich themselves at the detriment of the people they are mandated to serve. Our fight against corruption will be relentless.

The second principle underlining the government's actions is efficiency. We will be rigorous in cutting out waste and guaranteeing value for money through better spending in the public sector. Reducing debt through budgetary consolidation is essential to restoring Europe's financial health. Fiscal discipline is a priority in Romania, and we have already proven we are committed and able to make real progress in this area. In 2012, in spite of having had two elections and a referendum, we reduced Romania's deficit by 2.7% - the largest fiscal consolidation of any European country last year. Our main strategy is to cut administrative costs where possible in order to protect the frontline services on which people depend. For example, I have also just announced that the number of counsellors and senior managers across all government departments in Romania is to be halved as the first stage of a wider restructuring of the public sector. However, there are still too many employees across the different branches of the executive and in state-owned companies.

New transparency measures introduced by my government last year have already reduced the misuse of public funds. I have now ordered a full audit of existing state projects to enable us to prioritise effectively. Steps are also being taken to ensure the better absorption and use of EU funding. The misappropriation of EU money in the past has caused shock and resentment, and rightly so, because these funds have been generously provided by taxpayers across Europe to support Romania's development. In changing the administrative organisation for better management of EU-funded projects I want to make a clean break from the abuses of the past.

The third principle must be to ensure social inclusion and solidarity, including fair taxation. Revenues are still too low and levels of tax avoidance still too high. It cannot be right that the wealthier the individual or the bigger the company, the easier it seems to avoid paying a fair share of the burden. We intend to crack down on tax avoidance and introduce lower tax rates for those on low and middle incomes. The aim of our reforms will be to make the tax system simpler and fairer.

Measures to promote social justice more widely are integral to our strategy of recovery and our vision of Europe's economic future. There is evidence that economies with a stronger middle class and lower levels of inequality are more stable and recover more quickly from downturns. Measures to promote inclusive growth and to protect the living standards of the majority are crucial. Too many of the budget cuts carried out by the last Romanian government harmed the most vulnerable. Responsible political leaders should not draw up budgets as if they were accountants. They must consider the social impact.

In Romania, the USL government has implemented since May 2012 the strongest fiscal adjustment in the EU while simultaneously enacting the social measures meant to repair the damaging policies instituted in the name of austerity. I am proud that we have acted to restore state pensions and wages for public sector employees. We have also started to reopen state hospitals improperly closed by the former government. And we have done this at the same time as implementing tough fiscal discipline, proving by facts that there are viable alternatives to blind austerity.

The fourth principle is to prioritise economic growth. Globally the debate has become hopelessly polarised between the advocates of supply-side and demand-side strategies. The reality is that the route to economic recovery and modernisation for Europe has to involve an innovative mix of both. We need to press ahead with structural reforms to increase competitiveness and create a more business and investment friendly environment. And we must also rebalance tax policy and public budgets to prioritise growth and job creation. For example, last year my government cut corporation tax for companies that create new jobs. At least part of the savings from cuts in government waste and administration must be re-invested in productive activity that creates private sector employment and raises long-term growth potential.

These are my main economic priorities as prime minister of Romania. They are based on a set of principles that can also be applied more broadly in helping to kick-start recovery across Europe as a whole. Is the EU doing enough to combat waste and bureaucracy? Is it prioritising expenditure in the places most likely to sustain jobs and living standards? 2013 should be the year in which the citizens of Europe get answers to these questions and begins to see the prospect of a better economic future after five very tough years.