Abstract
As Europe continues to struggle economically, fresh ideas are urgently needed for revitalising the economy, generating growth and creating jobs. The Centre for European Studies (CES), the political foundation and think tank of the European People's Party, is committed to finding solutions to help Europe move forward. Therefore, on the 19th and 20th of April, the CES brought together experts and policymakers from across Europe and beyond for the Economic Ideas Forum in Dublin. The following article provides an overview of the main topics and ideas that were discussed over the course of five panel debates, as well as keynote addresses by EU officials, ministers and heads of government.
Winning opportunities through stronger economic governance
The financial and sovereign debt crisis has revealed the weak economic, budgetary, financial and political integration of the European Union. On the one hand huge discrepancies in the economic and budgetary performance of Member States have become visible, which has caused tremendous strain within the euro area. On the other hand, the management of the crisis has shown the limits of the current financial and political decision-making processes.
Since the start of the crisis, several initiatives have strengthened the governance of economic and budgetary policy coordination among EU Member States. In addition, decisions have been implemented which render the political decision-making process more efficient and effective. Moreover, a new financial supervisory architecture has been agreed and implemented.
To ensure a sustainable common currency, the eurozone needs rules and the means to enforce them. Moreover, when a fiscal rule becomes part of domestic law, this becomes a bottom up approach, not just top down. However, it would be naive to assume that the Fiscal Treaty will solve all problems. Therefore, governments need to balance their budgets and implement pro-growth policies. Many EU countries took advantage of low interest rates to spend in the public sector, rather than to boost competitiveness. This needs to be fixed, but not via stimulus packages financed with sovereign debt.
In addition to these measures, policy makers need to deal with the moral hazard issue in the banking sector. We are currently educating a young generation of bankers in a world in which they are not accustomed to having to pay for their mistakes. More generally, one can say there will not be a proper monetary union until there are adequate capital requirements, proper supervision and enforcement of market discipline at the EU level in the banking sector.
To further strengthen the EU's economic governance, one idea would be to institutionalise more parliamentary dialogue between Member States and the EU institutions.
The Single Market as a key to growth
The completion of the Single Market is far from finished. The Monti report and initiatives such as the Single Market Act highlight the importance of this endeavour and argue that the completion of the Single Market is seen as essential to kick-starting the European economy. And as economic growth is one of the main solutions to restoring debt sustainability, the Single Market is also essential to bringing stability and prosperity to the euro area and beyond.
However, one problem is that the Single Market appeals much more to our reason than to our hearts. As a consequence, although the Single Market generates many benefits, those benefits are often unseen or are taken for granted. Only citizens who are somehow disadvantaged by the Single Market tend to make their voices heard. To overcome this apparent contradiction, the EU should do a better job in explaining the benefits of the Single Market.
As a bank may be ‘too big to fail’ in the context of the German economy but not in the context of a European Single Market for banking, a more integrated Single Market would be helpful in dealing with the ‘too big to fail’ issue. In addition, we need to develop a single European bond market as entrepreneurs and business are far too reliant on banks for their financing needs. Another important area is the Single Market for energy. The development of intercom-nectors between different, often national, grids would significantly increase Europe's energy security. As there will be one person at work for every retired person in Europe by 2050, more competition via a single healthcare market would drive down healthcare costs.
However, it needs to be emphasised that effective implementation of agreed policies is necessary. As with free trade, this is not only difficult in Europe, but everywhere in the world. For the Single Market to be successful, Europe should move from simple policy statements to the details of the proposals and their implementation. This, however, requires as much effort, political support and intense focus as the policy development phase.
Boosting competitiveness and enhancing social Europe: delivering on both fronts
The weak competitiveness of several EU Member States is one of the main origins of the sovereign debt crisis. In addition, ‘The most urgent social matter’ is how European Commission President Jose Manuel Barroso described youth unemployment in his September 2011 State of the European Union address to the European Parliament.
The success of the European social models depends on the ability to act together, to create the right conditions for business to prosper and to develop a dynamic and well coordinated single market. Therefore, it is important to refocus on the real economy and competitive and innovative industries. In particular, the EU should pave the way for a new industrial revolution through investments in three specific fields: research, innovation and education; trans-European infrastructure networks; and industrial reconversion with a particular focus on energy and manufacturing. And if we want to maintain our living standards in a globalised economy, we will need to emphasise flexibility by introducing ‘flexicurity’ in all European countries by finding a middle ground between job security and flexible labour arrangements.
When making assessments of liabilities, one does not only include the ability to repay, but also the willingness to repay, which in turn depends on factors such as social cohesion. Therefore, social welfare systems are an asset, especially when they are well managed. Amongst other factors, this would mean that the incentives are right and the cost of taxation is not too high.
Other elements of importance in the debate on our social models are key areas such as education, healthcare and pensions. In most of Europe's social models these areas are predominantly financed via taxpayer funds. However, demographic changes will create huge challenges for that type of financing. The necessary reforms are not about taking things away from our citizens, but rather about recognising the inevitable while helping people to prepare for adjustments. Therefore, we should not only talk about obstacles or about how to ‘share the pie’, but also about the potential for economic vitality and the ability to create activity through entrepreneurship.
The EU and US—shared economic challenges
Both Europe and the US combine high levels of debt with low to moderate economic growth prospects. Europe and the US share other economic challenges as well: reforming the financial sector, enabling the shift to a greener economy, tackling increased competition from developing countries, combating the poor labour market performance of citizens with a migrant background and coping with increased energy costs and de-industrialisation.
The United States and the European Union must work together to address these common global challenges. For this, the creation of the High Level Working Group on Jobs and Growth should be applauded. Only together can the US and the EU implement meaningful intellectual property rules, work on energy security and the security of raw materials, etc. The EU and US should do so based on their common interests and values. And they will achieve better results if they take the lead together to shape the global system. In the long term, the US and EU need to conclude a Free Trade Agreement (FTA) dealing with non-tariff and tariff barriers, regulatory harmonisation, etc.
However, it will take real political leadership to work through the tough issues associated with negotiating a FTA. But, if the EU and the US cannot cooperate and solve these issues, how would the rest of the world ever be able to deal with them? And, if the US and the EU were to strike a bilateral FTA, it would not mean that trade multilateralism would be dead. On the contrary, we just need to rekindle a new leadership structure for the WTO. To that end, it is the transatlantic partnership that needs to lead the world towards a new kind of trade model.
Finally, whoever wins the upcoming US presidential elections, there will be no real difference in terms of the impact on the US-EU economic relationship. What is perhaps more worrisome is that Europe has become a political punching bag for some American politicians and pundits. Over time, this creates a corrosive situation because instead of affirming the idea that Europe and the US should work together in defence of common values, it alienates the two power blocks. At the moment, there are no political gains to be made for US candidates who come to the defence of Europe or a transatlantic FTA. Therefore, Europe needs to give a lot of thought to how it presents itself in Washington. When trying to engage in the US, Europe should speak with one voice.
Towards a more integrated Europe
Recent years have highlighted problems in the way Europe has progressed. In particular, the incomplete nature of the EU's Economic and Monetary Union has been exposed. Therefore, new economic tools are necessary to ensure a true economic union. The stability treaty is the first important step in this process and will function as a mutual commitment among EU countries to continue to support each other through these times of crisis.
Policymakers have to make the case to citizens that being European does not require them give up their other identities. Being European is an added value which is complimentary to national and other identities. Moreover, Europeans have shared and institutionalised values, a sense of community and a sort of ethical coherence about the way things are done. And it is up to the people of Europe to ensure that Europe stays relevant, strong and does not become ‘the old continent’. That should be the ambition and the narrative to ensure lasting support for European integration. Moreover, the European Union needs to make sure its processes are transparent, clear and accountable. This is the only way to be able to connect to the European people.
We must be ambitious in order to make sure we remain the dynamic continent we are today. And when being ambitious, and acting to strengthen Europe, we must do so in a way that holds policymakers accountable. At the end of the day, it is not about process, but about delivering results. Therefore, we must remain focussed on outcomes while keeping firmly in mind what kind of Europe we want to achieve.