The euro member states and the European institutions have not yet managed to come up with a convincing plan to surmount the crisis afflicting the Economic and Monetary Union (EMU). This is due both to a false analysis of the causes and a reluctance to take decisive political measures. A review of Friedrich-Ebert-Stiftung publications on the financial and economic crisis shows how the shortcomings of the Eurozone can be remedied.
European integration can be characterised first and foremost as a process of economic developments. Although its central projects – the single market and EMU – have led to prosperity gains for the member states they have also exacerbated the negative effects of globalisation on the continent. Integration is taking place primarily as a market creating process, through the dismantling of trade barriers and the intensification of competition. By contrast, institutional formation and further development of the EU’s policy competences – which can be characterised as market shaping and market correcting – remain at a low level.
The fundamental defects of the system of competing states that has resulted from this uneven development have culminated in the EMU crisis. For example, the reasons for the high public debt of some countries is to be sought less in lax budgetary policy than in the consequences of the collapse of growth due to the international financial and economic crisis. Particularly in crisis states, such as Ireland, Portugal and Spain, first of all private debt and thus the banks came under pressure. In the preceding boom years, bolstered by the low base rate, the latter had lent permissively, thereby contributing to the formation of speculative bubbles, for example, in the property market.
Immense sums were required to bail out distressed banking institutions, not to mention the costs of economic stimulus packages and labour market measures. The reasons for the high current account imbalances should be sought in a decade-long divergence of unit wage cost paths, a disparity between savings and investment rates in some countries and uniform money market interest rates for a single currency area in which asymmetrical macroeconomic developments between the member states are accelerated rather than corrected.
From a social democratic perspective the completion of the European integration process requires some kind of political union. This can be achieved within a three-stage framework consisting of short, medium, and long term measures:
• In the short term, the current crisis can be overcome only by means of a symmetrical adjustment strategy, combining rules for the reduction of macroeconomic imbalances with solidaristic funding of the member states and comprehensive regulation of the financial
markets. Important instruments here include the establishment of a foreign trade stability pact, the introduction of eurobonds and an MOT for financial products.
• In the medium term, the instruments of European governance must be reinforced by means of wage policy coordination, a social stability pact and a social growth strategy. Specifically, a European minimum wage policy, the harmonisation of company tax and the coupling of social and education spending to member states’ economic capabilities must be set in motion.
• In the long term, this correction-oriented framework must be discarded if European policy wishes to play an active role. Then, questions concerning institutional arrangements, state sovereignty and democratic legitimacy will be posed anew. An EU tax or a European solidarity levy, European unemployment insurance and new institutional arrangements – such as a joint budget committee for the euro states – are among the projects that must be considered.
The market- and competition-oriented mantra of getting unpleasant things over and done with as a policymaking principle, brought to the fore by the global financial and economic crisis, offers us an opportunity to restructure European integration. This opportunity should be seized.
The policy proposals outlined above are presented in more detail in a study by Björn Hacker and Friedrich-Ebert-Stiftung: