What Next for the Eurozone?
by Brian Hayes MEP, Member of the Economic Committee of the European Parliament
Eight years after the onset of the financial crisis and despite having come through it, the Eurozone still faces enormous economic problems as unemployment is still too high and growth too low. But presuming that the Eurozone is doomed to constant failure is presuming a lot.
Who knows where the Eurozone will be in five or ten years’ time? There are currently 19 Member States within it and nine outside. Seven of the nine countries on the outside have expressed a willingness to join at some time in the future. Having more Eurozone members will increase economic stability, and with a more co-ordinated currency union the EU’s internal market will work more efficiently. Additionally, those countries that do adopt the euro have to comply with prudent and sensible budgetary rules such as keeping debt to 60% of GDP and having deficits of less than 3%. Of course, for candidate countries, the Eurozone does not look attractive at the moment but the long-term growth potential is obvious.
One thing is absolute – a firm determination on the part of the Eurozone countries, having redesigned the rules and retrofitted the currency, to make the euro work. As the president of the European Central Bank Mario Draghi said recently, people only want to join something or stay in something if they see a benefit in it. Benefits must be understood by ordinary people. And that’s where the entire question of the future of the Eurozone is closely linked to reform of the EU itself. People have to see a clear link between increased integration and increased prosperity. Keeping the euro strong demands a new approach across the euro area. Rules, which were blatantly ignored before under the Growth and Stability Pact, must now be fully implemented.
In my view, five things are necessary for further integration to be successful:
- If it is right that countries in excessive deficit spend less and tax more so as to reduce risks to the euro area, it must equally be right that countries with a surplus spend more to compensate for reduced economic activity elsewhere in the euro area.
- The new order for the euro means that irrespective of your size, if you constantly flout the rules, even if you are a big Member State (for example France or Italy), sanctions can be applied – as a clear demonstration that the rules are to be observed by everyone.
- Getting Europe back to work after this crisis also means a new understanding of investment and how prudent long-term investment to make Europe more competitive is the right approach. While the Germans are right about the new rules underlying the European economy, they are wrong about the rules for investment – especially in those countries, like our own, that have seen a reduction of over 20% in investment. While the recently agreed Juncker Plan hopes to stimulate the EU-wide economy by over €300bn, we need to do more. The issue of Eurobonds must also be brought back to the table.
- The new order also demands that country-specific recommendations, the outcome of the European Semester, are taken seriously by Member States. In fact, in the future, shining a bright light on uncompetitive practices in all Member States is something that people generally support. We need to develop a contrarian culture where questioning is welcomed, not side-lined. Europe can help in that.
- A new era in Europe-wide financial regulation and financial supervision. The establishment of the Single Supervisory Mechanism is key to establishing order and confidence in Europe’s banks. Providing proper EU financial scrutiny and control for the engines of future growth, the banks, is crucial to sustain growth.
The need for a new idealism
What is needed now, however, is a new idealism for the European Union. And that idealism can only be constructed by showing to the world that the euro is here to stay, and that we Europeans are going to complete the task of making the euro work. That’s why the recent paper, presented under the rather grandiose title of the Five Presidents’ Report, on completing Europe’s economic and monetary union is a welcome contribution to the task ahead: we need a big debate on the future of the EU itself and especially on the Eurozone. The presidents of the EU Parliament, Council, ECB, Commission and Eurogroup have produced a readable and understandable roadmap with the ambition of completing European Monetary Union.