FEPS Fresh Thinking

The Financial Times of March 3rd 2011 published an article co-signed by Jacques Delors, Romano Prodi and Guy Verhoefstadt. The main purpose, as I see it, is that the authors are urging a call to action for the EU Commission to retake responsibility for its duties.

It is fully agreeable that there is an urgent need to strengthen the EU Commission. By definition the EU Commission is the institution which initiates proposals and provides the inspiration for defining common policies.

An important step forward was taken for the Commission the moment the new Lisbon Treaty was implemented. But what we have seen since is more and more a backlash in EU policies towards the old fashioned intergovernmental method.

The key issue for Europe is the need to undertake broad and deep reforms in its economic governance. Therefore, Europe needs consensus and leadership. For reaching such consensus the EU Commission has been established within the set-up of the treaties as the institutional body to make proposals and to ensure that the right instruments and practical policies are proposed in a way upon which the European heads of government can decide. The Europe of 27 needs more innovative thinking.

The current EU Commission is not at all acting in this way. The Commission is not proposing. The Commission is not innovative. The Commission is not pushing. The Commission seems to only be accepting orders from some governments. The Commission seems to be like a little schoolboy to whom it is said what to do and what to execute.

This is not only the case now. It has been already the case during the discussions on EU 2020. The FT authors are urging the Commission to lay the foundations of the Europe we need in our globalised world. I wonder if it is not too late. The term of the present college is not even at mid-term! But the Commission has neither taken the first year to enhance a new Common European Thinking nor the second year to create a European mood to overcome the current crisis.

And to overcome the financial, economic and social crisis a genuine monetary and fiscal policy is needed in the Euro-zone. Moreover, under the pretext of competitiveness, the German-Franco conservative leaders want to impose in their own orthodox economic thinking a so called “competitiveness pact” on all EU member states. Fortunately, as is also mentioned in the FT article, this proposal was not at all well received from other heads of governments and it will be almost certainly watered down during the next EU Council in March

First of all, the deep roots of the crisis lie in the increase in inequalities during the last 20 years at least, coupled with market deregulation. Secondly, aggregate demand is a determining factor in the recovery of our economies. If every European Member State embarks on public spending cuts and wage moderation, the recovery cannot come from an increase in consumption and this is the case for Germany in particular. But be aware that if austerity packages are implemented everywhere, public investment will go down rapidly and substantially. Only an increase in private investment will then be favourable to maintain output. But with wage moderation, this also seems questionable, given the poor increase in demand. Thirdly, a rise in wages does not necessarily imply a rise in inflation if there are unused productive capacities. In the medium term, it could even imply a rise in private demand for capital goods and in that case, the effect on growth and employment could be positive. This is especially the case if one considers core inflation levels. It could even lead, in the medium-term to higher profitability of capital.

Meanwhile, the real convergence of the European economy is far from achieved. Europe is still suffering major imbalances and requires a differentiation on the level of redistribution for different sectors and regions. Europe still has a long way to go in building effective economic governance. Europe is still far away from the urgently needed reforms especially concerning the Common Agricultural Policy, and Europe is still far away from having a proper and common Research and Development policy. All these elements together show the urgent necessity to have an innovative, strong and effective Commission.

Europe needs more integration and harmonisation to counter the enormous shifts in the globalised world. The economic importance of Europe and the US is increasingly challenged by others. If Europe is not capable of countering this through MORE INTEGRATION – and therefore more economic governance – it will very quickly become an economic dwarf.

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