The current financial and economic crisis constitutes a unique challenge to the economic-financial governance of the European Union. On the one hand, economic and fiscal policies remain national competencies of the Member States. On the other, they exercise them within an EU system of non-discrimination, solidarity and mutual co-ordination, with fifteen of the Member States sharing a common currency and common monetary policy. These central elements of the EU’s economic and financial governance are all challenged by the deep crisis of large parts of the financial system, by economic recession and unemployment, and by exploding public debt in the Member states. The scale of this crisis forced national political leaders to concentrate primarily on battling their economies’ slide into depression, and only in the second place on complying with the EU’s economic governance. They seek to benefit from the level playing field, solidarity and co-ordination provided by the EU, rather than to preserve and strengthen integration.
How does one prevent domestic crisis-management from damaging European integration? How do we assess the added value of EU integration and take advantage of it in anti-crisis policy? Can the crisis favour new advances in European Union building? These are questions which FEPS considers to have a crucial importance of their own. They concern the basic political structures which the socialist and progressive forces in Europe have contributed to build, and which will permit them to address the economic and social consequences of the crisis, with the co-operative and solidarity-minded methods which are their hallmark, rather than the narrow and conflict-prone approaches of the past. In spring 2009, FEPS started to address these issues through a new research group, by organising a cycle of topical seminars which already started in the month of June 2009.
In the last years before the onset of the financial and economic crisis, the desire for further deepening of integration in the field of financial and economic policy in the European Union had descended to very low levels. An unmistakable sign of the stalemate in this field was the relegation since the year 2000 of further Europeanisation efforts to the less binding integration method of so-called open coordination, another one the absence of any significant advance of economic policy integration in the Lisbon treaty. Since 2008, the development of the US subprime crisis into a full-blown world-wide financial crisis with grave consequences for the EU economies, has created a new set of pressures and incentives for all concerned actors. They highlight the shortcomings of the exis-ting institutional architecture in Europe and could loosen this stalemate.
It is true that the first waves of policy reactions in the EU in fall 2008 and January 2009, being marked by discord about common approaches and by the preference among MS for differentiated national strategies, the pessimism about further integration perspectives in the EMU field appears confirmed. But as we said, these were the first waves of policy reactions. In all of the EU MS’s economies and worldwide, the crisis is expected to continue and produce grave consequences, during 2009 and up into 2010, both in the real economy and in the field of public and private finance. The pressures and incentives resulting out of these developments, for the further development of integration, have certainly not yet become fully visible, nor played themselves out.
Contradictory expectations dominated the public debate. There were voices which warned against the disintegrative dynamic which might result, and endanger the cohesion of the single market and even the survival of today’s Monetary Union. The euro-sceptics’ vision of the nineteen-nineties came back to mind, which saw –in a monetary union without the resource transfers of true fiscal federalism– the rigor of a common stability-oriented monetary policy provoking social and political unrest in the less competitive euro-countries, which would in the end drive them out of the Euro. But other voices maintain that today’s integration levels in the EU cannot be put into real jeopardy anymore and that a further deepening of economic/financial policy integration is in the end much more likely to result out of the test of financial crisis. How has FEPS proceeded? Keeping the contrasting scenarios for EU economic governance in mind, as the grand reference point for answering the question asked in this project’s title, the inquiry has nonetheless been conducted at a more technical level. Namely, FEPS has looked, and will continue to look, at a number of distinct activities which the EU governments and institutions are undertaking at the financial and economic policy level, to counteract the detrimental effects of the financial and economic crisis and prevent its repetition. We took inspiration from Nobel prize winner Paul Krugman, in an approach shared by many of his colleagues. They point to three necessary and consecutive steps, addressing three distinct, but urgent, aspects of the crisis. Governments and EU institutions should:
End the quasi-freeze of the global credit system and get credit (especially inter-bank credit) flowing again;
Contain the global slump. “The remedy is good old Keynesian fiscal stimulus”;
Reform the weaknesses of the financial system regulation, which made this crisis possible, this concerns rules and institutions at EU and global level.
Given that our project deals with the challenge which the financial crisis poses to European Integration, a fourth aspect concerns the effects on its monetary centerpiece, the Euro system.
Governments and ESCB must deal with the threat of debt crisis or even a state insolvency in one of the Euro-states. What is the most appropriate reaction, given the stability-obligation of ESCB-monetary policy and the no-bailout rule of the treaty? This scenario will be the fourth aspect of the crisis, with which we aim to deal.
Accordingly, over the year 2009-2010, FEPS has organized a number of high-level expert seminars on these four aspects of the crisis and the countervailing measures that the EU MS governments, the EU institutions and their external partners undertake, in a more or less co-ordinated manner.
FEPS has resolutely opted for restricted high-level expert seminars. Decision-makers from the public and the private sphere, together with top level analysts from academic and other backgrounds present their views and interrogate each other, trying to find common ground or to identify their differences. Contributions pay explicit attention not only to the difficult technical issues at hand in the evolving policies of Member States and the Union, but also to the effects which they are liable to have for the future balance between national and European policies, the changes necessary within the EU-rules and –institutions. In the end, an effort is made to sum up the results, in coming back to the question of our overall project. European integration challenged by the global financial crisis : will it’s reaction be to loosen up, or will it advance and deepen?
Two of these seminars have meanwhile been carried through. The order had to change, and adapt to the European policy making process which had been started early on for supervision, while ‘EU level’-debate and co-ordination only developed very slowly in the other fields, where even the Commission hesitated to come forward with proposals going beyond a kind of accompaniment of the national governments’ discussions. The months until fall brought some further evolution and clarification of respective positions so that opportunities for fruitful work have improved, especially as concerns the EU coordination of bank restructuring and of fiscal stimuli. In the end we had to start with the reform of European financial supervision, following on with the spectre of state insolvency, and pushing back the other topics. It is because of this, that our midterm report, after having held two of the four projected expert seminars, covers these two topics, preceded by this short introduction. This midterm report does clearly convey the image of a glass half-full, with interesting advances towards more integration in certain fields, but with other areas in which the stalemate continues, if it is not aggravated by the menace of imminent disintegration.
Read the study by Christian DEUBNER, member of the FEPS Research Group
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