When France and Germany laid out a “pact for competitiveness” – visibly designed as a quid pro quo for German assent to more effective solutions to the eurozone debt crisis – they were seen as running roughshod over other nations and over the European Union’s spirit of community and solidarity. On Thursday came the response from the most ardent of European integrationists, in a Financial Times comment article by former Commission presidents Jacques Delors and Romano Prodi, and Belgian ex-prime minister Guy Verhofstadt. Both proposals champion the long-standing wishes of their authors. Neither remotely addresses Europe’s current challenges.
The EU needs a firmer policy to deal with its most acute problem: a sovereign debt and banking crisis caused by mismanaged capital flows. Instead, these are proposals for structural reforms. It is true that low growth makes Europe’s problems worse – but not because of the mercantilist worry about “falling behind” emerging nations. The EU’s shortcoming is in productivity, not competitiveness. But even taken as programmes to raise productivity, the competing proposals fail the test of realism.
The “pact for competitiveness” let out in the open Berlin’s (usually repressed) desire that other European countries be a bit more like Germany, and Paris’ thirst for relevance on the European stage. It is no wonder that the plan – announced unilaterally during an EU summit that other countries thought was intended to reach consensus – received short shrift, as Messrs Delors, Prodi and Verhofstadt say, “as much for the indelicate manner of its presentation as for its content”. But their alternative is as unpalatable to most member states and as oblivious to the problems the EU faces today.
The three distinguished proponents of ever greater union agree with Berlin and Paris on the need for more common “economic governance” but point out that peer pressure between governments will not work. They are right: Berlin and Paris exposed the voluntary nature of the stability and growth pact. There is no justification for their belief that a competitiveness pact will have more teeth. But nor is there any reason to think Brussels has the clout to force economic reforms on unwilling countries. The Commission has lost stature in the crisis – in part because big member states resist strong leadership from Brussels.
What European institutions can do for growth is to make the single market work better – by continuing to promote competition, dismantling barriers to trading inside the EU and pushing external trade. A few of the ideas mooted under the heading of economic governance could be helpful, such as a common corporate tax base (but certainly not common tax rates) and monitoring of current account imbalances (not just fiscal ones, and surpluses as well as deficits).
Beyond this, economic governance must be a national project. In exceptional cases Europe can give incentives for reform, as it did before euro accession and is doing now as joint overlord of Greece and Ireland. More subtly, it can empower the kind of market discipline that has encouraged Spain’s government to overcome resistance to reform. More transparency, which Brussels can provide, makes markets work better.
But to think that Europe can force the hands of countries where vested interests block growth-promoting structural reforms is to forget the history of Brussels’ impotence outside areas where member states collectively accept its authority. That is the lesson of the Lisbon agenda and the 2020 agenda – unloved at birth, and ignored in their passing. Successive competitiveness agendas waste time that should be devoted to solving the real problem. The risk is that Europe learns too late that sovereign or bank debt crises are the greatest productivity-killers of all.
Source: www.ft.com
The EU needs a firmer policy to deal with its most acute problem: a sovereign debt and banking crisis caused by mismanaged capital flows. Instead, these are proposals for structural reforms. It is true that low growth makes Europe’s problems worse – but not because of the mercantilist worry about “falling behind” emerging nations. The EU’s shortcoming is in productivity, not competitiveness. But even taken as programmes to raise productivity, the competing proposals fail the test of realism.
The “pact for competitiveness” let out in the open Berlin’s (usually repressed) desire that other European countries be a bit more like Germany, and Paris’ thirst for relevance on the European stage. It is no wonder that the plan – announced unilaterally during an EU summit that other countries thought was intended to reach consensus – received short shrift, as Messrs Delors, Prodi and Verhofstadt say, “as much for the indelicate manner of its presentation as for its content”. But their alternative is as unpalatable to most member states and as oblivious to the problems the EU faces today.
The three distinguished proponents of ever greater union agree with Berlin and Paris on the need for more common “economic governance” but point out that peer pressure between governments will not work. They are right: Berlin and Paris exposed the voluntary nature of the stability and growth pact. There is no justification for their belief that a competitiveness pact will have more teeth. But nor is there any reason to think Brussels has the clout to force economic reforms on unwilling countries. The Commission has lost stature in the crisis – in part because big member states resist strong leadership from Brussels.
What European institutions can do for growth is to make the single market work better – by continuing to promote competition, dismantling barriers to trading inside the EU and pushing external trade. A few of the ideas mooted under the heading of economic governance could be helpful, such as a common corporate tax base (but certainly not common tax rates) and monitoring of current account imbalances (not just fiscal ones, and surpluses as well as deficits).
Beyond this, economic governance must be a national project. In exceptional cases Europe can give incentives for reform, as it did before euro accession and is doing now as joint overlord of Greece and Ireland. More subtly, it can empower the kind of market discipline that has encouraged Spain’s government to overcome resistance to reform. More transparency, which Brussels can provide, makes markets work better.
But to think that Europe can force the hands of countries where vested interests block growth-promoting structural reforms is to forget the history of Brussels’ impotence outside areas where member states collectively accept its authority. That is the lesson of the Lisbon agenda and the 2020 agenda – unloved at birth, and ignored in their passing. Successive competitiveness agendas waste time that should be devoted to solving the real problem. The risk is that Europe learns too late that sovereign or bank debt crises are the greatest productivity-killers of all.
Source: www.ft.com
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