A window of opportunity has opened for European policy since growth rates rebounded. But whether growth will continue for a time long enough for reducing the fiscal burden, unemployment and inequality depends on strategy changes, write Karl Aiginger and Heinz Handler.
Karl Aiginger is an Austrian economist and professor at the Vienna University of Economic and Business. Heinz Handler is WIFO Emeritus and deputy director of the European Policy Crossover Centre-Vienna Europe.
European growth will be much stronger if the stability the neighbourhood is restored. As the neighbourhood, we define countries outside of but close to geographical Europe. These countries have grown three times faster than the EU since 2000, but are very heterogeneous and ridden by political conflicts.
And migration waves were touched off by civil wars and climate catastrophes. The European Neighbourhood Policy (ENP) has been in place since 2004 but is not a top priority on the agenda of the European Commission or the member states.
What is done is dominated by the goal to stop migration, but does not address its root causes or develops a long-term partnership. This holds specifically for Africa, a continent with a population doubling in the next decades and the potential of becoming the “Next China”.
A forward-looking policy can build on the existing initiatives. But priorities have to change to transform the initiatives into a “European Partnership Policy”.
It should start with a declaration of intent by the potential partners, in case of Africa on the upcoming summit in Abidjan. It should be followed by the commitment of Europe to an assistance program of additionally 100 bn € per year. Then a process should be defined how assistance gradually develops into the partnership and cooperation envisaged. We call this three-stage strategy
It has to be a multi-level approach with many actors on the side of Europe as well as in the partner regions, including the African Union and the European Union, the individual countries, civil organisations, NGO, private sponsors and grass root initiatives.
Emphasis should shift from physical investment to intangibles. These include education, stimulating new firms, but also improving institutions and preventing corruption. Education is the most important driver of growth and wellbeing; it reduces child mortality and extends life expectancy.
An exchange programme for students, teachers and internet users, but also for blue collar workers should be developed. The system of vocational training should be offered to interested neighbours. The programme would further develop the ideas of the Fulbright program which connected US institutions and people to those in Europe.
A small start exists in the “Erasmus Mundus Al Idrisi-program”. We call the larger intended initiative Schumpeter- Al Idrisi-program to honour a great European innovator and a famous African scientist to underscore the partnership approach and mutual learning.
The chances of sustainability should be grasped; the European neighbourhood could be a laboratory for a decentralised provision of carbon-free technologies, and a decentralized approach not needing big pipelines and grids.
Europe has to remove obstacles it maintains for the development of the partners. Its Agricultural Policy provides large subsidies to European farmers who sell low-priced products to Africa, thereby preventing local endogenous production. Europe does not hinder illegal capital exports and provides tax havens for money needed in Africa.
The €100billion proposal
We make the ambitious proposal that the EU raises an additional amount of €100 bn per annum to enable long-term expenditures in governance, education and infrastructure. While it is not easy to assess current efforts, our best guess is that these are about €10 bn. Our proposal, therefore, increases the commitment by the factor 10.
These expenditures have to be set in relation to the direct and indirect costs of massive illegal migration, and estimates for meeting the UN sustainable development goals (EUR 600bn) and annual European military expenditures (EUR 350bn).
Options for raising the additional amount with minimal costs for the European taxpayer are
- shifts in the current budgets of the EU and its member states.
- Enlarging the European Fund for Sustainable Development (EFSD) by the European Investment Bank, which was started in September 2017.
- Creating Green bonds for investment into sustainability, education projects and local initiatives, including an African/Middle East Development Bond
- Closing tax shelters provided by Europe and raising a tax on speculative financial transactions
- Using the money provided by repayments to the Marshall Plan, now used in member countries for different purposes
Europe has the alternative to develop a successful partnership with its neighbours or to be impacted by their problems and conflicts. The new policy counteracts populist and nationalist movements as well as disruptive emigration.
If the partners use their potential for growth, this will increase European dynamics and provide the scope for reducing fiscal debt and inequality in Europe too. It will mitigate disruptive migration and save the expenses of military investment and new borders.
An additional €100 bn will be a good investment if Europe and its neighbour will shape a responsible globalisation together when the US is retreating and China is about to dominate.