EXCLUSIVE / An innovation-driven economy where rules are respected and the labour market is flexible will help Europe ensure its position in a constantly changing world, according to a European People’s Party document seen by euractiv.com.
The centre-right European People’s Party (EPP) will present today (28 February) its vision for the future of the Economic and Monetary Union (EMU).
EURACTIV has obtained the EPP’s contribution to the European Commission’s consultation on the White Paper on the Future of Europe. The document outlines the centre-right’s political vision of the future of the eurozone.
The EPP proposes a number of changes to the eurozone with an aim to adjust to the new global reality. It wants to separate the states from their domestic banks, make the labor markets more flexible, and lift obstacles to more cash for radical innovative EU companies.
In addition, the document asks the Commission to ensure that fiscal rules are respected by the member states and emphasises that solidarity should still be there but not “without conditions”.
The EPP also underlines the need for member state reforms when their economy performs well and not when a member state is faced with economic hardship. Given that the EPP currently holds the presidencies of the three EU institutions, there’s a high chance the centre-right priorities will be reflected in the Commission’s paper.
Separate the state from the banks
According to the paper, the creation of a complete Banking Union is crucial to safeguard taxpayer money.
EPP President Joseph Daul told EURACTIV that it is in the interests of EU citizens that banks and states are separated from each other.
“We want to save people’s savings and ensure that never again taxpayers’ money is used to rescue banks or those who have made irresponsible or bad business decisions,” Daul said, stressing that a clear separation between banks and state will serve as a “fire door to stop troubles spill over from one bank to another”.
The centre-right sees the close ties between states and their domestic banks as a big problem for the stability of the EU economy and refers to the previous banking crisis that “has caused serious difficulties for countries”.
Debt restructuring and orderly default
As far as indebted countries are concerned, the EPP warns that a member state’s debt cannot become a liability for others and, therefore, the ‘no-bailout rule’ should be defended.
“It is crucial, though, that the ‘no-bailout rule’ not be confused with solidarity between member states and their citizens whenever a member state faces trouble,” the document explains.
The EPP believes that the assistance granted in the past to countries in trouble was the right decision but in the future, if a situation is “beyond reasonable hope of salvation, orderly default and debt restructuring must be an option”.
“Collective Action Clauses (CAC) was introduced as part of the European Stability Mechanism Treaty. However, the use of CAC is severely hampered by the close connection between those countries issuing debt and their domestic banks,” the centre-right claims.
The separation of states and their national banks is a long process, which might take 15-20 years. But without this separation, the CAC tool won’t be functional.
The EPP emphasises the need for solidarity among the member states but this should not be unconditional.
“We want this support to be conditional on the implementation, by the member state in question, of remedial actions and reforms. The support granted by EU member states or institutions must have the status of senior creditor — and be secured against ‘haircuts’ since our intention is not to support bailouts.”
In the event that the situation in a member state is considered unsustainable, then the ‘no-bailout rule’ must be enforced and the CAC used to return the member state in question to a sustainable path.
“We believe this path of action would not destabilise sovereign bond markets but rather make them more rigorous. At the same time, we believe that using CACs would render adjustments swift and allow the member state in question to implement the reforms and remedial actions needed in order to quickly return to stability.”
Respect the rules
Regarding the rules governing the EMU, the EPP’s stance is clear: all member states and EU institutions must respect them.
The paper notes that the decisions made by one country can have a far-reaching impact on other member states and for this reason, there is a need for rules that would restrict these risks.
“The Commission, as guardian of the Treaties, must enforce these rules in case of breach,” the paper reads.
For the EPP, the Stability and Growth Pact, which has been heavily criticised by left-wing politicians across Europe, should play a key role in the reform process.
“The key aims of the Stability and Growth Pact must be kept at the centre of all reforms: namely, fiscal policies to remain responsible and that member states work towards lowering their debt levels to under 60% of GDP.”
A flexible but social labor market
The transformation of the EU labour market takes centre stage in the EPP vision for the future of Europe. By making it flexible through decentralization and fair wage setting negotiations between companies and employees, it will have multilevel effects on employability.
“Labour markets must provide flexibility to respond quickly to changes and facilitate a more efficient process whereby employees find open vacancies. More flexible labour markets also help us to address skills mismatches; for this, labour mobility within the Euro area is vitally important,” the document says.
But this flexibility must be reciprocated by providing high social standards and a sustainable work-life balance, the document underlines. The EPP, also, stressed that demanding more flexibility from citizens should be reciprocated by member states’ making their social security systems more flexible as well.
An innovation hub
Another important element of the paper is a push to make Europe an innovation hub, which will be fit to compete with the United States.
Daul explained that innovation was the key to future growth and success.
“This is where we need to concentrate our efforts to make Europe the world’s best talent hub. We should embrace radical innovations and make our continent the birthplace of the next Facebook or Apple”, he told EURACTIV.
The EPP recognises that Europe is lagging behind compared to the US regarding innovative companies and, therefore, suggests the creation of an environment that will help new talents flourish.
A new framework on access to financing is also needed in order for innovative companies to be encouraged to invest in Europe.
“We must understand that this follows partly from structural factors in our continent compared to our partners on the other side of the Atlantic. Venture Capital Funds in the EU are on average small. We need to support creating Funds of Funds, and we must look into existing regulations to make sure that investing into private equity funds is not discouraged by regulations and capital rules.”