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27/06/2016

Europe needs a strategy of confidence, not politics of fear

Justice & Home Affairs

Europe needs a strategy of confidence, not politics of fear

Real proposals such as higher carbon taxes could, together with increased standards for green procurement, encourage the use of cleantech, giving Europe an invaluable advantage.

[ActiveSteve/Flickr]

As Europe faces numerous crises, Karl Aiginger, Jean-Paul Fitoussi and Paul De Grauwe call for clear, coherent, long-term policies and measures.

Karl Aiginger is director of the Austrian Institute of Economic Research and is a professor at the Vienna University of Economics and Business Administration. Jean-Paul Fitoussi is professor at Sciences-Po, Paris and at Luiss, Rome and is co-chair with Joseph Stiglitz and Martine Durand of the high level expert group on the measurement of economic performances and social progress. Paul De Grauwe is Professor Emeritus at the Katholieke Universiteit Leuven and the John Paulson Professor at the London School of Economics.

All three are members of the research project “Welfare, Wealth and Work – a new growth path for Europe”.

As EU heads of state and government meet in Brussels for an extraordinary summit, Europe is engulfed in crises. Migration and Brexit make the headlines, but in many member states domestic political climates are also deeply marked by high unemployment, sluggish growth and rising social inequalities. Walls are going up again in Europe, literally and metaphorically. Leaders from across the political spectrum are conjuring up the possible end of integration.

The EU has always been strongest when it has pursued bold flagship projects which stood for a better future. Over the past decade, however, the European Union has become synonymous with austerity policies and disenfranchised citizens who are in fear of social decline. These circumstances made it all too easy to paint migrants – from within and from outside of the EU – as a threat that needs to be kept outside our nations’ borders. The Brexit negotiation and the Visegrad declaration alike mark the boundaries of solidarity in Europe.

Every crisis needs pragmatic firefighting. But the future success of the European project will depend on the ability of its leaders to map out a pathway that is true to our economic, social and environmental values and that answers to the aspirations of the European citizens. This will require a hard and honest look at our economic policies.

Europe’s reaction to globalisation has been to try to compete by gradually reducing wages, taxes, social and environmental standards. This has lead into a downward spiral. It is time for Europe to embrace a strategy of “high road competitiveness” which is built on research, skills, environmental ambition, excellent institutions and employment policies which empower people.

Growth must remain an important policy objective, but in a fundamentally different way: the main goal should not be GDP growth alone, but to increase the wellbeing of all citizens. The OECD has proposed a solid framework for doing and measuring this. It requires coherent policies to systematically boost the three vectors of social progress which are at the heart of Europe’s identity: economic dynamism, social inclusiveness and environmental sustainability.

Contrary to what is being discussed now, Europe should boost rather than restrict labour mobility – including for low qualified workers. Working time rules need to become flexible as well, for both employers and employees. Firms should be able to adapt hours in line with current demand, while workers should have the right to adjust their working time according to personal preference and life cycle needs.

Securing the future of our welfare systems remains as important as ever. But instead of peddling short-sighted arrangements that will hurt us all, we must fundamentally rethink our approach. The focus should shift from income transfers after a problem has occurred to upfront investments in (early) education, up-skilling and health. At a time where the migrant influx raises strong concerns across Europe, recognising migrants’ qualifications and ensuring access to schools, apprenticeships and training are all essential to reduce public spending and political conflicts in the midterm.

Unemployment rates remain unacceptably high in many parts of Europe. Leaders must avoid losing an entire generation of workers to the economic crisis. To achieve this, taxes on labour should be slashed in half, particularly in the low-income segment. According to our calculations, this tax cut could be financed by gradually raising taxes on inheritance, property and financial transactions, and by introducing a serious carbon tax. Together with increased standards for green public procurement, this would encourage the uptake of environmental technologies and help leverage Europe’s competitive edge in this area. European leaders have talked about green jobs; it is time to get serious.

Innovation is crucial for high road competitiveness. Europe must invest more in education, strengthen research funding, develop a strong venture capital market and cut red tape for start-ups as well as for existing firms. But we also need to change the direction of innovation. For too long, the focus was on replacing workers with hardware and to transfer the resulting productivity gain to shareholders. A better way would be to focus innovation on boosting energy and resource efficiency and to bring wages back in line with productivity growth. This would reanimate private demand and help reanimate the economy.

What Europe needs is a strategy of confidence, not politics of fear. Many of the levers for achieving crucial change are controlled by national governments. EU leaders should get to work, increase the wellbeing of their citizens and rebuild the confidence in Europe.