Fri, Dec 30, 2011 - Page 9 News List

The Europe of the future

In a world economy being reshaped by globalization and the rise of emerging economies, European integration is vital to continuing Europe’s prosperity and influence

By Jean-Claude Trichet

Illustration: Mountain People

Whenever people seek a justification for European integration, they are always tempted to look backward. They stress that European integration banished the specter of war from the old continent. And European integration has, indeed, delivered the longest period of peace and prosperity that Europe has known in many centuries.

However, this perspective, while entirely correct, is also incomplete. There are as many reasons to strive toward “ever closer union” in Europe today as there were back in 1945, and they are entirely forward-looking.

Sixty-five years ago, the distribution of global GDP was such that Europe had only one role model for its single market: the US. However, today, Europe is faced with a new global economy, reconfigured by globalization and by the emerging economies of Asia and Latin America.

It is a world where economies of scale and networks of innovation matter more than ever. By 2016 — that is, very soon — we can expect eurozone GDP in terms of purchasing power parity to be below that of China. Together, the economies of China and India could be about twice the size of the eurozone economy. Over a longer time horizon, the entire GDP of the G7 countries will be dwarfed by the major emerging economies’ rapid growth.

So Europe must cope with a new geopolitical landscape that is being profoundly reshaped by these emerging economies. In this new global constellation, European integration — both economic and political — is central to achieving ongoing prosperity and influence.

Like individuals in a society, eurozone countries are both independent and interdependent. They can affect each other both positively and negatively. Good governance requires that both individual member states and EU institutions fulfill their responsibilities.

First and foremost, every eurozone country needs to keep its own house in order. This means responsible economic policies on the part of governments, as well as rigorous mutual surveillance of those policies — not just fiscal policies, but also measures affecting all aspects of the economy — by the Commission and member states.

In a society, law-enforcement institutions can ultimately compel a citizen to abide by the rules. In the eurozone, a framework based on surveillance and sanctions has, until the most recent decisions, depended on offending states’ willingness to comply.

What can be done if a member state cannot deliver on its promises? For countries that lose market access, the approach of providing aid on the basis of strong conditionality is justified. Countries deserve an opportunity to correct the situation themselves and to restore stability.

This approach nonetheless has clearly defined limits. So a second stage is now envisaged for countries that persistently fail to meet their policy targets. During this second stage, eurozone authorities would play a much deeper and more authoritative role in the formulation of countries’ budgetary policies.

This moves us away from the current framework, which leaves all decisions in the hands of the country concerned. Instead, it would be not only possible, but in some cases compulsory, for the European authorities to take direct decisions.

Implementing this idea also implies embracing a new concept of sovereignty, given the complex interdependence that exists between eurozone countries. However, it is ultimately in the interests of all eurozone citizens that these changes be made.

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