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Innovation and growth are key to economic revival in Europe

As we meet in London today, the European economy remains weak. Growth has stalled across the continent. Unemployment is high. After several years of crisis, our citizens and businesses are still uncertain whether the future offers prosperity or stagnation. William Hague and I outlined some ideas on how to bring growth back into the European economy and published them in The Telegraph. This is how it looks when you see it from Sofia and London…

As well as responding to the immediate debt crises, we believe that Europe must focus more on growth. We outline here a programme of reforms which Europe needs to undertake to remain competitive and confident.

Neither of our countries is in the euro, but it is in our national interest that the currency should succeed. We have a major stake in a stable and growing eurozone. A large share of our exports goes to this area and its volatility has a chilling effect on both economies.

As well as the fiscal compact, markets must be assured that the eurozone firewall is big enough; that Europe’s banks are being adequately recapitalised; and that the problems in countries like Greece have been properly dealt with.

At national level, the UK and Bulgaria are working hard to address the problem of government debt. We have put forward an aggressive set of plans to get our economies back on their feet. We are reforming our welfare and pension systems, restraining public sector pay, and streamlining our public administrations.

By taking bold decisions, we have shown it is possible to earn credibility in international markets.
Beneath the surface of the recent crises is a bigger and more important challenge for Europe. A fundamental shift in the global balance of economic power is under way – from West to East and from North to South.

This is about competitiveness. The European Commission’s 2012 Annual Growth Survey observed that “long before the current crisis, overall EU performance has been weaker than key competitors”.
The only long-term solution is to encourage and promote growth. In our meeting in London we are discussing a number of ways to do this: extending the single market, promoting free trade, reducing red tape and using the EU’s budget to promote innovation and competitiveness.

First, to complete the single market we must widen its remit to focus on the digital economy, on energy, low carbon development, defence, and further liberalisation of the services sector. One of the reasons major companies invest in Bulgaria and the UK is because they want access to the single market. But in some crucial areas, internal trade is still obstructed.

The single market has not kept up with the shift to services and changes in technology. Further liberalisation of services and the creation of a digital single market could bring over €800bn (£660bn) to the European economy.

Second, promoting free trade. The EU has had a good track record of promoting international trade but we must do more. We’d like to make 2012 the year of EU trade deals, by concluding negotiations with India, Canada and Singapore, launching negotiations with Japan by the summer, and injecting momentum into EU-US economic integration.

The deals currently on the table could add €90bn to EU GDP. Above all, we must reject the temptation to seek self-defeating protectionism in trade relations.

Third, reducing the burdens on businesses. The average cost of starting a business is higher in the EU than in our major competitors. It costs €644 to set up a business in the US compared with €2,285 in the EU. Big businesses say EU regulation is having a negative effect too.

We have made some advances in Europe on reducing regulatory burdens for small businesses. This is a step in the right direction, but we will push for a more ambitious EU programme to reduce overall burdens, specific measures to help small businesses and new sectoral targets to benefit industry.

Fourth, Europe needs to focus more on innovation and infrastructure for a modern economy. Connecting Europe’s energy grids is one milestone. In addition, we should make EU research and investment funds more flexible and simpler to use.

As President Rosen Plevneliev of Bulgaria said in his inauguration speech, innovation is at the heart of growth. Europe must create the best environment for entrepreneurs and innovators to turn their ideas into commercial projects, and thus create jobs.

Finally, we wish to stress the transformational power of EU enlargement. The process of accession has helped to entrench democracy, the rule of law and human rights across the continent. It has also increased investor confidence. We believe membership of the EU should be open to any European country that wants to join and meets the rigorous accession criteria.

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