1) Herman Van Rompuy delivered a speech at the annual 'State of Europe' event hosted by Friends of Europe discussing the upcoming European Council summit and state of the European Union. 2) He expressed increasing confidence that the Eurozone is heading in the right direction to achieve economic recovery and stability, though it will be a long process of reform and adjustment. 3) He outlined three fronts being worked on: continuing domestic reforms, establishing tools to withstand economic shocks like the new European Stability Mechanism, and further reinforcing the Economic and Monetary Union through integrating financial regulations and exploring new fiscal and policy coordination mechanisms.

1. P R E S S
Dirk De Backer - Spokesperson of the President - ( +32 (0)2 281 9768 - +32 (0)497 59 99 19
Preben Aamann - Deputy Spokesperson of the President - ( +32 (0)2 281 2060 - +32 (0)476 85 05 43
press.president@consilium.europa.eu http://www.european-council.europa.eu/the-president
EUCO 185/12 1
E
EUROPEA COUCIL
THE PRESIDET EN
Brussels, 11 October 2012
EUCO 185/12
PRESSE 423
PR PCE 158
Speech by President of the European Council
Herman Van Rompuy
at the annual State of Europe event
It is a pleasure to take part in this Friends of Europe roundtable discussion on the State
of Europe. It takes place in the run-up to next week's European Council, which makes it
even more timely.
As some of you know, I am not in the business of make-or-break summits, of moments of
truth. It will of course be an important summit, one of many, on the way towards
economic recovery.
But what I feel more clearly around me in the last few days and weeks, is that people
realise we are heading somewhere new. And even if the exact destination will depend on
many factors, there is an increasing confidence in the future of the eurozone, a growing
sense that we will get there. And also, that along the journey, before our eyes, Europe is
changing. Our Union and the architecture of the eurozone look already different today
from how they did 3 years ago, and this process of change is bound to continue further
(before of course it stabilises).
Shaping this change, together, is the driving principle behind the actions of all Europeans
leaders. It is also the principle behind the difficult but courageous reforms taking place in
the Member States: reforms to adapt our economies to a fast-changing global economic
landscape and an ageing population, to bring our public expenditure in line with our
financial capacities and set Europe on the path of growth and jobs.
This adjustment takes time, more than we expected. Every transition of this magnitude
takes time. Some Member States' economies were mismanaged for years, or even decades.
Moreover, the eurozone did not have the tools to deal with this crisis. The legacy of the
past was huge.

2. EUCO 185/12 2
E
Creating jobs and boosting growth is our ultimate goal. And we know what we have to do
to reach it. We have an action plan, that the European Council decided in June: the
Compact for Growth and Jobs. All the levers are there: prioritising investment in
innovation, in skills, in infrastructure yet without compromising on sound public finances,
and opening up new opportunities for international trade.
The absolute priority now is implementation, action. I sent a letter earlier this week to the
27 Presidents and Prime Ministers to urge them to mobilise their governments, so that
paper commitments on the Compact turn into real results. This is especially important in
upgrading the Single Market (where the homework is quite clear).
Here as elsewhere, my message to my colleagues is: Mesdames et Messieurs, maintenons
le cap!
This will also be my message on the upcoming EU multiannual budget, where I also want
to make sure we activate all the growth levers. It is not a huge budget but it can have a big
impact on future growth, since it is to a large extent an investment budget. I have dedicated
a special summit in November to the negotiations, and my colleagues have already been
warned: it could become the first three-shirter under my watch!
Growth and jobs are our main goals, the rationale driving all our efforts. But our success
hangs on one key condition: restoring economic confidence of consumers and companies,
which in turn requires the return to financial stability and trust in our currency. In this
respect, the fact that spreads declined rather spectacularly in the past weeks is a good
sign. We are on the right track.
We are working on three fronts:
First, we need to keep reforming, and to demonstrate through actions and results that all
European countries are determined to remain among the most competitive in the world,
whilst preserving social cohesion. The results are starting to show: look at the increase in
competitiveness and the export performances of Spain, Portugal and Ireland, to name just
three. Across Europe we already see a clear convergence for public deficits, inflation,
current account of balance of payments and competitiveness. Admittedly, there are
divergences in growth and employment figures. But we can overcome this in a second
stage.
My second front: we must make sure that we are equipped in a bullet-proof way to
withstand short-term shocks. And here I salute the launch of the European Stability
Mechanism earlier this week: it is the crown jewel in our tool-kit (if you allow me to mix
metaphors!).
And finally, the third front, we need a longer-term plan to further reinforce our Economic
and Monetary Union. Let me say a bit more about that.
Most people around the table already know that in June, I was given by European leaders
the mandate to work on a roadmap, together with the Presidents of the Commission, the
Eurogroup and the ECB, to bring the Economic and Monetary Union to genuine
completion.

3. EUCO 185/12 3
E
Over the past weeks, I have led consultations with all the Member States and with the
European Parliament. Next week I will share my initial findings with European leaders,
and we will discuss orientations for a final conclusion due in December.
We are working on three integrated frameworks -- on financial affairs, budgetary matters
and economic policies -- which will all require strengthening democratic legitimacy and
accountability.
At this stage, what I can already tell you is that our immediate priority is progress on the
banking sector.
The foreseen benefits are clear: both in terms of preventing bank failures, and protecting
taxpayers (and that also includes ensuring that the cost of failures is primarily shouldered
by the banking sector).
Progress on the financial framework will also help alleviate the fragmentation of financial
markets, and overcome the 'credit drought' that has hit Southern Europe. At stake is
breaking the vicious circle between banks and the sovereigns.
Our first aim is to agree in the upcoming months on a Single Supervisory Mechanism.
There are Commission proposals already on the table, and also on bank recovery and
resolution, and on deposit guarantees. We need to move fast on these proposals. I don't
need to remind you of the incredibly complex conditions under which we operate. You will
all understand if I say that in institutional terms, it is as if we were doing a sprint on the
banking union in the midst of an EMU marathon.
Integrating our financial sector frameworks will have important fiscal, economic and
political implications, so the work cannot be envisaged separately from progress on the
other fronts.
On the fiscal and economic policy front, a lot has already been done, and implementation
is now key. We must get the most out of all the economic governance tools that we have
put in place, and agreement on the one still in the legislative process, the so-called two-
pack on fiscal surveillance, should be reached as a matter of urgency.
But in the longer term, as the experience of other currency unions shows, strengthening
discipline alone is not sufficient, and we may want to look at other options to complement
it.
Here I just want to single out two new ideas that still need to be explored. First, the idea of
a so-called fiscal capacity. This fiscal capacity could perform stabilisation functions
specific to the eurozone, for instance help countries absorb asymmetric shocks over
economic cycles so that we limit the adjustment cost in terms of growth and employment.
This would also make the euro area as a whole more resilient.

4. EUCO 185/12 4
E
I want to clear out any confusion: this must not to be mixed up with the European Union's
multiannual budget. As I said, the aim would be for this capacity to perform new separate
functions, specific to the euro area. Ways to develop this capacity within the framework of
the EU institutions will have to be examined. Obviously, this idea has to be explored in
more details in the run-up to the December European Council and it is in any case a
longer-term project. Since we decide on the Multiannual Financial Framework in
November, it is important that we don't start mixing that discussion up with this embryonic
idea of a fiscal capacity.
The second new idea is to potentially promote structural reforms through arrangements of
a contractual nature. Eurozone Member States could engage in such arrangements with
European institutions on the structural reforms they commit to. These reforms aim at
increasing growth and jobs, and they could be supported by temporary and targeted
financial incentives.
It is too early to take decisions on either of these two avenues. For next week, it is rather a
matter of a mandate to explore these ideas further, between now and December. This
brings me to the last point.
Many of the ideas and proposals in the three frameworks I mentioned might come to affect
the current balance of decision-making power between national and European authorities.
Naturally, this would require strengthening the current framework for democratic
legitimacy and accountability. To take one example, clearly a new single banking
supervision system will imply designing suitable accountability procedures to go with it.
As a general principle, democratic control should occur at the level where decisions are
taken. So the European Parliament and national parliaments should be kept closely
involved, as appropriate.
Here we should not mix up the goal and the means. The goal is not to build a political
union for its own sake or to completely overhaul our Union…No, the goal is to make the
euro stable -- financially and economically, but also politically solid. That we must do.
We must not let ourselves be distracted, but instead remain focused on the real goal. While
progress must be swift, all the steps have to be carefully thought through and properly
discussed. There can be no shortcuts.
And there is no more effective way to guarantee this than well-informed public debate. It is
my hope that the ideas on the table will be prodded, scrutinized, and debated, and that
constructive suggestions will emerge. This can only make for stronger decisions -- a robust
basis for our common future.
And in mobilising this collective, informed debate, I am convinced that the Friends of
Europe, all of Europe's friends, have a role to play!