The crises and beyond: a chance for an economic, social and institutional reset

A comprehensive reset is necessary

Hannes Swoboda

Besides being a disaster in the short run, the financial and economic crisis with its specific consequences on some member countries is also a chance for an economic, social and institutional reset for the EU. Until now this chance has not been used sufficiently, irrespective of certain immediate measures taken by national governments and the Council, as well as different legislative proposals by the Commission. Part of the proposals and published plans serve immediate help. Others include some forward-looking ideas. However, a courageous and convincing “grand design” is non-existent. With the purpose of preventing future crises and becoming a truly global economic player, a comprehensive reset is necessary.

Economic reset

The answers to the crisis and the forward-looking measures for a new economic growth boost have to be seen interrelated. Europe needs an uninterrupted transition from defensive adjustment measures, correcting fiscal and macroeconomic imbalances, to new growth paths. The corrective measures themselves need to be designed in a way that they prepare and support the transition towards new and sustainable economic growth. For example, Eurobonds which offer cheaper money, which means credits with lower interests, must lead the crisis-stricken countries out of austerity and depression as soon as possible. These measures must be constructed in a way so they “enforce” sound economic and fiscal policies on those countries aiming to use these bonds to finance themselves out of their indebtedness. In addition, a Financial Transaction Tax must provide money for long term investments for national and particularly for Trans European Projects. Project bonds must deliver additional financial resources for specific long term investments into the material and immaterial infrastructure across Europe.

The aspirations of some Member States to cut the already very modest/small European budget must be repudiated. The European budget will nonetheless never be of a magnitude comparable to national budgets referring to the ratio of the respective national or European income. The contribution of the budget to the competitiveness of Europe, therefore, has to be carefully planned and maximized. All budgetary spending from the Cohesion Fund, the Regional and Agricultural Funds, and the R&D funding, must be targeted and streamlined to strengthen the competitiveness of all the regions, with a particular emphasis on economically weaker regions. A special focus should be laid on creating a broad network between weaker and stronger regions. The EU should build a network of growth poles all across Europe in order to generate as many green jobs as possible.
In the framework of an economic reset, a new push should be given to the harmonization of the European taxes, especially of corporate taxes. This harmonization should leave a limited room for internal competition, but still create a fair system inside Europe on one hand, and give a chance to concentrate on the common competition with the outside world on the other.
But, of course, the rise in competitiveness is not only an economic issue, it is also a result of relevant spirits and of innovative orientation of societies. Starting with pre-school education, via schools to universities and a life-long learning, countries must change the orientation of their citizens. The educational systems must integrate all groups, inclusive of migrant population, and create a climate of curiosity and innovation.

Social reset

The Economic reset and a new attitude towards competitiveness can only be successful in a climate of a fair, just and socially balanced policy. Austerity measures, which clearly neglect the social aspect and lay the burden of the correction by financial and economic measures primarily on the shoulders of the weak, are not only unfair, but also lack necessary results. For instance, the reliance of savings and budget cuts only on the poor, the working and the lower middle classes is not acceptable. Yes, numbers count and “sacrifices” of the rich will not be enough. But a policy which leaves bonuses for bank and other managers more or less untouched, and wants to centrally regulate the wage policy in all member countries, has to be rejected.

Nevertheless, wage policy on the national level has to be brought in line with national productivity gains. A productivity oriented wage policy should be the basic aim of the trade unions, as it remains their responsibility in the framework of national negotiations with the employers (autonomy of collective bargaining). But as we need more economic cooperation in Europe, we also need a stronger and more effective cooperation of trade unions on the European level. Only such a Europe-wide cooperation can guarantee a development of wages and salaries which will contribute to the prevention of new macroeconomic imbalances and the rise of overall competitiveness of Europe. This cooperation of the trade unions must be part of a strengthened social partnership in the EU.

In general, a stronger coordination and “harmonization” of social policies is required. But that does not speak for a total equalization of measures to reach similar targets. The pension age is one of the examples. In respect of longer life expectancy in Europe, measures to adapt the factual pension age are necessary. However, the introduction of the same legal pension in all member states is not required.

Institutional reset

The existing balance between Council (and Member States), Commission and the Parliament, and the institutional setup introduced by the Treaty of Lisbon, do not suit the new challenges of a coordinated economic policy within the Union. Much more has to be coordinated inside the Union than it has been foreseen when the Lisbon Treaty was designed. The macroeconomic imbalances and their possible consequences have been overlooked or neglected when the present organizational structure has been set up.

In general, we have to find a system of economic governance which involves all Member States, the Commission and the Parliament. If it relies too much on the Member States and the Council, peer pressure will be too weak and there is always the danger of the bigger and stronger imposing measures on the smaller and weaker ones. The Commission, on the other hand, with its insistence on automatic consequences and bureaucratic evaluation bears the danger of a lack of sensitivity and political judgement which may create resistance within the population of respective Member States. Therefore, a detailed system is needed, where political judgement and evaluation on the basis of clear economic criteria can be combined: before the Commission starts with demanding corrective and adjustment measures, an intensive dialogue with the Council and the Parliament has to take place.

In the short-run the major responsible representatives of the Council and the Commission must find a way to a closer cooperation and involve the Parliament according to its rights provided by the Treaty of Lisbon. The President of the Commission and the responsible Commissioner along with the President of the European Council (not individual heads of particular governments) and the chairman of the Euro Group (together with the President of the ECB) must take the lead in proposing the relevant changes in policies and in the Treaty, if necessary. The basis of their policy proposals must be the Community Method. And by this the European Parliament is fully involved.

In the medium term, as the interim report proposes, a High Representative/Vice President of the Commission for Economic Affairs has to be established. He/She would not only be responsible for steering the EU through difficult internal economic decisions, but he/she would also be representing the EU in international economic/financial organizations and negotiations, together with her/his colleague responsible for foreign affairs.