Brian Hayes MEP speaks to the Irish Association of Corporate Treasurers, Thurs 19th Nov 2015
Europe faces threats from all sides. EU citizens are frightened at what they see. The world has never looked so dangerous and so fragmented.
From the threat of terrorism, seen so cruelly in Paris last weekend, to migration, to energy security, to Brexit and to the unacceptable level of unemployment across the EU. These are big and complex issues. But we must get ahead of the curve.
Seven years from the onset of the financial crisis and despite having come through it, we still face enormous economic problems as unemployment is still too high and growth too low.
But presuming that the Eurozone is doomed to constant failure – is presuming a lot.
Nothing stands the same, things change. Who knows where the Eurozone will be in five or ten years. We are currently 19 member states within the Eurozone and 9 member states outside. Who can tell what the future will hold. 7 of the 9 countries on the outside have expressed a willingness to join at some time in the future.
Having more Eurozone members will increase economic stability. With a more coordinated currency union the EU’s internal market will work more efficiently. Additionally, those countries that do adopt the Euro have to comply with prudent and sensible budgetary rules such as keeping debt to 60 per cent of GDP and having deficits of less than 3 per cent. Of course, for candidate countries, the Eurozone does not look attractive at the moment but the long-term growth potential is obvious.
But one thing is absolute – a firm determination on the part of the Eurozone countries, having redesigned the rules and retrofitted the currency, to make the euro work.
As Mario Draghi said recently, people only want to join something or stay in something if they see a benefit in it. Benefits must be understood by ordinary people living their lives. And that’s where the entire question of the future of the Eurozone is so linked to reform of the EU itself.
People may not like to hear this but the euro was at its heart a political project. The only way it can work properly is for those Eurozone member states to integrate more.
People are dissatisfied with Europe because Europe is not working. How can it when 23 million EU citizens have no work and where youth unemployment stands at over 20%. Over 90% of the world growth this year is not in Europe. Europe is getting older and less productive. We spend 50% of all social spending in the world with just 20% of the works GDP. Europe has to change and the adjustment is difficult but necessary.
Europe needs to be reformed from top to bottom. But in my view, that reform agenda can only work by continuing the essential integration of the Eurozone. And there are big questions for this country in this especially in the area of tax and expenditure.
We need more Europe not less. We need more integration not less. We need a properly functioning internal market that delivers more jobs and cuts costs for consumers.
People have to see a clear link between increased integration and increased prosperity. Keeping the Euro strong demands a new approach across the Euro area. Rules, which were blatantly ignored before under the Growth and Stability Pact, must now be fully implemented.
Further integration now has five outcomes in my view;
1 – If it is right that countries in excessive deficit spend less and tax more so as to reduce risks to the Euro area, it must equally be right that countries with a surplus spend more to compensate for reduced economic activity elsewhere in the Euro area. In the same way on the issue of debt and state borrowing, is it conceivable that a country could be told to borrow more, as many have been told to borrow less?
2 – The new order for the Euro means that irrespective of your size, if you constantly flout the rules, even if you are a big Member State for example France or Italy, that sanctions can be applied – as a clear demonstration that the rules are there for everyone.
3 – Getting Europe back to work after this crises also means a new understanding of investment and how prudent long-term investments to make Europe more competitive is the right approach. While the Germans are right about the new rules underlying the European economy, they are wrong about the rules for investment – especially in those counties, like our own, that have seen a reduction of over 20% in investment. While the recently agreed Juncker Plan hopes to stimulate the EU-wide economy by over €300 billion, we need to do more. The issue of Eurobonds must also be brought back on the table.
4 – The new order also demands that country specific recommendations, the outcome of the European Semester, are taken seriously by Member States. In fact, in the future, shining a bright light on uncompetitive practices in all Member States is something that people generally support. We should benchmark ourselves against other similar sized countries. If this financial crisis has taught us anything, it’s the need for constant external and independent analysis. We need to inculcate a contrarian culture where questioning is welcomed, not side-lined. Europe can help in that.
5 – A new era in European wide financial regulation and financial supervision. The establishment of the Single Supervisory Mechanism is key to establishing order and confidence in Europe’s banks. Providing proper EU financial scrutiny and control for the engines of future growth, the banks, is crucial to sustain growth.
To pretend to the public that we operate in a totally nation state setting in 2015 is to delude people. But equally it’s delusional to suggest that we have a United States of Europe. We have of course pooled our sovereignty where it has made sense to do that. We live in an intensely globalised world – that’s not going to change. Are people frustrated by the poor growth of Europe? Of course they are.
But blaming Europe for our problems – or pretending that AUSTERITY was all because of European decision making, is nothing more than a fairy-tale. Of course the response to the financial crisis by European policy was at the time totally inadequate. But as Prof. Nyberg said to the banking enquiry: our problems were principally home-grown. If anything the lesson of the crisis was the need for policy coordination, especially around the banks.
Yes the structure of the EU is complicated; it has to be to deal with 28 Member States and their particular needs. We have seen the rise of the hard right and the hard left in recent EU parliamentary elections. That will continue unless the pro-European majority can continue with integration.
What is needed now however is a new idealism for the European Union. And that idealism can only be constructed by showing to the world, that the Euro is here to stay, and that we Europeans are going to complete the task of making the euro work. The euro is not some currency construct – it’s OUR currency and we have to defend and strengthen it.
That’s why the recent paper presented by the rather grandiose title of the ‘5 Presidents Report’ on completing Europe’s economic and monetary union is a welcome contribution to the task ahead. It is welcome because we need a big debate on the future of the EU itself and especially on the Eurozone. The presidents of the EU parliament, Council, ECB, Commission and Eurogroup have produced a readable and understandable roadmap with the ambition of completing European Monetary Union. There are enormous questions for Ireland in this and indeed for every other EU Member State.
While some of the measures within the report centre around existing plans to complete banking union, such as potentially a European Deposit Insurance Scheme, there are radical proposals around establishing a euro area treasury into the future.
Should wage rates within the Euro area be referenced by a euro area set of rules?
What’s the role of national and EU parliaments in implementing measures to reduce imbalances between euro area Member States?
How do we strengthen the role of the Eurogroup and demand of it the kind of parliamentary accountability that it currently lacks?
What is the role of taxation and the allocation of budgetary expenditure?
We have had no debate in this country on this highly important report. No Dail debate. No debate within our political parties. No debate in government.
Ireland needs to think out what it wants of this process. We cannot be passive bystanders – we are member of the Eurogroup and that demands that we think out what exactly we need. We need to build coalitions with other euro and non-euro area Member States now on the substance of what might be coming down the tracks.
Notwithstanding the result of the upcoming UK referendum, we along with other euro area Member States have a responsibility to complete the project of EMU. In my view that’s the best way to deliver the increased prosperity we all desire. If we make the euro the strong reserve currency that it can become, that is the best way to deliver long-term sustainable growth. Without that necessary reform of the euro, Europe will go backwards and the progress made could well be put at risk.