OPINION:There is no magic bullet for the European crisis, but the times demand bold initiatives and leaders should stop at nothing to find solutions
EUROPEAN UNION member states have suffered their worst economic crisis since the 1930s. The continent has returned to mass unemployment. Twenty-three million Europeans, one in 10 of the labour force, are out of work. More than one in five young Europeans has no job.
The EU’s long-term growth potential has been halved by the crisis. The last two years have wiped out 20 years of fiscal consolidation. Confidence has weakened. Credit is scarce. The banks still need to be fixed. The recovery such as it is remains patchy, fragile and vulnerable.
There is more wrong with the EU economy than the debt crisis in Greece. This is now being dealt with, but what about the crisis in the real economy?
The European Commission has proposed the Europe 2020 Strategy, emphasising smart, sustainable and inclusive growth. It has yet to be adopted by the council and parliament. It is an ambitious programme, but carries a sense of deja vu from the Lisbon agenda, 2000-2010, with its patchy pre-crisis results.
Its strength is to offer a road map for coherent long-term policy-making that seeks to address challenges such as the ferocity of global competition, Europe’s ageing demographics, and the drive to establish a more sustainable, low-carbon economic model. As regards delivery, it tries to match policy objectives to policy instruments, but these remain stronger on institutional and regulatory self-expression than in the budgetary sense. Europe needs to raise its game, now and not later.
The debate on the next financial perspective (euro-speak for the framework for multi-annual budget-making) is scheduled to begin in the early part of 2011. After lots of political rows, this should be completed by 2012 or early in 2013, to commence in 2014. Reflecting agreed political and economic priorities in a budget that starts only months before the current European Parliament and commission end their mandates is a date with destiny that misses the fierce urgency of now.
A 2014 answer is too late for a 2010 crisis.
In adopting the “Financial Perspective 2007-2013”, it was agreed to conduct a mid-term review in 2008. This was postponed pending ratification of the Lisbon Treaty.
The treaty is now law. The review should now happen. Politically, it should be limited in scope but not in ambition. The times demand bold initiatives.
The time has come to consider the creation of sovereign EU debt through issuing debt securities as part of the normal budgetary requirements of the EU. This could help to accelerate economic recovery and restore the EU’s capacity to achieve its potential growth in the coming decade. The existing budgetary model is inadequate to the scale of the crisis or the ambitions of the Europe 2020 strategy.
This is not a proposal about the euro zone or Greece. It is not a call for further national contributions to the EU budget at a time of universal budget constraints. It is a call to access untapped potential to be financed through existing budgetary commitments. Raising EU debt through a joint and several guarantee of all 27 member states would ensure a “triple A” credit rating. Provided the amount outstanding over time was maintained at a sufficient level to guarantee a liquid market, funding costs should tend towards parity with those of German Bunds.
Jacques Delors first proposed something like this in 1993. To secure agreement, the political framework underpinning this accord would need to be strong, and this could be achieved through measures such as setting overall and annual borrowing ceilings, while simultaneously agreeing debt servicing costs from within existing budget commitments.
For example, setting an overall borrowing ceiling at just 4 per cent of the combined income of the EU 27 would permit up to €500 billion of sovereign debt creation. An annual issuance limit could be set at the same size of today’s EU budget, €123 billion, or at the same size as today’s “national contributions” to the EU budget, €107 billion.
The debt would need to be serviced within the existing budgetary ceiling. In the present circumstances, for example, a €20 billion budget allocation for interest payments would be more than enough to service €500 billion of issuance at 3.5 per cent in 10 years’ time.
The adoption of this system would create budgetary resources for each member state without aggravating their own indebtedness.
There are more than 90,000 local authorities and 300 regional authorities in the EU today. They account for one-third of public expenditure, and two thirds-of public capital expenditure. Together their spending amounts to 16 per cent of EU GDP – 16 times the size of the EU budget. Their mobilisation as part of the Europe 2020growth and innovation strategy should be an indispensable platform for its prospects of success. Money, even if only on a limited co-financing basis, will talk louder than words in attracting their attention.
Eurostat reveals that public procurement openly advertised within the EU 27 amounted to just over 3 per cent of EU GDP, three times the size of the annual EU budget. Again, this offers a multiplier platform for growth and innovation if imaginatively incentivised.
Combined with the work of the European Investment Bank and the European Bank for Reconstruction and Development, a revitalised EU budgetary and governance perspective could offer genuine prospects for recovery. Multi-tiered co-financing – at EU, national, regional and local level – of agreed priorities could also leverage public private partnerships to add to the multiplier effect.
There is no magic bullet to overcome the crisis, but Europe’s leaders should leave no stone unturned in seeking solutions. There is a fierce urgency of now to the economic and employment challenges we face. Delivery for citizens, not speeches about them, will determine the EU’s future popular legitimacy.
Delivery postponed is delivery denied.
Pat Cox is president of the European Movement International