Couldn’t Brussels bail out the jobless?
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Version 0 of 1. Despite some signs of recovery, the euro area’s economic performance remains disappointing. The lasting impact of the financial crisis exposes a lack of demand, structural impediments to growth and job creation, and flaws in the architecture of economic and monetary union. Persistently high unemployment rates have led to widespread popular disaffection with the currency in particular, and the European project more broadly. No wonder so many Europeans are now convinced that the way to solve these problems is to unwind integration and retrench behind national borders. Faced with such widespread dissatisfaction we can either muddle through or we can face up to the challenges in bold and concrete ways: by boosting growth, fostering a sustained job-rich recovery, and rebuilding the relationship between the EU’s institutions and its citizens. We can either muddle through or we can face up to the challenges in bold and concrete ways But the social emergency generated by the crisis raises issues of such urgency and complexity that it calls for a more ambitious strategy than any we have previously tried. The EU’s current policy mix is moving in the right direction. Quantitative easing is having a positive effect on macroeconomic performance and the financial markets. The European commission’s recent communication on flexibility provides strong incentives to EU governments to carry out badly needed reforms. The Juncker plan, launched in March, represents an important opportunity to relaunch investment with public support. However, growth policies at an EU level are not enough on their own. Strengthening the internal market is an absolute priority. We must also make progress towards a capital-markets union so that smaller companies can gain better access to financial markets, open up the energy market, promote the digital economy and boost innovation. Reform of economic governance within the eurozone is also essential to improve the effectiveness of monetary union and foster greater cooperation in times of crisis. Structural reforms undertaken at national level must be better coordinated to maximise their impacts. We need to put a special focus on the social and employment side of structural policies, as an integral part of economic convergence in the euro area. Eurozone labour markets especially must be made more resilient. This could be done by introducing a common European unemployment insurance scheme. This would complement ongoing reforms and boost the effectiveness of various national initiatives. Moreover, it would smooth demand and cushion the negative fallout of any future crises. Longer term, the eurozone should develop a proper stabilisation function to help it cope with what economists call asymmetric shocks – or events that strike one nation harder than others – leading to, among other things, a temporary spike in unemployment. But this implies stepping up fiscal integration: in other words endowing the eurozone with a proper budgetary policy and a common budget, which should be part and parcel of any monetary union. It goes without saying that such fiscal integration would need to be designed to minimise moral hazard and avoid the need for permanent financial transfers between countries. We need to anchor expectations to the irreversibility of the euro, rebuild confidence and restore trust among members More generally, progress towards a genuine monetary union requires a stronger element of risk-sharing. While in the long run treaty changes will be needed for such ambitious institution building, the existing EU treaties could allow the establishment of a targeted unemployment insurance fund and a euro area budget. To regain broad support for the European project we need to combine long-term vision with pragmatism and gradualism. We need to anchor expectations to the irreversibility of the euro, rebuild confidence, and restore trust between member states. The so-called four presidents report (by the presidents of the commission, the council, the eurogroup and the European Central Bank) on the economic governance of the euro is to be discussed at the next summit of heads of government, on 25 June. It should be ambitious, and European leaders should commit to providing adequate resources and the required democratic legitimacy for a strengthened institutional framework. Ultimately, public support for monetary union will recover only to the extent that the project creates jobs and secures the welfare of European citizens. |