The Rt. Hon. Patricia Hewitt, Secretary of State for Trade and Industry, Cabinet Minister for Women

Europe's Economic Challenges, Konigswinter Conference

(Ladies and Gentlemen, dear colleagues and friends, I'm delighted to be here at the Konigswinter conference. Thank you for the warm welcome.)

Years ago, at my first Konigswinter, I remember being very impressed when Lynda Chalker gave the Ministerial after-dinner speech in fluent German. Sadly, my years of study didn’t match hers - and I will continue in English.

Let me thank the Konigswinter committee for organising this, their 54th conference; and the Anglo-German Foundation, German Embassy and CBI for their support.

The timing could hardly have been better - with Chancellor Schroder and Prime Minister Blair at the Spring Council where heads of government will discuss two of the great challenges facing Europe: the threat of terrorism, and the need to reform and strengthen Europe’s economy.

The Chancellor and the Prime Minister couldn’t be here. But Konigswinter, as always, has assembled an extraordinary array of talent - many of our leading policy makers, industrialists, academics and journalists: all committed to strengthening the relationship between Britain and Germany.

Tonight I want to talk about this relationship - and how, in the modern world, it’s more important than ever that Britain and Germany remain

• strong together;
• strong in a strong Europe; and
• strong in the world.

I know that this afternoon you have been discussing some of our divisions - including the division that opened up between us last year on the question of Iraq.

That was a very difficult issue, a very difficult time for us all. But I draw some comfort from the remark of Konrad Adenauer: “Wenn zwei Menschen immer die gleiche Meinung haben, taugen beide nichts.” (When two people always share the same opinion, they’re both worth nothing).

We certainly didn’t share the same opinion on Iraq. But both opinions were valuable - because what made this decision so peculiarly difficult was the fact that, starting from the same values and the same goals, and looking at the same information, people could in good faith reach diametrically opposed conclusions.

And it is because our disagreement took place against a background of partnership, respect and understanding that would have been unthinkable to our predecessors, that the title of this Konigswinter is so apt.

Since the conflict, we have worked together to strengthen our partnership. Our troops stand side by side in Kosovo and Afghanistan. Our Foreign Ministers, together with their French colleague, worked together to persuade Iran to give up its atomic weapons programme. And our Interior Ministers are working closely together to increase our co-operation against terrorism.

We are also working together to confront economic challenges.

Earlier this year, I went back to China - and was stunned, as I always am, by the scale and pace of change, the way in which Shanghai, for instance, builds a new city practically every eighteen months, the extraordinary expansion in the Pearl River Delta - the new ‘workshop of the world’.

I was struck too by how actively both our governments are promoting trade and investment links with China.

Britain is Europe’s biggest investor in China - thanks in particular to BP and Shell.

But Germany is a far bigger exporter. Indeed, Germany exports seven times as much to China as we do - mainly branded vehicles like Volkswagens and consumer goods. Perhaps it’s helped that Chancellor Schroder has visited China five times in as many years.

China’s new economic revolution is transforming our world. Joining the WTO. Set to be the world’s largest economy in a generation. Putting four times as many people through university as it did a decade ago.

In future it won’t be enough to benchmark Britain and Germany against each other, or France or the United States or Japan. We’ll have to compare our science and manufacturing with China. Our IT and bioscience with India. Our agricultural productivity with Brazil.

And the question for us is how we in Europe respond to these changes in our world? Do we turn inwards, try to protect what we have and pull up the drawbridge?

Or do we turn outwards, make our own economies more flexible, more open and dynamic, and ensure that we can compete and collaborate with the best in the world?

I suspect all of us here instinctively prefer an open, outward-facing Europe.

That after all was the vision of Lisbon four years ago. To open up product markets, liberalise capital markets; and remove unnecessary labour market restrictions. To make Europe the most dynamic knowledge-driven economy in the world.

It was an ambitious agenda of major structural reform - but one that we all agreed was absolutely vital if we were to close the productivity and employment gap between Europe and the United States.

That’s why it’s so important that, following our meeting in Berlin last month, Britain and Germany should use this week’s European summit to get the Lisbon agenda moving again. We both support

• using the next four Presidencies to make sure entrepreneurship is not hampered by excessive regulation - by overhauling existing legislation and producing rigorous impact assessments for future legislation
• appointment of a Commission Vice President to push forward economic reform
• establishing an external high-level group to assess mid-term progress by 2005.

We need to turn around the perception, amongst too many global business leaders, that there’s no hope of Europe delivering the Lisbon agenda.

Because in truth there’s been too little political will, and too many political won’ts. We set big ambitions: now we need big courage to deliver them.

There are three areas I want to highlight where our resolve will be tested over the coming months.

We have a choice: between protecting those who have jobs at the expense of those who don’t; or opening up our labour markets, reforming our welfare systems and bringing more people into work - introducing flexibility that gives people more choice and businesses more competitiveness.

Take the Agency Workers Directive - which I regard as a litmus test of Europe’s commitment to economic reform. In Britain, agency work already provides a vital ladder into the labour market - particularly for people who’ve been long-term unemployed. And it gives thousands of people freedom about when and where they work - students, parents and older people. It’s one of the reasons why Britain is one of the few countries to have met the Lisbon goals on employment.

In Germany, following the recommendation of the Hartz Commission, new employment agencies are being created to place unemployed workers in posts.

Yes, there can be abuse of agency working - and we’ve recently tightened up our own regulations.

So we are not opposed to the principle of a European Directive to protect agency workers. But what we must ensure is that the Directive is workable and recognises the labour market diversity of EU Member States.

The key is protecting agency workers without putting their jobs at risk - and a longer qualifying period will help us achieve this. It’s a litmus test for Europe - and one that we must get right - particularly as Europe’s demography changes, as I know you’ve been discussing today.

The EU and the US have similar size populations, similar size economies and make similar size public sector investments in research every year: in 2001, the US invested $53 billion; in Europe, it was $52 billion.

But the results are very different, although the gap is closing. The US produces twice as many top scientists; twice as many world-leading universities; and spends nearly twice as much on private sector R&D as Europe.

Germany has a track record we envy of connecting business and the science base. We need that across Europe - for instance by simplifying the European Framework Research programme. We need to make it easier to start up and grow a business - including spin-outs from our universities. We need to make it easier to protect intellectual property - which means delivering on the long-awaited Community Patent.

We also have to ensure that regulations support competitiveness and innovation rather than damaging them. The Chemicals Directive as originally proposed would have been a disaster for the British and German chemicals industry. We worked together - and already we’ve cut the costs by 10 billion euros. But there’s still much more to do before it achieves our objectives - improved health and safety without simply driving business offshore.

We need to re-energise the Doha Round. I know that Germany shares my commitment to this. As the world's 2nd largest exporter of goods and 3rd largest exporter of services, Germany stands to benefit significantly from an ambitious agreement which increases market access around the world.

We can’t preach liberalisation abroad and practice protectionism at home.

Radical reform of the Common Agricultural Policy will be good for our economies, good for consumers and it will be good for developing countries too.

Europe’s offer to eliminate export subsidies on a list of products of interest to developing countries is not a negotiating trick. It is the way to achieve what developing countries want most: an end date for all agricultural export subsidies.

Antonio Gramsci wrote that the “pessimism of the intellect must be faced with the optimism of will”.

Despite the scale of the challenges, I’m an optimist about Europe. We have turned outwards to embrace ten new members - and more will follow. We have Finance Ministers, Competitiveness Council and Commission committed to regulatory reform. The four Presidencies programme gives us a clear run ahead. We’ve made clear our determination to revive Doha negotiations.

We have come through some difficult times - and have emerged the stronger. Stronger to work together for a stronger Europe in a stronger, more secure and more prosperous world.

Thank you.