Statement by the Rt Hon Gordon Brown MP, Chancellor of the Exchequer, to the European Parliament's Committee on Economic & Monetary Affairs

Let me say as I thank all of you and in particular the chair of the committee, Madame Pervenche Beres, and the three Vice-Chairs, that I have come to do what I believe is right and report first and directly to the Parliament from the meeting of ECOFIN this morning and our discussions on the most fundamental economic challenge that confronts our generation: how, facing the biggest shift in the balance of global production and services the world has ever seen, we, Europeans, equip ourselves best economically and socially for the future and how in both a common economic policy, and an agreed European social model, which - let me affirm at the outset - is indispensable, we not only address the unacceptable unemployment of 20 million of our fellow citizens but forge together the modern route to full employment and prosperity not just for some but for all our people.

And, Madame President, it is wholly in accord with the democratic traditions of our continent for this Parliament to play its vitally important role in these discussions.

I know that I speak on behalf of all my ECOFIN colleagues that throughout our Presidency and beyond, your contribution to our joint legislative work will be much valued and our discussions with you in this session this afternoon are vital for the future of Europe.

With your permission I want to mention at the outset the threat of global terrorism and to express the thanks of the British people to the peoples of Europe for the solidarity you have shown. And in standing together, let us send this message: that while lives have ended, the cause of justice never ends; that while hearts are broken, hope is unbreakable; and that while buses trains and buildings can be destroyed, our values are indestructible.

And our resolve will not be broken. Indeed at ECOFIN today as we intensify our shared campaign to identify and root out terrorist assets all 25 Finance Ministers affirmed as one that, just as there can be no hiding place for terrorists, so there can never be any safe haven for those who finance terrorism.

Today we must also meet and master as great an economic change.

Let us remember that at every point when called upon to do so in the last fifty years Europe has met all the great challenges: building peace from war; creating the biggest and, most successful trading area in history; civilising market forces by forging a European social chapter supporting welfare states all across Europe; working with others to end a cold war that divided Europe in two and through enlargement bringing eastern and western Europe together ending centuries of strife; and most recently, often forgotten but absolutely crucial to the future of the whole world, leading the world by our decision to lead the write-off of developing countries debt and to double our aid to the poorest countries of the world.

And I was proud of this Parliament's leading role in pushing for a new deal between the world's richest and poorest countries.

Let me tell you the scale of the challenge from globalisation.

Twenty years ago just 10 per cent of manufactured goods came from developing countries. The challenge from China and India is now such that soon the figure will be 50 per cent.

Today Asia's share of output stands ready to surpass Europe. In ten years time the share will be 50 per cent higher.

Today and for the last decade Europe has not only been only growing half as much as America but one quarter the rate of China and India.

And to give an example from mass manufacturing, which Europe and America once dominated, today one country, China, alone is already responsible for manufacturing up to 40 per cent of the worlds TV sets and microwaves, 50 per cent of the world's cameras, 70 per cent of the world's photocopiers, and 90 per cent of the world's children's toys.

It is not just countries, but continents, that will rise and fall depending upon their ability to adjust to global change.

And on top of today's unemployment of 20 million, it is now estimated that within 15 years a total of 5 million more jobs likely to be outsourced from Europe and the USA to Asia, Europe will need to create 22 million more jobs by 2010 alone.

So, fellow Parliamentarians, Europe's peoples need a social and economic policy to meet and master globalisation, a new economic and social policy born out of our shared objectives for growth and employment founded on our belief in a united Europe already the most successful single market the world has known.

Driven forward by our mutual interest in economic renewal through stability, reform and social justice so that we can create today and tomorrow greater employment and prosperity for the peoples of Europe.

The old assumption of our European founding fathers, was that we would move from economic integration at a national level to economic integration at a European level, and that instead of the old national companies the old national sourcing of our goods and services the old national flows of capital and the old national brands, we would have European companies, European flows of capital, European sourcing of goods and services and European brand names.

But something quite different has happened. It is not just European flows of capital that dominate but global flows of capital, not just European companies that are the issue but global companies, not just European sourcing of goods and services that keep costs down but global sourcing of goods and services, and not just European brands we talk about but global brands.

So let us be honest about the scale and intensity of change.

As Europe enters the second stage of its history, as a Union we are finding, and the people are telling us, that the agenda relevant to its first phase – the era of a trade bloc – is quite different for the agenda relevant to the era of globalisation.

In the first phase we could afford to focus on our internal rules - and, effectively, shelter ourselves from the rest of the world

In the new phase challenged by global forces from which there is no shelter and no protection we must be outward looking, competitive, flexible and reforming.

But to those who say globalisation creates technological change that makes full employment impossible, I believe the way forward is to show how in a global economy we can master technological change and deliver full employment.

And I believe that those of us who have always been supporters of the benefits of European cooperation have a duty not to be silent about what this means for reform.

Instead the best pro-Europeans should show how Europe, by reforming, can meet the long term needs of its citizens in future years - founded on a strengthened commitment to the goals we set for ourselves at Lisbon five years ago: to make Europe more modern, more flexible, more outward looking and more competitive, to achieve the growth and jobs that will ensure not just economic prosperity but social cohesion - and not just for some, but all our citizens. Our aim is a global Europe that will become a full employment Europe.

Let me explain how I believe we should work together for full employment.

First, the foundation of a full employment policy is economic stability, with the changes in the stability and growth pact designed to do what modern fiscal policy must do: take into account better the economic cycle, the importance of investment and levels of debt.

And the test going forward will be how the pact is implemented and how we aim to promote growth across member states.

Second, from this foundation we must – to create full employment - build a European wide political commitment to complete the single market by holding to timetables for the opening up of sectors from energy to utilities, developing a more independent competition policy, using in-depth market investigations, such as those planned for energy and financial services;

And reforming state aids so that instead of just addressing state failures, we address market failures in r & d, science and innovation and enterprise;

A reform which we must consider as part of wider discussions on the next financial perspective – where as Tony Blair has said, we will work to take forward discussions with a view to resolving all elements necessary for an overall agreement as soon as possible. And as a first step my colleagues across Government will be consulting all our partners on the best way forward.

And in particular, we should take forward the single market in financial services – an area which I know is a priority for this committee – by implementing the existing measures in the financial services action plan, by working with you to agree the remaining measures on capital requirements, and by driving forward the next stage of agenda to help maintain Europe's global lead in what is already the most global of markets.

Third, we should modernise our approach to regulation, so that while still ensuring high labour, environmental and social standards, we enhance our flexibility.

So by ensuring a competitiveness test, giving a greater voice to business, and agreeing a common approach to measuring the cost of burdens, our aim is a risk based approach - no inspection without justification, no form filling without justification, and no information requirements without justification.

And, fourth, we should make a long-term commitment to a more outward looking and more open trading relationship with the rest of the world through: an ambitious outcome to the WTO talks in Hong Kong; an enhanced dialogue with India, China and the rest of Asia; and - an area where this Parliament has been at the forefront - building on last month's EU-US summit, a stronger transatlantic economic partnership, with a deeper and wider economic dialogue, to set priorities for closer cooperation in areas such as regulation and to agree a road map to creating a genuine barrier - free transatlantic financial market.

But I also say clearly: because creative skills and human inventiveness and thus investing in people is the key to economic success, long term economic prosperity cannot be achieved without social justice and thus a modern social model, that protects people from poverty; promotes opportunity for all to achieve their potential; and meets our objectives of a full employment Europe and the target of 70 per cent employment rate we set for ourselves at Lisbon.

Europe's founders rightly recognised that markets are social structures and work best when there is an explicit social dimension.

And for its time and era the European social model which argued that enterprise had to be matched by fairness was an advance on responses to industrialisation far ahead of other parts of the world.

Indeed the strength of our social policies was, and still is, one of the assets that marks Europe out from other continents and distinguishes the EU from looser trade blocs.

And let me say so there is no misunderstanding: the uncertainties that globalisation brings makes a social policy, which helps people prepare for these uncertainties, more important than ever.

So Europe should not stand aside in the face of change, but stand with people to help equip them for change.

But we cannot claim today's European social model is fair or effective when there are 20 million people unemployed and nearly half of them for more than a year.

To help create the jobs we need, today's social policies should not be passive - as they have often been in the past - but active. Because while in today's world there may be less that Government can do to stop people losing their last job, there is more Government can - and should do – to help people gain their next employment.

Tony Blair has called a conference on the social model to examine how a European social dimension can match the national and global dimension - and what policy changes we need so that Europe can deliver on full employment.

But it is clear that nationally and beyond we must remove the barriers to work, create new skills for work, encourage new tax benefit systems to make work pay and through helping people find jobs show the social values on which Europe was founded more than 50 years ago are values even more relevant to drive forward Europe's vision in the years to come of prosperity not just for some but for all.

For let me say here, from this Parliament today, that our greatest achievement, the test of our success, our legacy we bequeath to the future, must not just be in declarations or in documents, or even in new institutions or procedures, but in jobs for people, growth for people and prosperity for people - a people's Europe where everyone has opportunity and everyone has a contribution to make.

That, working together, Parliament and Government, is our task, and that in time will be our achievement.