Adopting a systematic approach to economic governance in the EU will secure the viability of the European project. For that, political will is necessary. The economic crisis that the EU is experiencing is a historical occasion that requires immediate political response and it can only lead to two directions, backwards or forwards. Success or failure may depend on the speed and depth of reforms and the capacity of political leaders to articulate a new narrative, as needed in the case of Greece. Overall, however, the economic crisis could turn for the EU into an opportunity to create an even more political union capable of facing systemic challenges.
As Greece is currently found in the cradle of this crisis in Europe and on the occasion of the launch of the Greek translation of the report ‘An EU “fit for purpose” in the global age: can we rise to the challenge?’, the Hellenic Foundation for European and Foreign Policy (ELIAMEP) and the Europe Direct Information Centre at ELIAMEP organised on Thursday 10th of June an open discussion on ”Europe in crisis?” with the participation of Lord Liddle, Chairman, Policy Network, London; Prof. Jean Pisani-Ferry, Director Bruegel, Brussels; Prof. Andre Sapir, Senior Fellow, Bruegel, Brussels and Prof. Loukas Tsoukalis President of ELIAMEP moderated by Mr. Foivos Karzis, Journalist. The event was held in English at the Amphitheatre “Y. Kranidiotis” of the Ministry of Foreign Affairs (1, Akadimias Str.) {The videos of the discussion are available here}.
A US made crisis turned European
When Lehman Brothers collapsed in 2008, many Europeans thought that the EU was in a relatively good shape with a strong currency and an established internal market searching for its position within a global world in which the centre of gravity was shifting to the East. All speakers agreed that as the clouds of the crisis were approaching the European continent no one had foreseen the storm that would come ahead. Nevertheless, the financial crisis came and impacted the real economy in the EU. Member states are facing increased problems in managing their sovereign debts, while as Professor Tsoukalis pointed out, the social and political implications of this complex crisis are yet to be felt. The fundamental question raised here is what are the reasons that led a seemingly American economic crisis turn into a full blown crisis of the EU currency and overall the EU as a political project in its entity?
Causes and responses to the European crisis
In the year 2010 it became clear according to the panelists that the current financial crisis is the trigger that exposed the EU’s preexisting weaknesses rendering its members vulnerable to economic shocks. Professor Sapir stressed the close link between the ill-functioning social model and growing debt. In his view, the persisting NorthWest-SouthEast divide is an inherent problem of the EU as an economic area as a whole worsened by the differences in economic experience such as:
- the capital-inflow dependence in the East and
- the devaluation method widely used in the South in the past as the only response to the loss of competitiveness, lost and never replaced after the introduction of the Euro.
Moreover Prof. Pisani also stressed that sanctions as predicted in the Stability and Growth Pact are adequate only in cases of gradual debt escalation, which has not been the case neither in Spain, nor Ireland, for example, which moved from a positive growth to minus public debt GDP ratios in a period of two years.
What does Europe need?
There are fundamental problems the EU needs to face. As Lord Liddle pointed out, the consensus that is building up in favour of radical budget cuts and fiscal retrenchment for all European countries, while maybe unavoidable for certain cases like in Greece, is not necessarily the optimal European policy response to the crisis.
There are two parallel levels that need to be tackled:
– on the national level member states have the responsibility to manage their own challenges (fiscal discipline, lack of competitiveness, etc)
– on the other side, at the European level there is a need to open a real discussion on macro-economic policy coordination and to formulate a new policy agenda.
Arguably, according to Professor Pisani Europe’s response to this crisis represents a serious test for its credibility. An EU reform process should be articulated around three main axes:
– Enhance budgetary discipline that includes the need for tax coordination and, rather than cutting back from it, a reformation of the social security model;
– Address the competitiveness issue in the Single Market and
– Put in place a crisis management regime in Europe.
The live broadcast of the discussion was available to watch via 