Alternative Perspectives on Economic Policies in the European Union

The draft European Constitution sets out in considerable detail the economic thinking of the European Union. In this chapter we reflect on macroeconomic policy in the European Union (EU); in particular, how it is embedded in the draft constitution and to make proposals for a different approach. We focus on four questions, which have particular significance for the conduct of macroeconomic policy. These are: What should the objectives of economic policy be? What is the underlying ‘model’ of the policies which are in the draft EU constitution? Should there be a federal Europe or a collection of nation-states? And how can the democratic deficit be corrected?

The chapter proceeds by putting the European Constitution in context, and then reviewing the objectives of macroeconomic policy. We then discuss critically the neo-liberal agenda underlying economic policies in the EU. We then turn our attention to the single currency and a federal Europe, and with democratising the European Central Bank (ECB). The remaining sections discuss issues on the euro exchange rate, and policies for the achievement of full employment.

The rapid growth of European financial markets is embedded in an environment of declining growth and continuous redistribution of income in favour of profits which are not re-invested into the productive cycle but channelled onto the financial markets. The main driving forces therefore shift from organising finance for productive investment to creating opportunities for financial investment. Monetary and financial market policies of the European Union (EU) are facilitating this development through (1) the privatisation of financial institutions and increasing parts of the public social security systems, (2) the introduction of the Euro and the set-up of the euro-zone and (3) by creating a single European market for financial services with the main aim of reducing the costs and increasing the speed for cross-border financial transactions. Since the late 1990s, financial integration has become central to the EU policy agenda, as set out by the Lisbon Strategy 2000-2010. A new regulatory framework mainly pertaining to the capital and money markets has been set up, while the main emphasis centres at present on the removal of obstacles to merger and acquisitions in banking and in the asset management area.

EU financial integration policy caters mainly for efficiency. The few safeguards for stability and for consumer protection are insufficient and there is no perspective for workers protection against the consequences of capital market driven mergers and acquisitions. These are the aspects on which a progressive financial market policy should concentrate most. In particular, the creation of an integrated European financial market should be embedded in a social and economic environment in which financial stability, economic efficiency and social inclusion are the guiding principles. To ensure financial stability the mission of the ESCB must be broadened, the Basle 2 framework should be changed, special measures against excessive financial speculation should be taken and tight cooperation amongst financial supervisors in the EU is necessary. Economic efficiency in financial markets can be enhanced when distortions caused by different tax systems and tax competition are removed and special financial instruments for the implementation of public development objectives are retained. In the area of social inclusion proposals for the guarantee of universal access to the financial system, for high minimum standards of consumer protection and for the inclusion of workers’ interests into the framework of a European financial market are formulated.

The aim of this chapter is to analyse the key issues associated with the process of reform of European Regional policy for the next programming period 2007–2013. Future European Union (EU) Cohesion policy will be the result of three intertwined debates — the reform of the Cohesion policy itself, the next Financial Perspective 2007-2013, and the EU Constitutional Treaty — in the context of both enlargement, which has doubled the gap between European regions, and slow progress of the EU in meeting the goals of growth and competitiveness set up by the Lisbon Agenda. Even though the debate points to the necessity of reforming especially Common Agricultural Policy (CAP) and the EU Cohesion policy, in order to ensure efficient operations in an enlarged EU, it needs to be stressed that, to a great extent, the motor of reform has come from financial concerns. Future Cohesion policy will increasingly be concentrated in promoting growth and job creation in the less favoured regions of the less favoured countries of the Union, which means a shifting of resources from the less favoured regions and countries of the EU-15 to the new Member States.

The British Prime Minister Tony Blair has recently put in the centre of the debate on European economic policy the question of the place of the Common Agricultural Policy (CAP) which would represent a too important share of the European budget while, at the same time, almost no support would be given to the research and innovation policy. It would be a policy of the past incapable to face the main issues of the future. Agriculture policy might be renationalised to devote most of the European Union (EU) budget to the policy more turned towards research and innovation. The debate is welcomed but the British position is too simplistic.

Structural policies are not reduced to CAP and innovation policy. Regional policy is a matter of concern, and also are competition policy which plays a dominant role, industrial policy which is almost inexistent at the European level and trade policy which has been at the origin of the European construction but is now inscribed in the WTO framework. A critical assessment of the policies followed in these fields at the European level since the 1980s will be made in Section 2. Alternatives proposals will follow in Section 3, showing how it is possible and necessary to conciliate CAP and innovation policy with other structural interventions. The proposed measures make up a coherent programme.

For the last twenty years, European integration has been characterised by an imbalance between economic and social policies. Economic policies, centred on market liberalisation and macroeconomic retrenchment, have increasingly been controlled by the European Union (EU), while social policies are still largely in the hands of the member states. Labour market policies, since they represent the intersection of the economic and social spheres, are of particular interest. A survey of the EU’s labour market policies shows that they are a contested domain, where rival views of the European project come into conflict. These policies take two main forms: a programme of legislation, originally intended to promote an upward convergence in standards, is today threatened with dilution; while a more recent initiative, the European Employment Strategy, an exercise in the “open” coordination of national policies, has, from the start, been heavily influenced by US views of labour “flexibility”. However, both forms of policy could make important contributions to the well-being of European workers, on condition of a basic change in EU strategy. The recent failure of the European Constitution may mean that this basic change is becoming necessary to the survival of the integration project.