It is unacceptable that the EU can more effectively enforce state aid breaches than breaches of democratic or constitutional rules.
“New” Perspectives For Europe
The EU must be equipped with a sanctions mechanism to ensure that member states can rely on each other and that their citizens are not defenceless against the undermining of their constitutional orders. The European Union is a community of law. The authority of European law depends on the functioning of the legislative, the executive and the judiciary in member states. Promoting effective rule of law should therefore be a much higher priority than, for instance, agricultural policy. Political unions can provide public goods that each country would not be able to provide on its own.
The original driver for European integration was securing the peace. Effective protection of external borders, humanitarian treatment of refugees and asylum seekers in the Schengen area, internal markets and the protection of our environment are also public goods that the EU is committed to provide. Providing a stable common currency is a public good for the euro area. If a member state can, for example, no longer ensure airport security, it will harm European air transport as a whole. If a member state subjects asylum seekers to inhumane conditions, the European asylum system breaks down.
If crisis countries begin to close their markets to protect domestic manufacturers, the internal market and common commercial policy are threatened. If the economic crisis in a member state reaches the point where financial markets speculate on its exit from the monetary union, then this can destroy the common currency. The provision of these public goods must always function independently of the possible bankruptcy of a member country. That does not mean that their provision must be completely centralised.
It may be sufficient to enable the EU to step in to provide support in a crisis. The EU does not need to begin to build decent accommodation for asylum seekers, but it must at least financially support those states that cannot achieve this on their own. These four points — the responsibility of creditors, protection of opportunities, protection of democracy and rule of law, and preservation of public goods — are the minimum required to keep the euro alive.
But more needs to be done to develop the full potential of the EU. The EU must exploit promote common public goods for the benefit of all. We see particular potential in the common foreign and security policy.
In a multipolar world in which China, Russia and others expand their spheres of influence and the global supremacy of the USA decreases, Europe ought to be able to defend her common interests effectively. It is self-evident that countries in the euro area with a common currency should also claim a common seat at the IMF and World Bank. Were there an effective common foreign policy and centralised decision-making structures for security policy, a joint seat at the UN Security Council would be achievable.
The challenges of the 21st century go beyond those of classical security and foreign policy. The NSA affair has shown, for instance, that EU citizens cannot expect states to protect their privacy. What is needed is a European market for data security, one that defines strict internet privacy and encryption standards and enforces these within the scope of agreements with third countries, instead of overturning them through intelligence cooperation arrangements. Ideally, these public goods should be developed for the European Union as a whole, including the United Kingdom.
Inasmuch as this turns out to be impossible, however, the euro area should retain the strategic option of a Europe of different speeds in these areas.
To achieve this political agenda, the euro area needs a new contractual basis of its own. What is called for now is a Euro-treaty to replace previous piecemeal reforms. With such a contract, collective insights and experiences from the crisis would be stored permanently. The idea of a Europe of different speeds is not new. The euro crisis has shown, however, that such a deepening should include the entire euro area. In order to avoid a division of Europe, the interests of all member states ought to be considered, especially the smaller ones. In dealing with the euro crisis, heads of state and government have so far set the tone.
But this intergovernmentalism is not up to the tasks that need to be done in a monetary union. This is a key reason why the European Central Bank has, willy-nilly, seen itself compelled to take on such a central role in preserving the common currency. We finally need a European executive that can negotiate reform packages with crisis countries, decide on bank closures and ensure the provision of public goods. The Euro Union needs an economic government capable of acting. This economic government should have graduated rights of intervention in national budgetary autonomy.
As long as member states comply with their obligations, this may involve only non-binding recommendations. If a member state, however, violates the stability criteria, the economic government must be able to make binding stipulations of how much the state has to save — the state will keep the decision where to save.
The economic government also needs a budget for the promotion of public goods, as well a growth fund to support reform processes in euro-area countries. In principle, it would be possible to finance this budget through taxation. But there are good reasons not to give the economic government extensive access to the European tax base. It makes sense to finance the euro-budget through a membership fee, in the amount of about 0.
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The Euro-government must be chosen and scrutinised by a Euro-Parliament. It stands to reason to staff this body with deputies from the European Parliament representing euro-area countries, since its purpose is the provision of public goods in the euro area. There are also voices in our group, however, that prefer the Euro-Parliament to be made up from members of national parliaments, to ensure that control over governmental spending remains in their hands. This also applies to the institutions of the Euro-Union — through a representation with the right to speak but no voting power.
No one should succumb to the fallacy that the crisis will fade away and that the stabilizing mechanisms that have been hastily cobbled together will suffice to make the euro a long-term success. The current crisis is probably the greatest that the Union has had to endure in its history. It now depends on us to use this historic opportunity. Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to communication bruegel.
European Commission President-elect Ursula von der Leyen disseminated her mission letters to commissioner-designates.
In my opinion, the letters to economy commissioners highlight several essential priorities, yet they leave a number of important questions open that I recommend Members of the European Parliament to ask at the upcoming parliamentary hearings of the designates. The incoming European Commission faces a dilemma on the transatlantic trade relationship, because of the unpredictable policies of the Trump administration. The EU must rally its citizens; the greater the divides between member states and EU institutions, the lesser the chances are of forging effective policies toward the United States and China.
What connections exist between central banks and climate change, and what are the resulting implications? This event will be a workshop, aiming to look into the design and implementation process of the European Green Deal. Each session will be introduced by three short presentations aimed at launching the discussion among all workshop participants.
Eastern Germans vote, think, and feel differently than western Germans do, as the results of the September 1 regional elections make clear. To help tackle the underlying economic causes of this divide, the federal government should introduce incentives to encourage foreign investment in the east of the country. The authors document the rise in hybrid threats and cyber attacks in the European Union. Exploring preparations to increase the resilience of the financial system they find that at the individual institutional level, significant measures have been taken, but the EU finance ministers should advance a broader political discussion on the integration of the EU security architecture applicable to the financial system.
Europe is no longer in crisis mode.
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Responsible debtors need responsible creditors The Maastricht Treaty assumed that common debt rules would solve the problem of the irresponsible building up of debt. Responsibility and solidarity go hand in hand The responsibility of member states entails the responsibility of their taxpayers. Second, it makes price differences in member countries more transparent and, therefore, sharpens competition.
The benefits of joining a monetary union may outweigh the cost, depending on how great the cost is. Specifically, according to the so-called optimum currency theory, the cost, or the need for independent monetary policy control, is greater when member countries are exposed to different shocks and lesser when they are exposed to the same or similar shocks. One factor that reduces the likelihood of different shocks is high trade integration among member countries. Other considerations, such as high labor mobility and a system of intraregional fiscal transfers, also lessen the cost.
Does East Asia satisfy the criteria for a lesser cost to joining a monetary union? Much research has explored this question, and the empirical evidence suggests that this region does, more or less. For example, as Figure 1 shows, East Asian countries do trade a lot with each other. Note: this figure is adapted from Kawai and Motonishi More supporting evidence for the plausibility of an East Asian currency area comes from looking at the correlation of demand and supply shocks.
Kwack and Zhang et al. They find evidence of high correlations of demand and supply shocks, although the correlations for Japan and China, the two largest countries in the region, are somewhat lower. Still, in general, the correlations are not much different from those across Europe in the early s see Bayoumi and Eichengreen It should also be noted that these correlations are partly endogenous; that is, the adoption of a monetary union of itself can lead to more trade integration which, in turn, raises the cross-correlations.
Though East Asia has moved toward satisfying the optimal currency area criteria, the region remains very different from Europe in ways that make it difficult, if not impossible, to follow the European path. Four differences stand out.
First, East Asian economies have much less in common than European nations generally do in terms of income levels, stages of development, and economic structure. The implication is that achieving any monetary arrangement, including a common currency, is much more difficult in East Asia. Second, East Asia is less economically self-contained than Europe.
But about half of the intraregional trade is trade in raw materials and intermediate components that ultimately are exported outside of the region. For example, they trade chips and hard disks, but they sell the assembled computers in the U. So, indirectly and directly, East Asian countries still depend much more heavily on exports to countries outside the region. Thus, East Asia must be more concerned than Europe about exchange rate stability against currencies outside the region as well as within the region.
Third, the two regions differ in terms of interest in political integration. In Europe, a monetary union was achievable primarily because it was part of the larger process of political integration. Most European countries share a history of intellectual belief in the benefits of integration and political democracy. The experiences of World War I and II generated a desire to forge deeper political, as well as economic, links in order to prevent a recurrence of country conflicts.
These political desires were indispensable for the success of the EMU in particular and the EU more generally.
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There is no apparent desire for political integration in East Asia, partly because of the great differences among those countries in terms of political systems, culture, and shared history. As a result of their own particular histories, East Asian countries remain particularly jealous of their sovereignty. The fourth difference is that, in contrast to Europe, East Asian governments appear much more suspicious of strong supranational institutions. Early on, European countries were willing to contemplate compromises of national sovereignty to achieve the goal of greater integration.
The European Coal and Steel Community was established way back in and was given significant power to close down segments of national steel industries. Later came the European Commission, the European Parliament which has very considerable power to shape competition policies, social policies, and so on, for EU member states.
A history of Europe’s economic integration | World Economic Forum
All these institutions preceded establishment of the European Central Bank; they were indispensable to providing the popular support for delegating monetary decisions to a common central bank. In contrast, in East Asia, sovereignty concerns have left governments reluctant to delegate significant authority to supranational bodies, at least so far. It is not at all clear that East Asia is on a path to a common currency.