Debating the financial crisis

This morning, literally hours before the European Council meeting got underway, the European Economic and Social Committee’s plenary session debated the financial and economic crisis, with Jean-Paul Delevoye, President of the French Economic, Social and Environmental Council also participating in the debate. Afterwards, EESC President Staffan Nilsson published a statement (you can read it in full below). There was broad consensus in the debate not just that the key to the solution is to re-establish growth as soon as possible but also that whatever political and constitutional agreements are found must be felt to be ‘owned’ by the European citizen (as opposed to being regarded as a unilateral imposition). In other words, the twin messages arising out of the debate were: ‘yes, more Europe is necessary, but we must explain clearly why.’

European Economic and Social Committee

The President

EESC President’s Statement

“Europe will be forged in crises and it will be the sum of the solutions adopted for those crises”

Jean Monnet, Memoirs, 1976

Europe in the balance

The European Union is in profound crisis – a financial crisis, an economic crisis, a sovereign debt crisis, a social crisis with almost 23 million unemployed, but also a fundamental crisis of European integration itself.

In order to resolve this crisis, avert prolonged recession and create the conditions for growth and employment, more Europe is necessary, not less: more Europe to ensure fiscal responsibility and integration, more Europe for the mutualisation of sovereign risk, the restoration of long-term solvency and the leveraging of EU-wide investment in growth, competitiveness and jobs. All this requires strong leadership from the European Commission and the reassertion of the Community method. The Commission must exercise its right of initiative and make proposals commensurate with the dimension that the crisis has taken, in place of failed ad-hoc intergovernmental palliatives.

More Europe, a new Europe will require a fundamental pooling of resources and sharing of responsibilities. It is preferable to a situation in which individual national governments are no longer able to survive the pressures of their creditors and private rating agencies. A quantum leap in European integration is necessary, not only to create debt instruments and a growth model that investors can believe in, but also -and essentially – in order to reassert democratic governance. The institutional framework for this new Europe must therefore ensure proper representative and participatory forms of accountability towards the citizen. The European Economic and Social Committee has an active role to play in this framework, both as a bridge to civil society and as a proponent of innovation and change.

Fiscal discipline as a constituent element of economic and monetary union

Europe needs to step up economic governance to guarantee fiscal discipline in each Member State, especially in the Euro area. The agreed reform package, the so-called six-pack, together with new regulatory proposals and the accompanying the European semester for better coordination of economic and national budget policies and for closer EU surveillance, must be implemented swiftly and correctly.

Fiscal discipline in Member States is not enough as a pre-condition for growth and employment and economic and social cohesion. Indeed, the Committee is concerned that the current conditions for issuance of sovereign debt bonds have led to a market situation that risks undermining restored stability and growth.

Progress in the discussion on Stability Bonds

This is why the Committee welcomes the Green Paper on the feasibility of introducing Stability Bonds. The Committee believes that under the condition of strict rules and a corresponding governance at EU-level to exclude moral hazard and promote responsible and predictable governmental behaviour in Member States, the management of sovereign debts with joint guarantees in the euro area will be an important contribution for overcoming acute problems as well as the austerity-growth deadlock.

Progress in this area will also enable the ECB to phase-out its government bond-purchase programme currently needed to enable individual Member States to refinance public debts. Instead, the ECB could decide to back the new stability bonds giving additional assurance to market actors, at least in a transitory phase.

Treaty change may be envisaged, but, as the Commission points out in its Green Paper, already an “agreement on commons issuance could have an impact on market expectations and thereby lower average and marginal funding costs for those Member States currently facing funding pressures” . Such a political agreement and commitment by all players for the introduction of stability bonds would undoubtedly improve the financing situation within the euro area, especially if the ECB were to decide to back the new stability bonds.

Setting the right framework conditions for the financial sector

At the same time it is important to address the serious shortcomings in the regulation and supervision of international finance. The growing disequilibrium between the privatization of profits and socialisation of losses in the financial sector must be addressed as a matter of urgency. Regulatory framework conditions must be set so that financial intermediaries assume their primary role of serving the real economy, providing credits for real projects, by investing in assets instead of betting on liabilities. Any public support given to financial institutions must be accompanied by the necessary improvements in corporate governance, as a first step towards fundamentally reforming the industry in support of the growth and jobs agenda.

Breaking out of the austerity-growth deadlock

Fiscal discipline and a rebalancing of national r budgets must go hand-in-hand with a coherent and credible European growth and reflation model. The debilitating effects on growth of asymmetric national economic policies can be converted into positive multiplier effects for growth if closer European integration is achieved. The costs of “non-Europe” should give way to the mutually reinforcing economies of scale and sound investment development of “more Europe”. .

This is why the Europe 2020 strategy for smart, sustainable and inclusive growth is a strong strategic tool that offers a coherent framework and a methodology for carrying out forward-looking, sustainable reforms.

A comprehensive Europe 2020 growth strategy must maintain momentum and secure more widespread recognition, and it will need an adequate budget. The biggest challenge of the EU today is the lack of confidence of citizens, not just markets. Restored consumer and investor confidence are essential for private and public-sector demand. The decisions that are made – or not made – at this junction in time are crucial for the future of Europe’s citizens.

In order to promote growth, Europe must break free of the austerity-growth deadlock. Combating unemployment – especially among young people – must be the top policy priority. A fine balance between the three strands of the Europe 2020 Strategy has to be struck: smart growth, sustainable growth and inclusive growth are interlinked and mutually reinforcing. Achieving the Europe 2020 growth objectives will require significant investment at both national and European level, which is a particular challenge in times of austerity, especially in the weaker economies. Solidarity and cohesion at European level are paramount when bearing in mind that implementing the Europe 2020 strategy is chiefly incumbent on Member States themselves.

Growth will only return if competitiveness and innovation improve. SMEs and entrepreneurship, as well as social entrepreneurship, are key drivers of economic growth, innovation and job creation. Their access to credit and sound investment must be supported and facilitated by the EU. The completion of the Single Market and ensuring that it becomes a reality for SMEs are clearly essential. High-quality education and vocational training and continuous updating and upgrading of skills matching labour market needs are also crucial.

Setting the right priorities in order to secure investment in growth-enhancing areas is imperative: education and skills, R&D, innovation, networks, energy and transport interconnections. Public investment at national or European level in direction of smart, sustainable and inclusive growth can have an important leverage effect, encouraging private additional investment.

Social policy as an economic stabiliser

Fundamental social rights and economic freedoms must be considered as equal. Social policy and economic governance are twin pillars. Properly designed social and labour market policies are a positive force not only for social justice as such but also for over-all economic performance and sustainable growth. And the cost of non social Europe has to be recognised: Solidarity, both social and economic, constitutes the European societal model.

Social capital will generate Europe’s future wealth and development; social inequalities will impede it. Poverty prevention, labour market inclusion, social cohesion and non-discrimination, health and intergenerational solidarity are therefore as important as the fiscal and financial components of a European growth and development model. A renewed and more resolute European social agenda is needed by activating the various instruments and tools in the Treaty, especially by reinforcing the role of social and civil dialogue.

Leveraging the European budget

The Multiannual Financial Framework for the years 2014-2020 should be designed as one of the key instruments to make the Europe 2020 Strategy deliver. Given the limited size of the EU budget, no major savings will come from applying austerity at EU-level. However, efficiency gains can be obtained by better coordinating EU and national-level spending and by increasing the added value of the EU budget.

The effectiveness of EU action can also be strengthened by more systematic recourse to EIB low-cost investments, by closer public-private partnerships and the creation of debt instruments for investment. The Committee fully supports the Europe 2020 Project Bond Initiative to finance large-scale infrastructure projects but insists on appropriate risk-sharing arrangements with the private sector.

The EU budget must be increased through generation of own EU resources. Specific EU taxes would allow financing growth-enhancing measures and their introduction could in itself have positive incentive effects. The Committee congratulates the European Commission for its proposal on the Financial Transaction Tax and hopes that it will be possible to find agreement within the European Union and beyond. Also, the Committee believes that shifting the tax burden towards additional new sources of revenue such as energy taxes and levies on CO2 emissions should stay on the agenda and encourages the Commission to prepare the associated legislative proposals.

National and European budgets should complement each other in order to achieve economies of scale for the benefit of EU’s major political objectives.

Engaging organised civil society

In the current context, reactive and piecemeal responses to different aspects of the crisis are no longer sufficient. The EU must prove that it is capable of acting as a strong Union.

Trust in democracy and democratic institutions must be rebuilt to steer free of populism, anti-EU sentiments, nationalism and racism that can jeopardise what the EU has been achieved so far. Social and civil dialogue must be strengthened at all levels in order to build a broad consensus that truly recognises the gravity of the situation.

A successful exit from crisis and a sustainable jobs and growth scenario will be achieved only if the whole of society feels committed and all actors take full responsibility. In a time when important decisions impacting the lives of all citizens’ are taken, their involvement in, and co-ownership of, reforms is more necessary than ever.

The Committee is determined to continue its cooperation with its network of national ESCs in order to improve the consultation, participation and mobilisation of organised civil society both at European and national level.

Europe has always managed to move forward in times of crisis: let us seize the opportunity and make the EU emerge from this crisis with new strengths.

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