FEPS Fresh Thinking

On December 6, the European Commission presented the long-awaited package for the deepening of the European Economic and Monetary Union. In a debate we organised at FEPS to gather first reactions to the proposal, a member of the European Parliament put forward the right questions:

  • how should it be explained to people in the different constituencies?
  • what is actually progressive in all that?

Let me be sharp: in terms of economic policy, there is no change of paradigm. The proposal to integrate the Fiscal Compact in the Union legal framework, with no reform or revision of fiscal rules, is de facto a reinforcement of the austerity doctrine. This is definitely not progressive! The S&D Group leader Gianni Pittella has already been rather vocal about the need to ‘scrap the logic of the fiscal compact and turn the page on blind austerity.”

Photo: @European Union 2017

When the Commission is arguing that the deepening of the European Monetary Union is a means to an end for more jobs and growth it would have been better to propose to substantially revise the rules of the Stability and Growth Pact towards a Stability, Growth and Employment Pact. Such a revised Pact should have included an additional forward-looking public investment strategy with changed deficit rules and an new additional mandate for employment for the European Central Bank which is added to the existing stability and inflation one. Such employment targets could then be also added to the different national fiscal policies. Much remains to be done to give equal footing to fiscal and employment targets, and to treat macroeconomic and social imbalances equally. It is indeed disappointing that the Commission’s package does not move a single step forward towards developing a social dimension for the EMU. An effective imbalance procedure should include hard targets for employment and social standards to fulfill the objectives of a European Social Union. This is a progressive proposal!

Some of the institutional proposals are instead going in the right direction; in particular the idea to transform the European Stability Mechanism in a European Monetary Fund. This is a real forward-looking proposal, nevertheless it should not be a simple renaming and we all should be aware that next shocks are coming and when we have not fixed the roof while the sun is shining rains and storms will damage our house again. Hence more financial means are needed for such instrument to really work as a financial backstop. Most importantly, the relevant step in domain is the move from a purely intergovernmental logic to the community approach. This is a progressive proposal!

When coming to the proposed European Minister of Economy and Finance, one should avoid endorsing the arguments of conservatives saying that this gives too much importance and governance power to the Commission. On the contrary, one should argue that there is an absolute need to have such a position, to improve on the coordination of economic policies across Europe, on top of budgetary coordination, which so far meant only fiscal consolidation. This is a progressive proposal!

The bottom line is that economic and monetary policy can only have one objective: to improve the well-being of citizens, with a particular attention to the more vulnerable. Every economy has to be thought of as the combination of the different assets and the rules and the institutions that govern those assets. Europe has a common currency but not a common responsible institution that governs effectively. At the moment, the Eurozone is governed by the national finance ministers and only coordinated by the chair of the Euro group, who does not have a democratic mandate.

The promise of Europe to bring prosperity for all should remain the leading objective and if we want to understand why instead of convergence there is divergence and why instead of growth and high employment there is instability, we have to discuss proposals that lead to full employment and shared prosperity.

A recent FEPS Policy Brief by De La Rocha, Rinaldi & Echevarria goes deeper on the theme of ‘Progressive reforms for rebalancing the Eurozone.’

The European economic performance is not a God-given matter but a result of a system which needs rebuilding more than fine-tuning. We cannot single out one particular policy choice that is responsible for one current predicament. Economic and monetary policy is a complex system of decisions, rules and institutional features that all play a role; the economic governance should, therefore, be as democratic, transparent and accountable as possible. This is a progressive proposal!

This is hardly time for complacency, nor should we think that we are out of the mud. We cannot continue to applaud falling unemployment rates when in some of the Euro countries they are still over 15%. We cannot continue to applaud restored growth when long-term prospects are still gloomy; we cannot continue to applaud when a high-share of our younger generation cannot contribute with its productive and resourceful dynamism to the well-being of all.

The architecture of the European Monetary Union is still incomplete and unable to assure employment, growth and stability. This has not been addressed fully in the Commission’s proposal. That is the fundamental flaw of the Eurozone project.

Hence, what is on the table might be seen merely as a first tiny little step towards completion, nothing more, nothing less!

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