EUROPEAN UNION leaders were more relaxed at their summit last week, feeling that at last sufficient progress has been made in stabilising the euro zone to go beyond “talk of catastrophes, defaults, breakup of euros and the demise of the euro zone or the euro itself” as Taoiseach Enda Kenny put it.
Chancellor Angela Merkel said they had gained time to add structural and institutional reform to the fiscal discipline put in place by the treaty they signed in Brussels, which will be the subject of a referendum in Ireland. There is no room for complacency here, since without such further reforms the fiscal compact makes neither economic nor political sense.
The work put into stabilising the euro zone ranges from completing the €130 billion bailout package for Greece, endorsing the action by the European Central Bank in pumping €1,000 billion liquidity into the euro zone banking system, and negotiating the fiscal compact treaty. Whether it will buy two or three years’ time to put these other measures in place, as Dr Merkel believes, very much remains to be seen. The structural and institutional changes required badly need to be spelled out in more detail and be subject to much more widespread political debate throughout Europe.
In the meantime, the EU is sticking to its established agenda of mainly supply side reforms to extend the single market, increase competitiveness, encourage innovation and research, open up the services market and encourage labour market flexibility. They are necessary reforms which genuinely take a medium to long term period to implement. But they are no substitute for the structural reforms Dr Merkel is referring to and cannot in themselves stabilise and restructure the euro zone system. That requires action to reduce debt burdens, a more radical approach to investment and employment stimulus and a real perspective towards mutualising risk by creating a system of euro bonds.
Such measures now need to be brought into the public domain and discussed politically throughout the EU if this period of relative calm following recent turmoil is to be turned to real advantage. They are being raised in the French presidential election and will now be debated in the Irish referendum campaign.
That is a good thing for the health of the body politic throughout the EU. Such measures are contentious and contested, and there are alternative ways of reaching the objectives they identify – depending in good part on whether they come from the now dominant centre right of European politics or the aspirant centre left represented by François Hollande in France. But the euro zone will not be stabilised without putting some such new economic architecture in place.
A new political structure will also be required to ensure the accountability of such large-scale economic arrangements. It should reassert the role of the EU institutions, strengthen national parliamentary scrutiny and experiment with new federal ways to enhance democracy. This is also a time for political innovation and renewal.