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CNBC Interview with Jyrki Katainen, Vice-President for Jobs, Growth, Investment & Competitiveness, European Commission, from the World Economic Forum 2019

Following are excerpts from a CNBC interview with yrki Katainen, Vice-President for Jobs, Growth, Investment & Competitiveness, European Commission, and CNBC's Steve Sedgwick.

SS: Well, I'm delighted to welcome Jyrki Katainen, who is the vice President for Jobs and Growth at the European Commission. Jyrki, really nice to see you, thank you very much indeed-,

JK: Thank you very much.

SS: For finding the time to speak to CNBC. Look, there are a multitude of issues out there, and I think this World Economic Forum is beginning to get it, not least the fact that Monsieur Macron, Mrs May, and Donald Trump, can't be here, because they have part of those problems, domestically, which means it's untenable for them to be here at the same time. Just a very open question, to start off, where do you see the biggest clear and present dangers, to the global economy, to the global political system, as well, as we speak?

JK: When it comes to global political system, one of the challenges is that governance is becoming very difficult nowadays. Even if you manage to win the elections, you usually need the help of the others, in order to make decisions, and like we have seen in many of the European countries, but also elsewhere, the political scene, or the party structure, has been fragmented, it's been-, it's becoming more fragmented, and it means that there must be more parties, more MPs, to form a-, form a majority in the parliament, and that is one of the challenges. So, the world is becoming more individual, thanks to social media, for instance, and it's easier than before to get in to power, but more difficult to govern.

SS: I see that, and I it's something that I think you and I have talked about previously, and I've talked with many other people, I see that as a failure of the old political system, the old political parties. When the PD can just go off and sulk, in Italy, because it's out of power, when the Conservatives have at least three parties in the United Kingdom, where Monsieur Macron comes to the fore, promising new, but actually looks very much like a-, an old-fashioned French Centrist, I see it as a failure of the political class, perhaps as a failure of the broader political setup, and-, and for that, I'll-, I'll put the Commission in there, as well.

JK: Well, it may be true that traditional parties haven't managed to modernise themselves, but also, the world has changed, it's more open, thanks to social media, for instance, people can get lots of news, lots of fake news, too, and people-, and the society has become more individual. So, whereas, in the history, more or less everybody shared the same TV channels, the same sources of information, and our lives were very much alike, today, we are living in the middle of the individualism. So, the challenges have been so big that traditional parties haven't managed to renew themselves.

SS: Mm. And what is the prescription for this? I mean, I don't think, for one minute, you're blaming social media for populism, for the fragmentation of these parties. As you say, it's opened up people's ideas to a whole host of extra ideas, but at the Commission, where's the soul searching? I speak to you, I speak to Valdis, and I'm not entirely convinced yet that the Commission is doing its own soul searching, to say, 'This is what we got wrong. This is what we will do in the future'.

JK: Of course, we try to do our best, we try to communicate more and more openly than ever before. But then, there are new challenges coming from some of our member states, where some political leaders don't respect the liberal democracy-,

SS: Mm.

JK: To the same extent as before. So, the whole European integration, and the European Union, is based on liberal democratic values-,

SS: Mm.

JK: Including rule flow, and now, all of a sudden, there are political leaders who think that Russian type of democracy is much better-,

SS: Mm.

JK: Than liberal democracy, and-, and that brings a whole new set of challenges, because it's not only about being transparent and communicate better, or being more modern, but if you have to fight against-,

SS: Sure.

JK: The values, or against those who don't respect liberal democracies, this is not a European problem.

SS: Sure, and I know your manners are-, are too great, to say, 'This is about Mr Orbán,' or, 'This is about the Visegrád Four, as a whole,' but I know that's where you're going, as well, but can you honestly say that, because of what we've seen from these type of politicians, in the Czech Republic, in Slovakia, especially in Hungary, which I think you're alluding to really there, that-, that hasn't led to extremism in stable, long-term western democracies, though, has it?

JK: We are not there yet, but there are risks, like, countries like Poland, Hungary or Romania, they are deviating from the sustainable, democratic-, liberal democratic path.

SS: Mm.

JK: This is-, to my opinion, it's the biggest challenge the EU is facing currently, but-, but we can avoid the catastrophes to happen, if the other member states and political leaders speak openly, and say, to those politicians who don't respect liberal democracy, that you are on the wrong path, and change the course.

SS: Everything you mentioned gets worse before it gets better, because I think the main political parties are looking for a bruising in these parliamentary elections coming up this spring, aren't they? I-, I-, I see all the trends we've just mentioned, the-, the rise of populism, extremism, fragmentation, the disrespect for liberal democracy. That's all coming to the fore in May, isn't it?

JK: Well, yeah, according to the latest opinion poll, those political forces who are anti-European could gain 155 seats in the European Parliament. It's more than today, but clearly a minority. So, 155 out of 705. So, they-, they will be a minority. But, nevertheless, the-, the other challenge is that, um, once the established or traditional parties will lose their support, there is a need for wide coalition, in order to get a comfortable majority. Normally, it has been enough that centre right and centre left has found each other, and formed a coalition, they have managed to-, to form a comfortable majority, but-, but next spring, I guess, there will be four or five political movements or parties needed for forming a majority, and this, again, means that governing is becoming more difficult.

SS: Interesting, you said these are the biggest threats to the European project, rather than Brexit, at the moment, as well. Let's talk about Brexit, I know it's not you running it, I know there are other people running it, but, I mean, you are a Commissioner, so you are a representative, so why doesn't the Commission throw Mrs May a bone, and get this done, as well? Because the-, the consequences of Mrs May failing could be quite catastrophic. There could be a no deal. There could be all kinds of issues. I mean, I know some people in Europe want a second referendum, but is that the right way, constitutionally? Give Mrs May something.

JK: Well, there's very little what EU 27 can give to the UK, because the whole idea is the 27 member states want to safeguard the status quo.

SS: Yeah.

JK: We just want to let one member out of the union, because they have decided to do so-,

SS: Sure.

JK: But we want to maintain status quo as it is today. There is no point that, just because of Brexit, 27 member states should suffer, and-,

SS: I couldn't agree more, but we're arguing over a time limit to something that the British don't want, the European Commission doesn't want, neither Northern Ireland or the Republic don't want, as well. Let's just put a time limit on backstop, it's done then, isn't it?

JK: Yeah, so the problem is that we don't know what Britain wants, and that has been the problem, since the very beginning, we started to-, to negotiate with UK. So, we haven't got any news, or new indications from the Westminster, that-, which direction they are heading to.

SS: Mm.

JK: So we are just following what UK government is doing, what UK parliament is doing, and we try to help them to get out of Europe-,

SS: Okay.

JK: Out of the EU, if they really wish so.

SS: Let me get back to your wheelhouse, I spoke to Stefan Oschmann of Merck RG earlier on today, and, do you know what? He said something damning, and this probably will hurt. He said the competition for Europe, and Europe suffering badly, is from the US, I get that, from China, I get that, but Israel, as well, as the third? He said, in terms of life sciences, biosciences, big data, he said, we're light years behind. That must hurt.

JK: Well, if we're looking at the reality, Europe is doing well, in terms of trade. We are the biggest trading bloc, and we are the biggest destination for foreign direct investment, so there must be some reasons why the private sector all over the world wants to invest in Europe. This is the fact. Also, we are the largest single market, we are spending a huge amount of resources to research and development, we have the world's largest civilian research programme, called Horizon Europe-,

SS: Mm.

JK: So, of course, the competition is very hard, but Europe is doing quite well, because of our values, because of the reinvigor, because of the fact that we are a big single market, we are an attractive single market, and we are renewing ourselves all the time.

SS: Mm. And I've got to wrap up, but I want a quick 30 seconds, if I can, on if the US and the Chinese get a rapprochement, you're very concerned, though, that Europe could suffer, aren't you?

JK: We are-, we are very concerned, because, um, we don't want US and China to-, to agree on something at the expense of us. So we are all in favour of multilateral trading system, we are all in favour of level playing field, and reciprocity-,

SS: Mm.

JK: So-, and that's why we are working very closely with China also, and-, together with the United States and Japan, in order to reform WTO, because we need level playing field, and multilateralism.

SS: Yeah. Hopes of a trade deal with the US?

JK: We are just about to start negotiating with US authorities on a trade agreement, and that is positive news, because the EU has managed to agree with many countries and jurisdictions on trade agreements, and it would be a little bit odd if they didn't do anything with the United States-,

SS: Sure.

JK: So, now it looks much positive, and let's hope President Trump gets whole political support for these negotiations.

SS: Alright, Jyrki, look, really nice to see you-,

JK: Thank you very much.

SS: We've covered a lot of ground. Um. And we wish you well in the future, I know that you-, you-, you-, you might be taking a step back, at some stage, but we'll talk about that on another occasion, as well.

JK: Thank you very much.

SS: Jyrki Katainen, of course, the Vice President for Jobs, Investment, Competitiveness at the European Commission.

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