Schuman Report on Europe

Three years after the launch of battle against the euro due to the downgrading of Greece by a ratings agency, the question remains: is the euro crisis now being settled? Two options are still open. We might think that it is the case when we read the Treaty on Stability, Coordination and Governance (TSCG), the new treaty which completes the Stability and Growth Pact and adopts a public finance management rule focused on the mid-term via the rule of zero structural deficit; we might also consider that since the European Stability Mechanism (ESM) enables States in difficulty to refinance to a total of 1000 billion € without having to use the markets, this should guarantee a certain easing on the bonds markets; lastly we might think this in the light of the action taken by the European Central Bank whose balance sheet has continued to expand rising to more than 3000 billion € at the end of 2012, ie 30% of the zone’s GDP, higher than the level of the American Federal Reserve (the ECB’s balance sheet/GDP ratio lay at 15% in 2008).

Any growth strategy for the eurozone is doomed to failure if there is no improvement in the functioning of the Economic and Monetary Union (EMU). The incomplete nature of the euro’s foundations became glaringly obvious during the most recent economic and fi nancial crisis. However, thanks to the theory of optimal monetary zones developed by R Mundell in 1961 we know how to make the eurozone function satisfactorily. It comprises the development of alternative adjustment mechanisms to the exchange rate, such as the increased mobility of production factors. Then governments and the European authorities will be able to concentrate on freeing the traditional engines of growth, i.e. investment, innovation and training to improve the growth trend. But the real challenge lies in the definition of an integrated cooperative economic policy which prevents the market share gains of some being systematically made at the expense of those made by others as is the case at present. The rebalancing of the Member countries’ current accounts, as it is being undertaken at present, cannot be considered a strategy for growth.

In June 2012, the EU heads of state and government decided to pursue a so-called Banking Union as part of the effort to strengthen the cohesion of the European Union and to stabilise the eurozone. Banking Union is now part of the four frameworks — an integrated financial framework, an integrated budgetary framework, an integrated economic policy framework, and a framework for better democratic legitimacy and accountability — proposed by the President of the European Council, Herman van Rompuy, also in June, as the necessary elements for a genuine economic and monetary union.

At last! The black hole in European debate that has been ongoing for the last two decades, the problem of the common budget, is back in the limelight and on the agenda of the European Council. The debt crisis has contributed to this immensely.

Despite Europe’s attention and initiatives to tackle the sovereign debt crisis, its low growth prospects and high unemployment levels, three ‘super trends’ that threaten the prosperity of future generations remain. The policy response should, however, primarily be found at Member State level. To tackle the impact of globalisation, population ageing and increasing costs and scarcity of primary resources, EU Member States, in close coordination with the European Institutions, should face their ‘sustainable competitiveness challenge’.

Some analysts wonder whether “social Europe” or the “European social model” really exist, using the diversity of situation amongst the various countries in Europe as a base to their argument. Without denying that these differences exist they cannot bring into question the historic and political validity of the concept. The comparison of social and labour relations, as well as legal systems which guarantee rights in most European countries, with those in force in the rest of the world, notably in the emerging countries, is the greatest proof of this.

The economic and financial crisis, which has been in full swing in Europe for the last four years has established in most of these countries expectations that are marked by a distinct note of pessimism. In the spring Eurobarometer 20121, 60% of those interviewed believed that in terms of the impact of the crisis on the employment market “the worst is yet to come” (cf. map 1). Of course pessimism is at its highest in the countries most affected by the crisis: Portugal (78%), Greece (77%), Spain (72%), Italy (62%) but the opinions of the most prosperous countries such as Finland, Luxembourg and even the UK are also marked by a high rate of pessimism. At 59%, France still lies within the European average. However seven countries, including five in Central and Eastern Europe avoid these morose forecasts to some extent: Slovakia (49%), Latvia (49%), Denmark (45%), Austria (44%), Estonia (44%), Romania (42%) and Bulgaria (40%). In these more “optimistic” countries, the unemployment rate is relatively low (Austria and Denmark) or also high (Latvia, Bulgaria). Economic and social indicators of well-being are not the only means to illustrate what the Europeans think of the crisis. Of course the attitude of the most impoverished social categories is marked by pessimism: 66% of the unemployed, 61% of workers, 65% of those who left school at 15 or under believe that “the worst is yet to come” but this also applies to 51% of students and 58% of executives. In 2012, pessimism about the effects of the crisis seems to be “the best shared thing in the world”. In all age categories and in all social classes pessimism rules. It peaks (71%) amongst Europeans who believe that “globalisation is not an opportunity”.