Strength­en­ing Europe’s limited power

Financial Mirror (Cyprus) - - FRONT PAGE -

The re­sults of last week’s Euro­pean Par­lia­ment elec­tion are as puz­zling as they are shock­ing. No sin­gle the­ory ac­counts for the va­ri­ety of na­tional re­sults.

In Ger­many, where Euro­pean Union poli­cies have been highly con­tro­ver­sial since 2008, the elec­toral cam­paign was re­mark­ably col­or­less. But in France, where nei­ther fi­nan­cial as­sis­tance nor the Euro­pean Cen­tral Bank’s ini­tia­tives to com­bat the cri­sis in­cited dis­agree­ment, anti-EU themes were prom­i­nent.

Nei­ther eco­nomic vari­ables, like GDP growth, nor so­cial vari­ables, such as un­em­ploy­ment, ex­plain why Italy voted en masse for Prime Min­is­ter Mat­teo Renzi’s cen­ter-left Demo­cratic Party, while France en­dorsed Ma­rine Le Pen’s far-right Na­tional Front.

Among sur­plus coun­tries, Eu­roskep­tics proved strong in Aus­tria but weak in Ger­many. Among cri­sis coun­tries, Greece turned to Alexis Tsipras’s far-left Syriza coali­tion, while the for­mer dom­i­nant par­ties, New Democ­racy and Pasok, jointly gained less than one-third of the pop­u­lar vote. But in Por­tu­gal, the tra­di­tional par­ties’ dom­i­nance was not chal­lenged.

The more you look at the num­bers, the more puz­zling they be­come. The his­to­rian Harold James ar­gues that the dom­i­nant pat­tern is that the na­tion­al­ist right is strong­est in the two EU coun­tries that are haunted by their im­pe­rial lega­cies, France and the United King­dom. Per­haps. But what about Den­mark, whose anti-EU right won by a large mar­gin?

Though the po­lit­i­cal con­ver­sa­tion about Europe has gained in im­por­tance every­where in re­cent years, the truth is that Euro­peans are not hav­ing the same con­ver­sa­tion. That is a se­ri­ous prob­lem for Europe’s lead­ers: the elec­toral earthquake is big enough for them to feel com­pelled to re­spond to their cit­i­zens’ eco­nomic and po­lit­i­cal dis­con­tent; but they do not know what that re­sponse should be.

On the eco­nomic front, the ini­tial post­elec­tion dis­cus­sions in­di­cate agree­ment that more should be done to boost growth and em­ploy­ment. That is cer­tainly true. Europe’s re­cent growth per­for­mance has been dis­mal, es­pe­cially com­pared to that of the United States, which suf­fered from the same shock six years ago but has ex­pe­ri­enced a much stronger re­cov­ery in out­put and em­ploy­ment. The EU also bears part of the re­spon­si­bil­ity for this out­come: the fail­ure to clean up bank bal­ance sheets prior to the fis­cal con­sol­i­da­tion was a col­lec­tive mis­take.

It is equally im­por­tant, how­ever, that Euro­pean lead­ers avoid mak­ing prom­ises that they are un­able to ful­fill. Europe has a long tra­di­tion of lofty growth ini­tia­tives whose only re­sult is dis­ap­point­ment.

For ex­am­ple, a few bil­lion here and there do not make a dif­fer­ence in a EUR 13 trln econ­omy. An­other ap­peal to the Euro­pean In­vest­ment Bank to sup­port in­vest­ment and in­no­va­tion will not make it less risk-averse. And a re­newed com­mit­ment to sound pub­lic fi­nances will not turn wary Euro­pean house­holds into cheer­ful spenders.

If EU lead­ers are com­mit­ted to growth and jobs, they should work on re­pair­ing a Euro­pean sin­gle mar­ket that in sev­eral sec­tors is “sin­gle” in name only, so that more in­no­va­tive and more ef­fi­cient com­pa­nies can grow faster. They should also de­vise plans to fi­nance crit­i­cal in­fra­struc­ture – not high-speed train links to nowhere, but in­ter­con­nec­tions for the en­ergy sys­tems and com­mu­ni­ca­tions back­bones of the in­for­ma­tion age.

More­over, they should agree on a scheme that re­sults in a cred­i­ble fu­ture path for the price of car­bon, which would give the pri­vate sec­tor the pre­dictabil­ity it needs to in­vest in en­ergy-sav­ing and clean en­ergy. And they should de­vise a mech­a­nism to even out dif­fer­ences in the cost of credit in the eu­ro­zone’s north and south.

The EU’s lead­ers should also fos­ter pri­vate in­vest­ment in south­ern mem­bers’ trad­able­goods sec­tors, thereby help­ing these economies rebuild their ex­port base faster. And they should put real money into ini­tia­tives to train un­em­ployed youth and en­cour­age them to be­come more mo­bile.

Last but not least, Euro­pean pol­i­cy­mak­ers should ex­am­ine how to limit ex­cess sav­ing in the eu­ro­zone and thus rein in up­ward pres­sure on the com­mon cur­rency’s ex­change rate. But if they do not agree on what to do, they should re­sist the temp­ta­tion to paper over their dif­fer­ences.

On the po­lit­i­cal front, the dis­cus­sion is about what the EU should aim to be­come, and the post-elec­tion temp­ta­tion is to give only one an­swer: less. This would be an un­der­stand­able mis­take, but a mis­take nev­er­the­less. Cit­i­zens may be di­vided on the de­gree of in­te­gra­tion that is ul­ti­mately de­sir­able, but one con­cern that they share is that govern­ment, at what­ever level, should deliver.

That in­cludes the re­spect to the euro.

Shortly be­fore his death, Tom­maso PadoaS­chioppa, a for­mer ECB board mem­ber and Ital­ian fi­nance min­is­ter, put the mat­ter clearly. Limited power, he said, is of­ten con­fused with weak power, which lacks the tools needed to act within its sphere of author­ity. But it is the sphere of author­ity that should be limited, not the power to act within those lim­its.

Europe’s lead­ers should adopt that maxim as their motto: This is not the time for more Europe; it is a time for a Europe that ful­fills its man­date. That may im­ply strip­ping out un­nec­es­sary tasks for which the EU ei­ther lacks le­git­i­macy or is not well equipped. It may also mean giv­ing the EU the power needed to suc­ceed at what it is al­ready in charge of do­ing.

This prag­matic agenda may look un­ex­cit­ing. It prob­a­bly is. But it also prob­a­bly of­fers the best chance to rec­on­cile Europe’s people with the EU.




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