If Europe is to successfully find a way out of the financial crisis, the euro zone “urgently requires three reforms,” writes Guy Verhofstadt, a former Belgian prime minister, for the Bertelsmann Stiftung.
Verhofstadt calls for the establishment of:
- A single European financial regulator belonging to a global network of regulators, all bound by the same rules and standards;
- An institution whose tasks would include issuing clearances for interbank loan requests, and;
- A eurozone government responsible for pursuing a policy of socio-economic convergence.
The last of these recommendations, argues Verhofstadt, is an “acknowledgement of the fact that the financial crisis will inevitably bring with it a general economic slowdown over the next few years”. He believes such a slowdown may well “herald the definitive rise of countries like China, Brazil and India”.
Indeed, by 2050, China is “expected to be number one, with a GDP around twice that of the United States, India will be third, Brazil fourth and Russia sixth,” the former prime minister maintains.
“This will force Western economies to make drastic changes in the economic sphere, but not by jumping on the regulation bandwagon,” Verhofstadt writes. On the contrary, he says that “increased regulation in the financial sphere will need to be combined with increased liberalisation in the field of general economic policy”.
However, the former Belgian PM admits “it is worrying to note that the need for budget balance is now being called into question with the same ease as the need for nationalisation is being defended,” adding that “to suppose that the recession can be beaten by deficit spending is no less of an illusion”.
“The misgivings of savers and consumers will only be overcome by tackling the causes of the financial crisis itself in a credible, that is to say drastic, manner, and not by artificially injecting purchasing power into households’ purses,” Verhofstadt contends.
Beyond this, the main question is whether “Europe will be able, or willing, to play a part in this multipolar world,” the former PM states. He admits that Europe is “suffering from cold feet,” stating: “While the financial crisis triggered a string of national interventions from individual member states, the EU’s reaction […] largely confined to a number of well-meaning conclusions”.
Verhofstadt concludes that the “current financial crisis is not a disaster but rather a golden opportunity for the future,” declaring that Europe’s only option is to take “a bold and decisive new step [forward] in the integration process”.