OPINION
The
never-ending crisis of European leadership
By JAN SVEJNAR
NEW YORK, 11. MAR,
14:48
Here we go again.
Just when we might have thought global financial markets were
starting to simmer down, investors are now worried that policymakers
may stoke the fire yet again.
The European Central
Bank (ECB) met on Thursday (10 March) and, as many market watchers
expected, it announced more interest rate cuts and additional asset
purchases.
Refugee crisis has
showed limits of collective European leadership (Photo:
europarl.europa.eu)
While Europe has
carried out a number of impressive reforms since the outbreak of the
2010 euro crisis, much more needs to be done.
Europe’s leaders
have failed to implement an effective strategy to deal with economic
challenges like the Great Recession, or to prepare a pan-European
plan for addressing socio-political issues like the migration wave
from war-torn countries in the Middle East and Africa.
The resulting rise
of populist, often extremist, political parties and movements is
seriously threatening Europe’s western liberal democratic order as
protests, violence and disenchantment all grow.
This outcome is
particularly striking considering that between 1945 and 1990 Western
Europe was catching up with the US in economic performance, and that
its drive to create a democratic European Union was relatively
successful.
Lost momentum
In the late 1980s
and early 1990s global discussion focused on when and in what areas
Europe would overtake America.
The fall of the
Berlin Wall and gradual integration of Central-Eastern Europe into
the EU was seen as strengthening the region and creating a path to
further European integration and advancement.
So what went wrong?
Europe lost economic
momentum in the 1990s by lagging in business applications of new,
internet-based technologies and slowing down in market integration.
Relatively rigid
regulation, less venture capital and the lack of an entrepreneurial
culture were among the factors that slowed the emergence of an
internet economy.
Together with slow
integration of the financial markets and limited dynamics in many
labour markets, this contributed to a slow rate of innovation and
growth.
Once European
companies finally started exploiting the internet, the stock market
crash of 2001 bankrupted many of its nascent businesses.
The same carnage
occurred in the US, but a number of businesses had already become
sustainable ventures and the economy had reaped considerable gains.
Politically, Europe
registered its first important setbacks when Dutch and French voters
rejected the EU constitution in 2005. Still, European leaders charged
ahead, leaving the masses behind.
The EU ideal was
taken for granted rather than explained and marketed to the public.
The introduction of the euro without banking and fiscal union further
undermined the long-term viability of the European project.
The first real
stress test came in 2008 as the financial crisis spilled over into
Europe and contributed to the 2010 eurozone crisis.
Disintegration
A turnaround came in
the summer of 2012 with the establishment of a banking union and the
promise to do “whatever it takes” by Mario Draghi, the ECB
president. But the validity of that promise is now being questioned.
While the US readily
undertook painful, fundamental reforms to clean up its banks and
stimulate its economy, Europe’s leaders were unable to agree on a
common set of similarly strong measures - and Europe has been
“muddling through” in decline, stagnation or slow growth ever
since.
The very fact that
Greece, representing less than 2 percent of Europe’s GDP, has
preoccupied all of Europe and threatened to derail the entire euro
project is symptomatic of Europe’s inability to act decisively and
find solutions.
The problem is
clearly a lack of effective European leadership. Europe’s workers
are as good as their Asian and American counterparts. Europe’s
design and many areas of manufacturing are second to none.
What is striking is
how much less Europe generates with these resources than does the US.
So how can Europe
escape its long-term crisis?
At one extreme there
is the nationalist option favoured by many populist parties and
movements.
Europe would again
disintegrate into individual states, each relatively unimportant.
This carries the danger that the EU’s disintegration would include
the breakup of the common labour and product market. If this
happened, living standards would fall precipitously.
Confronting
extremist
Rather than
disintegrating, Europe should create an even stronger union and - as
one of the world’s two largest economic blocks - use its economic
might and acumen to become a true leader on the world scene.
Ideally Europe would
move speedily toward supplementing its monetary union with a
full-fledged economic, fiscal and political union, but this is
politically infeasible in the short run.
What should be
feasible is to complete the banking union, eliminate the resurgent
link between banks and their governments, restructure debts of
severely over-indebted countries, coordinate fiscal policies, and
move aggressively to complete necessary structural reforms aimed at
integration and liberalisation of European markets.
Europe needs to
confront extremist populism with a clear-cut solution leading to
economic growth and improved living standards.
The populists stress
nationalist self-interest, but Europeans can benefit much more from a
functioning union than from fragmentation and likely protectionism of
individual states.
Jan Svejnar is
professor of global political economy studies at Columbia
University’s School of International and Public Affairs in New York
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