« STABILITY, YES; BUT ALSO GROWTH »
A Conversation with Tommaso Padoa-Schioppa
on the Eve of the October 2010 European Council
Tommaso Padoa-Schioppa; October 2010
"1. Where do we stand on the eve of the October European Council?
2010 is the year in which the crisis has come to Europe. This happened not because the causes of it were primarily European: on the contrary, Europe did not have big external imbalances, did not have a lack of domestic savings and had less extreme forms of speculative finance. It became European because, at a certain point in time, markets started to perceive that Europe lacked the instruments to manage it; that the Union, in a way, was not a union. Hence a collapse of confidence in the Economic and Monetary Union’s capacity to survive the storm. The immediate targets of speculation were the solvency of some member countries and the ability of some sovereign debtors to sustain themselves, but the ultimate target was the Union itself.
2010 is thus the year in which the EU and the EMU are called to contradict this sentiment and restore confidence by showing ability to act as a Union in front of a major challenge threatening its survival..."
"2. Given that, how to assess the desirable outcome of the October European Council?
The European Council will have on its table the Commission’s proposals for reforming the EU economic governance framework and the Van Rompuy’s Task force final report. At the same time, there is the FrancoGerman position expressed in the Deauville Declaration of October 18. The question is: given these inputs, what could be the output? In other words, what ought to be the conclusions of the Council?"
"3. Take the second of these questions; do you think these reforms would
No, I think they are not sufficient. Indeed, two elements are missing. First, we are still predominantly – although, admittedly, not exclusively - in a logic in which the EU is a coordinator of national policies rather than an actor for itself. It is a coordinator of fiscal policies and of policies related to competitiveness and external imbalances, but it does not really have instruments of its own for the conduct of an EU policy. We have to convince ourselves that a European economic governance which assigns to the EU a mere role of coordinator is both too weak and too ambitious. Too weak because it is fatally flawed by the fact that the power of coordinating is at the hands of the same ones that are supposed to be submitted to this power. And too ambitious because it grants the EU a power of intrusion in its members States policies that - even in mature federations - the central government normally lacks vis-à-vis local governments (be they States, Länders, Provinces or Regions)..."
"The second reason why the proposed reforms are not sufficient is that they provide only a stability framework, not yet a growth framework. Fiscal discipline by itself will not suffice toput the EU on a sustainable path, such that it limits unemployment and improves fiscal ratios. The Irish case is a blatant demonstration of this: Ireland did approve very rigorous fiscal adjustment measures, but these have depressed the economy so much that fiscal ratios deteriorated instead of improving."
"Thus, fiscal austerity alone will not give Europe sufficient growth to preserve it from the risks of higher unemployment, lack of political consensus and social tensions. The social and political risk, in particular, is very high, as illustrated by the rise of xenophobic and populist movements across Europe and by recent demonstrations in Paris, Brussels and other member states. These are not simply risks hitting individual countries; they may jeopardize the cohesion and survival of the Union itself as well as democracy on the continent.
The scheme of the last years – in which stability came from Brussels and growth from member States - has now to be reversed. In our days, stabilization policies are imposed by market pressures that national policymakers cannot ignore. In these circumstances, a coalition of Member States to make the EU itself the engine of growth is the only way – and a politically rewarding one – to rebalance overall economic policy and avert a depression."
"4. You deplore that the EU is not an economic policy actor. How could we remedy this?
Various steps can endow the EU - or at least the Euro area - with own instruments, thus converting it into a real policy actor..."
"...All this tells us that it is urgent to reform the international monetary system, and I welcome the decision that this will be a main item of the G20 agenda in 2011. A global monetary m is particularly important for Europe because, while having the best currency and the most balanced monetary policy, Europe may be the main victim of a spiral of competitive devaluations, in which all currencies want to depreciate and the Euro remains as the only one that keeps appreciating."
[Mrt: Very interesting document discovered by DP & commented with "Everybody knows where Europe has been, let's see where we're going!"]