The attempt to coordinate European economic policies at the beginning of October was the first of its kind. It’ll be remembered as a historic day. However, the financial crisis is not over. A severe economic recession may ensue ; the credibility of the State will be challenged ; the social effects of the crisis may trigger violent reactions and fuel radical behaviour rather than result in constructive proposals.
The EU now has three major challenges : Build a common macroeconomic policy, transform the financial system taking a more long term view, become a real global political actor(1). Strengthening the EMU and the EU as a whole is indeed essential to avoid a long and deep recession, further loss of internal cohesion and the weakening of its potential to grow. At a global level the EU will have to speak in one voice and in the name of all its members.
For years the EU focused on stimulating structural policy reform within its member states and neglected to develop a common macroeconomic policy. This failing hinders innovation and potential growth and at present, complicates singularly the reaction to the financial crisis. When considering increased transnational regulation and supervision, many have reacted in favour of national sovereignty, which is an incongruous behaviour since financial institutions and banks have extensive transnational activities.
Supervision of the financial system at the European level must be established ; since the effects of the crisis are likely to be asymmetric across enterprises, local authorities and countries, funds should be directed for cohesion where most needed ; bringing together public and private investors who take a long term view is necessary. Financial investors will have to resign to less colossal gains and the European Union will have to accept that states have a stake in banks and companies. The financial crisis will also challenge the EMU itself. Issues related to exchange rates will reappear and there is a risk that the ratings of states with respect to each other may vary. Considering the increasing necessity of economic revival, the planned focusing of discussion on the EU budget exclusively on ‘after 2013’ sounds surreal. States have staked trillions of Euros to support banks. Even if some of this is virtual money, states’ pockets are not infinite. It is therefore essential that the EU develops its own means to finance new motors for growth.
Soon, it will be necessary to commence a political debate to reinvigorate the EU strategy. In my view, Europe must go beyond the relaunch of the 80’s and 90’s, which ran out of steam and has obviously lost its momentum. I would suggest that the issue is the method. Before the 12th of October, each state was acting in its own interest and the myth of the ‘Europe à la carte’ was flourishing. In order to strengthen the EU and to reconnect with its citizens today, a new democratic governance must be invented. We are calling for an agenda that renews common policies by means of an interactive process that brings together all the member states. In this exceptionally difficult context, the authors assembled for the book Looking for the European interest, would like this effort to start without any further delay so that a new community dynamic arises as soon as possible.
(1) The book Looking for the European interest, which I have edited, presents the contributions of eighteen authors : great economists, civil society actors and commission officials. It sheds light on the preconditions for Europe to rebuild its potential to grow and prosper, and to simultaneously become a global actor. Editions Le Manuscrit - www.manuscrit.com -, October 2008.