The EU has tightened its grip on economic governance, but a wrong focus might prove poisonous, writes Renaud Thillaye.
Renaud Thillaye is a researcher at Policy Network. He is the author of ‘Gearing EU Governance towards Future Growth’, a contribution to the ‘Welfare, Wealth and Work for Europe’ research project supported by the European Commission.
"EU leaders met together last week to conclude the first phase of the European Semester. After a series of dramatic summits all pitted as last-chance rescues for the eEurozone, last week’s gathering sounded like a return to normal (although the deal on Cyprus proved quite dramatic).
Progress on the 2012 recommendations and commitments was assessed; member states were told to pursue ‘differentiated, growth-friendly fiscal consolidation’ further; the Europe 2020 ‘flagship initiatives’ will be reviewed at subsequent summits each in turn until Spring 2014. The EU’s Newspeak was back, and this should be a source of concern. In a Europe marred in unemployment and popular anger, the added value of EU governance reforms is still found wanting by the broader public.
Since the beginning of the debt crisis, a set of measures has tightened the EU’s grip on national policies. Not only fiscal surveillance has been strengthened – with more automatic sanctions for eurozone countries if they breach their commitments – but also the supervision of policies affecting labour-markets, wage-setting and pensions systems. The ‘European Semester’ epitomises the shift: over eight months (from November to July), the Commission engages in an intensive dialogue with member states about what should be their priorities for the rest of the year. The Brussels authority reviews fiscal and reforms plans, and formulates far-reaching recommendations before budgets are adopted by national parliaments.
As a new Policy Network paper argues, this beefed-up governance is much better equipped to channel member states' policies than before the crisis. Yet, its justification and its outcomes remain questionable.
What is the rationale behind the rules and processes of EU governance? Policy coordination makes sense in the eurozone. Member states’ autonomy must be limited since the direction of each country has an impact on the collective position.
A single interest rate for all countries means that convergence is key to the efficiency of monetary policy. As the debt crisis has demonstrated, divergent developments of labour costs and a lack of financial supervision can lead to explosive imbalances. Yet, does this justify that the European Commission pokes its nose into all member states' economic policies? The surveillance of “systemic risks” is paramount, but such an exercise should spare non-euro countries, such as the UK, as well as euro-members whose position is unproblematic for the rest of the area.
In terms of policy outcomes, a lot has already been written about the EU’s wrong-footed approach to crisis resolution. The prioritisation of fiscal consolidation has had a negative impact on growth and has found little justification in many countries. Furthermore, the macroeconomic imbalance procedure is overwhelmingly geared towards countries running trade deficits, while part of the answer lies also in a speedier increase of German wages.
Overall, adjustment strategies should be more symmetrical and Brussels recommendations better targeted. At a recent Policy Network event, Olli Rehn, the EU Economic and Monetary Affairs Commissioner, showed some understanding for these critiques. Debates in Germany show that there is room for a more fine-tuned approach, especially after the September election.
Nevertheless, an equally worrying and overlooked aspect of EU governance is the lack of attention given to the Europe 2020 Strategy. If anything, the crisis demonstrated that Europeans countries needed more robust and resilient growth models based on innovation, the optimisation of resources and new forms of protection. In 2010, EU leaders endorsed ambitious investment, energy and social targets to be reached by the end of the decade.
Yet, the monitoring of Europe 2020 has been left behind as a second, if not a third-order priority, during the European Semester. ‘Country-specific recommendations’, for instance, barely mention the strategy. In Brussels, policymakers are adamant that the eurozone crisis has compelled them to focus on stabilisation, but that they have not forgotten about the socio-ecological vision of Europe 2020.
Europe 2020 cannot be a ‘good-weather’ strategy only. The coordination of national policies at EU level should encourage reforms that help member states who are putting in place more resilient growth models. There is a tension cutting across the European Semester between a short-term approach focused on price-based adjustment on the one side, and the need for social and productive investment on the other.
At the very least, the former should not impair the latter. Keeping wages down and diminishing the tax wedge on labour might be necessary in some countries, but this must be accompanied by ambitious up-skilling and modernising strategies, pro-active labour market policies and greater means to tackle the ‘working poor’ problem. These measures cost money and might not be consistent with EU fiscal requirements.
EU leaders must stop being schizophrenic. Certainly, interdependence calls for greater policy coordination. But the new regime of EU governance should not lead to a short-sighted approach to mutual surveillance and to giving bureaucrats too much leeway in handling good and bad points. More politics is needed to demonstrate that the EU actually helps the people cope with the risks of competition and mobility."