Desperately seeking cooperation

Article published on March 22, 2005
community published
Article published on March 22, 2005

This article has not been vetted by an editor at Paris HQ

The Lisbon Agenda and the reform of the Stability and Growth Pact are under scrutiny. The countries of the EU have been called to collaborate more closely on all fronts: economic, budgetary and, above all, social

The role of the economy in re-launching the European idea appears to be crucial. Just two months ago, when presenting the proposed reforms of the Lisbon Agenda, the president of the Commission, José Barroso, compared the three pillars of the Agenda (economy, society and environment) to his three sons: "If one of my children is ill, I focus on that one, but that does not mean that I love the others less". According to Barroso, the growth of the economy is not only a priority but also a precondition for the re-launching of the social agenda and environmental reforms. However, his approach has received not unwarranted criticism from some representatives of the European Parliament.

Quarrels between member states

It was perhaps inevitable that 2005 should be characterised as the “year of the economy”. No one can forget how two historic turning points – the recent Enlargement and the European Constitution – have happened against a background of disillusionment with the European project and scant public enthusiasm. This prolonged period of slow economic growth has, beyond putting citizens’ wallets in difficulty, set alarm bells ringing about a possible decline of the economy on the continent. As the history of European integration shows, when there is a lack of money, the member states start to fight. This has occured continuously at regular intervals since the 1970s.

But it is not only the Lisbon Agenda that has been under scrutiny in the past few months. Also under the limelight is the reform of the Stability and Growth Pact, which will now accord national governments more flexibility in budgetary policy so they can invest more money in infrastructure, research and development but without deviating too much from the Maastricht Treaty. However, the more economically law-abiding member states of the Eurozone are worried that this flexibility could be taken advantage of by other states. This has already been the case with France and Germany, which have been accused of not fulfilling Eurogroup criteria, while other countries, such as Italy, are dragging their feet when it comes to bringing their public finances in line with European directives. The third and largest stumbling block for member states is the EU budget. There is a clear divide between those who want more money for the EU and those who want to fix at 1% of GNP the maximum amount of the national budget allocated for Community funds.

The Euro isn’t the Dollar

If we give in to Barroso’s initial reasoning, economic growth is fundamental for re-launching the social agenda. The real problem, however, appears to be the fact that few in the EU have grasped the concept of the key word ‘coordination’ in the proposed coordination of economic, budgetary and social policies. The importance of coordination is stressed in the recently published book, ‘The Euro: Europe’s Construction or Destruction' by Juan Carlos Gonzalez Alvarez & Daniel Guéguen. According to the book, there exists a fundamental difference between the euro and the dollar. The first is managed by the European Central Bank (ECB), whose only task is to guarantee the stability of prices, while the second is managed by the Federal Reserve System (FED), which operates in agreement with the government in Washington. This allows the USA to use their green notes as leverage, favouring growth and employment through a coordination of monetary, fiscal and budgetary policy between the Federal Bank and the government. To sum up, the ECB works in isolation and only on one front (the stabilisation of prices), whereas the FED makes the dollar an instrument of economic growth. Hardly a small difference. At the same time, economic cooperation in Europe has become the victim of the never-ending discussions between the Eurogroup, Ecofin and national governments. It is they who decide the general direction of economic policy while budgetary policy is decided at a national level. As for fiscal policy, any decisions are conditional on unanimity from the member states.

Reforming the Stability and Growth Pact or relaunching the Lisbon Agenda is not enough. It is necessary to take another historic step: that of transferring major economic and social responsibility to a Community level. The purpose of doing so would be to create harmonisation while obviously maintaining margins of flexibility and internal competition. It is obvious that the partial anarchy that has predominated up until now has benefited neither the Monetary Union nor the economy of the continent. However, as with all revolutions, sacrifices will have to be made. The biggest challenge for most people will be relinquishing national sovereignty to the EU, where decisions will be made by elected representatives of national governments and the European Parliament. This appears to be the only path to follow as a powerful Europe is the only alternative to the decline of the 25 member states.