In a conference organised by Policy Network in London this week, Lord Tony Giddens argued, in a session I had the honour to chair, that the problems we are facing at the moment are not just European but also global. The key question facing Europe, as well as the US, China, India and Africa, is “Where are the jobs coming from?”

Therefore, Europe needs to fundamentally rethink its policies in order to respond to global challenges. It is a question of acting and reacting quickly as a continent to the rapid and persistent transformations in the world. When we are currently talking about how the European Union is tackling unemployment during the Euro crisis we have to realise that the numerous mechanisms installed since 2008, such as the European Stability Mechanism, the European Semester, Six-Pack, Two-Pack etc, are slow. Consequently they fail to respond to the effective recalibration of Europe’s place in the globalised world.

Ex-post coordination, as is currently the dominant method in Europe, is disastrous. It is an attempt at an ad hoc repair policy. In the words of Jacques Delors, invoked recently in Strasbourg by Irish President Michael D Higgins, it is fire fighting and not architecture, the type of operational coordination that could bring Europe further in creating jobs and growth. Consequently the EU Commission has to constantly revise its mechanisms and readapt when there is no positive result as it is the case now for France. As Le Monde reported, Commissioner Rehn announced this week in Brussels that France will have a longer period to fulfil the criteria of the Growth and Stability Pact. To problem is that nearly all the EU member-states do not fulfil the criteria of the Stability and Growth Pact, even Germany! This so-called coordination has in reality no real effect on the economic policies of the member states! The Spring Growth survey shows clearly this lack of future-oriented job creation policy. In the official announcement the EU commission stipulates, “we remain some distance from a recovery”.

We have known for a long time that austerity does not have the expected and necessary impact. Austerity is too severe, even according to the IMF and conservative newspapers like the Economist in this week’s Charlemagne blog. It is a real threat to growth and social cohesion.

Already last years’ debate on the multi-annual framework led to a reduced budget in research and development. This in turn led to a reduced willingness to go further in the question of vision and prosperity and showed clearly that this kind of Europe cannot bring positive results for job creation and sustainable growth. China is still the driving force of world recovery, the US is now recovering faster than Europe and in recent years even developing countries in Africa and Latin America are growing than any European economy. And what is the answer of Europe: “Cutting the budget!” But:

• Jobs, and hence growth, are generated from investment and risk taking, but are also generated from willingness to be attractive for new technologies and new methods of production in manufacturing sectors. This is what produces growth in emerging economies, brings new jobs to the US, and it is what in the last two decades has established high growth rates in Asia and Latin America.

• Jobs, and hence growth, are also generated from an effective fiscal policy in ensuring high levels of aggregate demand. As long as investments in the private sector are not recovering, with the banks not passing on their low interest rates to small and medium size enterprises, the state has to play its role via fiscal policy. In Europe it is up to the EU Commission to ensure that role. The budget should help to give incentives tor investment promotion and employment-focused growth policies

Thus, Europe definitely needs to elaborate an alternative growth narrative. Such an alternative approach is only possible if solidarity and mutuality become more central to European policy. Pooling more sovereignty and therefore fostering an overall European interest is needed to stimulate a stable, influential and competitive Europe.

The globalised world is not waiting for Europe. The world is ruthless, as Al Gore writes in his new book “The Future of Democracy”.

Like all other continents, Europe has to face a rapid and all-encompassing industrial transition. We don’t know what the new production patterns, like 3D printing, the advance of “robotisation” and the development of nanotechnology will bring, but Europe has the obligation to manage these transitions democratically and mutually.

A lot has been written in recent years since the crisis started about values and the European Social Model. Although funnily enough, most of these are the same values as they were over a century ago in the progressive movement and are still very relevant today. The European Union states six core values in its Charter of fundamental rights: Dignity, Freedom, Equality, Solidarity, Citizens’ rights and Justice. To be noted here, that is the fundamental rights and not the fundamental values of the EU. Nevertheless these are all widely accepted as the being the basis for European society.

However, there is a clear difference between values, rights and principles. When progressives define their values, they speak on the three core values of equality, solidarity and freedom.

Thus, we have to distinguish this from principles and rights. For instance, equality is a value but equality of opportunities is a principle. Values are generally sets of beliefs about good and bad, right and wrong, and about many other aspects of living and interacting in the society with others. Principles can be described as rules or laws that are universal in nature.

Whilst policy talks on values take place in times of crisis, often the meaning of values and principles is misused. When conservatives are talking about Social Europe they talk about a Social Union. This is different from the progressive approach. Social Europe is at the root of the European approach of the labour movements. Social Europe stands for the understanding of European integration as a way to ensure that there is sustainable growth for all citizens in order to ensure better living and working conditions. Social Europe stands for all the three core values of the progressives. Social Union stands only for harmonisation of social standards and welfare programmes. There is a huge difference!

Very easily we can elucidate that Europe needs a paradigm shift in economic policy and governance. When we discuss alternatives to the current austerity policies we have to get a better understanding of the roots of the crisis and the threat of neo-liberalism towards core values of equality and solidarity. The crisis policy of the European Union and the conservative governments is a policy of emergency measures in order to re-establish the system. This has led us to a situation of the so-called “TINA-approach”. But TINA will not give us the expected results. Europe needs to embark on a new trajectory where job creation, equity and growth are at the centre across all areas in Europe to ensure the core value of European integration, which is solidarity.

Also fiscal policy has to ensure sustainable levels of aggregate demand and therefore serve our values. The two famous post-Keynesian economists Philip Arestis and Malcolm Sawyer have long argued that a budget deficit will continue as long as investment is not strongly recovering and as long as households are not able to spend without incurring high levels of debt.

When the disastrous debate on the European budget took place last year it came out very clearly that a cut in the budget cannot assure increase in investment and promote job creation growth policies. This is a threat on the core European values of equality and solidarity and I could continue evoking such examples for a lot longer.

The need however is to be clear about what the values are and their meaning. In this respect it is even more obvious that currently Europe is turning its back on its citizens. It is simply not responding to the core values set out within society and established at the creation of the European Union. As a consequence the citizens distrust its policies.

This is the trap we are in at the moment. Europe needs to re-engage in its core values in order to regain citizen’s trust and move forwards!

At the Brussels forum of the German Marshall Fund I chaired a debate on the role of Germany in Europe.

10 years ago the Schröder government undertook painful reforms in Germany – called Agenda 2010. The overall aim of the reform was to make the labour market more flexible or “fitter” for the globalisation. The purpose was to assist people to get quicker reinsert in the labour market but also to give the business sector the possibility to act more flexible. “Fördern und Fordern – assist and challenge” was the mantra of the Chancellor Schroder at that time.

The key elements have been more flexible rules on the labour market with an emphasis for small businesses, as well as more flexible rules for low paid and part time jobs and temporary work. But the essential was to merge the federal assistance for long term unemployed with the municipal system of support for poor people into a guarantee for a minimum and basic living standard – called Hartz IV.

A part from that, the reform introduced rigid rules for jobless people who are seeking jobs to accept work. The maximum benefit time was limited to 12 months, respectively 18 months for the elderly.

Most of the German new position in Europe is due to this reform. It stimulated investment and research in particular for the SMEs and created in consequence jobs and growth. Germany opened more and more to the new markets in Asia and South America. As a consequence Germany was less vulnerable in 2008 when the crisis begun.

Today, Germany has the lowest unemployment rate amongst the big Europeans economies, the German budget is more or less in equilibrium and growth perspectives for the next years are positive – also seen in the spring “hausse” of the DAX stock market index which is at its highest peak since 2008. The index is currently above the before crisis level!

This is the one side of the story. But there are two other important elements for the German performance at the moment. Much of this success is due to the relatively moderate increases of wages in Germany in the last decade, which created deep imbalances in Europe and helped Germany at lot to strengthen its market position. Second, not all countries can be export-oriented economies – exports of one country are imports in another.

Therefore the feeling amongst the European partners is that much of the success is part of the German economic model as a strong export oriented economy with a clear strategy to build further on that business model.

The feeling in the south of Europe is that the government of Germany is imposing its policies and the European austerity policy helps to maintain the strong German position in Europe.

In this perspective we have to question if German interests are really European. The answer lies in the perspective to maintain German national interests as the strongest and most competitive economy in Europe. The horror scenario of dissolution of the Euro would be a total disaster for the German industry. Still more than 2/3 of German exports are going to the Euro-zone. A return to a strong Deutsch Mark would involve more or less automatically a high risk for the German export position.

But Europe is more than the Euro, the market position and the performance figures. Europe is an overall fascinating “experiment of the future of the globalised world” – as Timothy Gorton Ash pointed this out at the Brussels forum. Europe is a common responsibility for jobs, competitiveness and growth.

Therefore the only chance for Germany and also Europe to remain strong in our globalised world is to go further, to share more sovereignty and to assume better together the challenges.

Stronger sovereignty should be accompanied by coordination of national and European fiscal policies and by a substantial federal European budget. The European federal budget can then be used as a stabilization mechanism and to achieve fiscal transfers.

There is a clear tendency to see things in black and white. The debt crisis cannot be solved with the tough austerity policy imposed since 2010 for the Southern European countries. Deficits cannot be eliminated overnight, that worsen the already existing downward spiral.

Eu-Council President Herman Van Rompuy stipulates that each individual country has to make its own and difficult choices. This is definitely the wrong approach. Not an individual country solution but a sound European solution is needed. Tax evasion for example is a global and an European problem. Growth and industrial policy are European issues.

Europe can only remain strong with a common action and as Germany is part of the European project this has to be undertaken on a mutual beneficial basis. To bind the member states stronger to each other in a cooperative and realistic manner needs to be done. In times of crisis solidarity to one another through stronger cooperation and effective integration is the answer- it is not imposing just rules and concepts.

And it is not about being proud and arrogant to be a super-champion. The future is a European Europe and not a “German-Merkel” Europe!

The decision last night of the European Union to cap the bankers’ bonuses is a true step in the right direction to regulate the financial markets. Today’s harsh reaction of the City of London shows clearly how necessary this decision was and how outraged these so-called elite-bankers are.

This strong opposition has also been supported by David Cameron and Boris Johnson who are concerned that capping bonuses at a basic salary will scare banks away from London (Guardian 28 Feb 2013a).

It is no longer acceptable that banks report huge losses whilst at the same time dish out very generous bonuses. For instance, in 2012 Royal Bank of Scotland reported losses of more that £5bn after paying out more than £600m in bonuses (Guardian 28 Feb 2013b).

We should recall ourselves that the bankers gambled the world and Europe into the deep crisis to which the severe consequences we are witnessing for several years now. The tax-payers had to procure the money to rescue most of the banks from bankruptcy and only now it is the first time that they will be requested to accept some responsibility towards society. This has been a long in waiting.

After the decision of the financial transaction tax and now the cap of the bonuses we are a step closer to the matter that the financial markets have to serve the people and not that the people should serve the markets.

However the battle is not yet won and the next issue is tax evasion and tax fraud. An estimated 1 trillion € in public money is lost to tax fraud and tax avoidance every year in the EU. This represents roughly yearly costs of 2000€ for each and every European citizen. See Mojca KLEVA KEKUS written contribution to FEPS Renaissance for Europe event in Turin.

Let us imagine that if the money collected from financial transaction taxes, unpaid bankers’ bonuses and tax fraud and evasion is put together on the table it could be spent much more wisely. For instance, investing in education, research and innovation would create jobs and growth and foster our European social security systems.

European citizens would be in a much better social and financial situation. We would also have lower risk in countries such as Italy where populists are winning elections and putting Europe even deeper in crisis.

by Ernst Stetter and Giovanni Cozzi

Last week the EU and the US promised to complete talks on a new free trade agreement within the next two years. If this agreement goes ahead it will unite two trading partners that account for almost half of the world economic output and of 30% of world trade.

The promise of such a free trade agreement is to intensify trade between the two blocs and to potentially boost GDP growth by 0.5% annually for both the EU and the US. This could be a rather significant achievement. However, we believe that a new free trade agreement alone is not enough to boost long-term growth and employment.

The main achievements that this deal is said to bring relate to the reduction of non-tariff barriers to trade, and in particular product regulations. Presently, these types of barriers, which prevent several European companies from competing in the US (and vice versa) are estimated to be equivalent to a traditional imports tariff of 10-20% (BBC 14/02/2013).

Subsequently, the most difficult task that a new trade deal seems to face is the harmonisation of competing standards, intra-company trade, tax regimes, and intellectual property rights. For instance, in the car industry the EU and US employ strict but differing safety standards rule, which means that European car makers must meet the US safety standards before selling cars in the US, or that they have to invest in production plants in the US to fulfil the American model. This currently puts them at a disadvantage.

Yet, there is also another important issue that we believe ought to be discussed: is this trade agreement going to bring sustained long-term growth and employment in Europe and the US?

It has often been argued that trade and financial liberalisation in the past 30 years have been a success in terms of growth for all those countries who have taken part (see for e.g. IMF 2001).

Undeniably, the last 30 years have experienced a slowdown in economic growth compared to the period 1960 – 1980. During the period 1960 – 1980 per capita GDP growth in high income countries was approximately 2.5%, whilst in the period 1980 – 2000, when trade and financial liberalisation increased, per capita GDP stood at approximately 1.7% (Weistbot et. al 2001). If we then move onto the current crisis period we are all familiar with very low and negative growth rates that both Europe and the US have been experiencing.

Also in terms of employment it has often been stated that the global economy has contributed to employment creation. However, it is also now evident that this is not the case in many parts of the world (see for e.g. Weisbrot et al. 2000).

This is not to say that globalisation, which has been driven by an intensive process of reduction in trade and non-trade barriers and financial liberalisation, is solely and fully responsible for the decline in growth rates across the world. However, these trends could indicate that the process of integration and globalisation has not been accompanied by those structural and macroeconomic policies essential for growth and employment creation. Consequently, we are calling for a different and fairer globalisation process that puts individuals rather than markets at centre stage.

Although a broader trade market area for Europe and the US would be a significant achievement, especially in political terms, it is also important to remember that long-term growth and employment are created through technological development and industrial evolution rather than by simply opening to trade, as historical evidence shows.

Over the past 30 years in Europe, in parallel with a process of increased trade and financial integration, we have witnessed a process of de-industrialisation which ultimately has had serious consequences for growth and employment.

The current crisis has made it even more apparent that Europe needs to embark on a process of structural change and transformation of its economic structure, where industrial and technological evolutions take centre stage, and where credit and financial markets strongly support the development of the real economy.

This ultimately calls for structural policies which can assist the process of learning and innovation and for Keynesian demand-management policies (in particular fiscal policies) to support investment and employment.

We believe that these policies are necessary to put the European economy into a long-term growth trajectory and to boost employment.

Therefore the challenge is not only on how to deal with tariff and non-tariff barriers but also on how to best complement the US-EU trade agreement with structural and progressive policies to boost aggregate demand.

Ernst Stetter and Giovanni Cozzi (Economic Advisor at FEPS)

Europe needs to abandon its focus on austerity in order to overcome the recession and to build modern and effective economic governance!

This call has now been embraced by several leading politicians across Europe. From President François Hollande, who campaigned against spending cuts and in favour of tax increases for the rich, to the current Prime Minister of Belgium, Mr. Elio di Rupo who, interviewed by the Wall Street Journal, stated that “if the euro-zone economy doesn’t pick up by midyear, it is time to challenge the austerity-driven approach that has prevailed during the financial crisis” (The Wall Street Journal, 25 Jan 2013).

Through “Renaissance for Europe” and other initiative, FEPS has been advocating for the re-engagement of progressive leaders and citizens in a political discussion about the state of the Union and the desired direction of European integration. Thus, we really welcome this latest call by Prime Minister Mr Elio di Rupo.

The electoral campaigns in three of the founding states of the EU, namely in France last summer, in Italy this coming 24th and 25th of February, and Germany this autumn, have sparkled the debate on the future direction of Europe among progressive leaders and have given hope for the strengthening of a democratic Union of peace, prosperity, and progress.

There is a growing belief among progressive European leaders that a policy framework alternative to austerity is possible. Indeed, it has become increasingly evident that the current austerity framework is not helping the recovery of Europe and that Europe needs to shift towards more progressive economic and social policies.

To this end, economic policies at EU level should be more cohesive and better balanced, paving the way for new ways to strengthen and enhance the EMU. In addition, the European Union must be equipped with a more solid budgetary capacity to finance investments and to achieve an employment-focused economic recovery. These policies should be further supported by a solid set of social policies promoting equality and solidarity.

In order to achieve these objectives it is indispensable to safeguard a social agenda of public investment and to create incentives for the financial sector to step-up its investments real-economy activities. Now that banks have started deleveraging and paying back ECB-loans (link), is time to establish an effective regulation of global financial markets and to identify new tools to regulate the growth and compositions of financial sector liabilities (See Eatwell, 2013).

Ernst Stetter and Giovanni Cozzi (Economic Adviser at FEPS)

Youth unemployment has become one of the most crucial economic and social issues in Europe since the outburst of the ongoing financial and economic crisis. Several European countries are experiencing extremely high levels of youth unemployment. For instance, in 2011 countries like Spain, Greece, and Italy recorded extremely high levels of unemployment among young people. The unemployment rate of people less than 25 years of age stood at 46.4, 44.4, and 29.1 percent respectively.

Whilst youth unemployment has increased dramatically during the crisis, this problem is not a new one for Europe. Throughout the 1990s and early 2000s youth unemployment was also at alarmingly high levels. For instance, in Spain, from 1990 to 2005, average unemployment rate for people below 25 years of age was approximately 30 percent whilst in France it stood at 20 percent over the same period.

Beside country-specific factors which impact upon unemployment levels, the standard explanation over the past two decades sees unemployment as a supply-side problem. Heavily regulated and rigid labour markets, skills deficit and skills mismatch, and education, among others, are considered to be the main culprits of youth unemployment.

As a result several European countries have undertaken reforms to make labour markets more flexible and improve the education systems. However, despite these measures the average youth unemployment rate in the European Union (27 countries) has remained virtually stable at around 18% over the last two decades.
This long-term negative trend makes it clear that supply-side measures do not suffice to reduce youth unemployment in Europe. This is because the labour market in Europe is severely undermined by a weak aggregate demand. Supply-side responses alone will not solve this negative issue.

In addition, the crisis and its austerity policy responses have augmented the labour market crisis and have impacted negatively on the position of the young in our society. Austerity measures have led to a reduction in the possibilities of using public investment for stimulating aggregate demand. In addition, the cuts on public expenditures have had severe consequences in terms of social compensation through the welfare system.

It’s now time to promote progressive economic and social policies to come out from these severe crises (financial, economic, and social). What Europe needs in order to create more jobs for the young is an employment-focused fiscal stimulus and an increase in public investment. The increase in public investment should be marshalled towards initiatives which will lead to job creation (e.g. investment in new cutting-edge technologies, large infrastructure projects, industrial expansion, among others). Such a policy combination should help expanding productive capacity in Europe and stimulate aggregate demand (also via crowding-in private investment), with the end results of creating more jobs.

Positive steps are taking place towards this direction both at national and European levels. In this context it is worthwhile mentioning the policy proposal of the Party of European Socialists (PES) which advocates for a Europe-wide youth guarantee to ensure that every young person in Europe must be offered a job, further education or work-focused training at the latest four months after leaving education or after becoming unemployed (see Combatting youth unemployment, Report adopted by the PES Presidency on 09/01/2012).

Where to find the money for these initiatives? They could be financed using the Structural Cohesion Fund, or with the introduction of a European-wide financial transaction tax, or with project bonds. What has become absolutely clear is that austerity measures which have put governments under a significant amount of pressure to cut public expenditure in order to reduce their debt levels have not only slowed down the recovery but have also exacerbated the long-term European problem of youth unemployment.

In my last blog I argued that the next EU budget should be a multiannual framework of a joint and common expression of a sound economic, fiscal and social policy in Europe. The budget framework should be therefore also a starting point for a more thoughtful debate on the future of the Union.

We are now close to the final negotiation on the multiannual financial framework (MFF) of the EU for 2014 – 2020. A summit will be held on the 22nd November in Brussels. As always in European policies and as always right before important decisions, the debate is becoming heated in some member-states.

For instance the vote last week in the House of Commons in London where the British Prime Minister, David Cameron was severely defeated on his proposal to freeze the EU budget.

It illustrated the strong eurosceptic sentiment in Great Britain at the moment.

More surprisingly, the Labour Party voted on the same line as the right-wing eurosceptic Tories to impose severe cuts to the budget.

In a recent article, British Labour emphasised that whilst people are seeing cuts in national budgets, cutting the EU budget is “a principled, pro-European argument”.

It’s not only in the UK that proposals to cut the EU budget are being spelled out but also in Denmark, Sweden and Germany.

However this is not understandable if we consider further issues. The proposal of the Commission which has been approved by the European Parliament is to have an increase of 5% over the inflation rate for the next 7 years, representing, approximately, a mere 1,03% of the EU gross national income for the whole EU budget. Even in these troubled times, is this “ludicrous”?

The EU budget should recognise at least three elements for the upcoming period:
1. The importance of Europe in the globalised World
2. The continuing harmonisation of the member states’ economic situations
3. Consolidation of spending especially in these times of stagnation and crisis

Furthermore, the budget should reflect the real economic and social situation in the member states who at the moment are witnessing dangerously high unemployment especially amongst the youth and continuously less efforts in education and research.

How can Europe strengthen its global position without investment? How then will it become an operative knowledge-based economy? How can Europe fight against youth unemployment by cutting education budgets?

All this can only be achieved by allocating money to these sectors and by making a sound commitment towards European policies and budgeting for such commitments. However, if the progressive movement in Europe is conceding cuts in European spending, this is only, as the Guardian newspaper wrote, adopting the same policy as the Tory right in Britain which means a hostile, anti-European approach.

To overcome the crisis in Europe progressives need to be clear and decisive. A real new alternative political budget proposal has to be put on the table which can prove to citizens that Europe is not part of the problem but rather the solution. Austerity and cuts are not helping overcome the crisis. This can already be seen. Linking the European budget framework to budget cuts carried out by conservative governments in the member states is dangerous. Ultimately, it creates more fertile ground for Euroscepticism to build up and creates a growing disconnection of the citizens from Europe.

Evidently, there is room to allocate the budget according to politically decided goals of Member states of the EU but this does not automatically mean that we should cut the overall framework.

•Yes, it is outdated to spend nearly 40% of the EU budget for the Common Agricultural Policy,
•Yes, it is non-acceptable that those who profit most from the agricultural policy are not the normal farmers, as we always presume and as the agricultural industry is always lobbying – but large-scale industrial agricultural plants and sizeable land owners, one example being the British Monarchy!
•Yes, it is time to reform the structural and cohesion funds (see the recent FEPS study for further details).
•Yes, it is time to see if it is necessary to only have large infrastructure projects, i.e. roads, bridges etc financed within the structural and cohesion funds, instead of investing for example new green technologies, research and skills to provide growth.

All this brings us back to the last negotiation round in 2006. At that time is was already stipulated that as long as the European Union has not the proper right to finance its own budget by its own resources it will always be an unpleasant bargaining process because the resources have to come from the national budgets.

Therefore, Europe is facing a serious problem. In times of crisis, in most of the member states the European budget is seen as a source of supplementary income – the case of the net-receiver countries – or a source of less spending in the net-contributing countries. Consequently it is by definition not seen as a truly European commitment and therefore is subordinated to being an unpleasant bargaining procedure.

A budget is the expression of politics to implement. Therefore the progressive argument should be about developing Europe further, not being “against” it as the conservative austerity policy makers are.

The fundamental issues for the next seven years are what kind of Europe we need and what kind of Europe we want. Just as it always has been in the history of the EU, the road is risky but we have to take it if we are to develop and re-shape European integration.

So much has already been established and gained that it would be foolish to let it succumb to neo-populist, anti-European and national short-term battles.

The chance to advance and shape Europe should not be given away. Hence a “worthy” budget frame for 2014-2020 is essential!

Recently, in a German magazine, I published an analysis which questioned if Brussels wants Europe. Of course, this was a rhetorical question but nevertheless a valuable one regarding the current situation in the final phase of negotiations about the 2014-2020 multiannual financial framework this autumn. We see clearly that national egotisms are not at all left aside.

For example, the French agricultural minister stipulated in a recent declaration that the next financial framework should allocate at least 40% to the Common Agricultural Policy – meaning, of course, that France wants no problems with the agricultural industry on the home front and the CAP is seen as a “national” instrument of the EU for the French agricultural sector. I am deliberately not using the term “farmer” in this context. The CAP is by no means a policy which stimulates small scale environmentally friendly green farming.

Another example is the declaration by the British Prime Minister David Cameron this week that the EU budget should be split in two, with one for the Euro zone and one for the non-Euro zone!

Every budget is the expression of a common economic and financial policy, which is based on the basic values agreed and the common policy to implement. Therefore, the 2014-2020 financial framework is a means to an end!

Furthermore, we should go further now in our European efforts towards effective European coordination of economic and finance policy. The budget could be a starting point of a real discussion of a stronger degree of federalism.

Unfortunately the euro has not become the symbol of European integration but has regrettably only stayed as a tool. In the first decade of its existence it has been a convenient currency and accounting unit. It is proven that Europe is not as loyal to the euro nowadays as, for example, the Germans were to the Deutschmark!

This is also a reason why European politics has lost its function as a medium to explain needs and the challenges to the European citizen. The legitimacy of politicians is being challenged. All of this is fertile ground for growing neo-populism.

Europe has to challenge the Brussels administration concerning the long-term European goal. Admittedly people always pointed to the common European heritage and the accompanying common future but a genuinely European solution to the euro crisis as a precondition for this has not been mapped out. But repeatedly the proposals for solutions are based on national approaches instead of genuine European strategies.

The neglecting of European solidarity is also one of the major causes of the euro crisis. Over 25 million unemployed in the EU and over 50% youth unemployment in Spain should not just be alarming figures for people in the Brussels administration. They must be a spur to do everything in their power to find a new European consensus based on a new understanding of solidarity, social justice and wellbeing.
Budget cuts for the multiannual framework will be counterproductive.

If the majority of EU Member States want cuts for Europe they do not want to recognise the need for a more federal European structure which is capable of facing our globalised world.

It seems that there is now consensus that it will be nearly impossible to lead the EU out of the crisis without any further growth stimulating measures. It also seems that the Spanish government’s acceptance of an initiative to ask the European Union to launch the rescue mechanism in order to address the needs of the Spanish banking and financial sector has gone down well in the financial markets.

But it is not at all acceptable that we, as Europeans, should accept instructions and bets from the US concerning a potential Greek Euro zone exit. In the last week the main rating agencies, some of the top US economists like Kenneth Rogoff, mainstream newspapers like the New York Times, and in particular hedge funds manager George Soros have been arguing that they are certain Greece will exit the Euro Zone within the next 3 months!

A Greek exit would be an economic and political catastrophe for Europe with irreversible damage not only for the Euro but also for Europe’s place in the world. It is easy to argue now that it would be better for Greece to leave. But would it be acceptable for Europe that the Euro area will suffer after a Greek exit? Mark Cliffe, an economist at ING, a Dutch bank, estimates that following an orderly and well-managed Greek exit—one with very limited contagion and some continuing support to Greece from the Euro zone and IMF—the Euro area would suffer an extra GDP loss of 1.6% in the first year. The question is if a Greek exit could really be contained at its borders?

The result could affect the reputation of European economies, leading to less confidence and lower investment. Switching from one currency to another is a more than a significant step. Euro savings and mortgages need to be converted. A question will arise concerning exchange rates in Europe, with consequences, notably, on wages in Greece. Finally, overnight, the foreign Euro liabilities of Greece’s government, banks, and companies would surge. If Greece leaves the Euro, capital controls would be necessary because the Drachma would immediately fall against the Euro, possibly losing 50% or more of its value.

A total disintegration of the Euro zone would be the most catastrophic scenario for core Europe since the beginning of European integration. In such a case even Germany would not be spared, incurring a GDP loss of 8.2% as its exporters contended with the strength of a reborn D-mark.

The former foreign minister of Germany, Joschka Fischer, published an insightful article last week accusing the German Chancellor not doing the utmost to rescue the Euro.

The gambling bets of American hedge funds mangers should be combated. The casino can no longer play a game so devastating for the citizens as that which prevailed before the crisis in 2008. There are proposals on the table such as tapping new resource with the financial transaction tax, enhancing the role of the European Investment bank , bringing down the cost of servicing debt with a truly European debt redemption fund. These are some of the serious proposals that can help to reshape European Economic governance and decision-making. Hazardous betting is dangerous and threatens European democracy and legitimacy.