European Council on Foreign Relations

Reinventing Europe: Narcís Serra

As part of ECFR's 'Reinvention of Europe' project, we are running a series of responses from leading thinkers and academics to Mark Leonard's recent paper 'Four scenarios for the reinvention of Europe'. The paper outlined four possible routes towards solving Europe's current crisis, and argued that Europe's main challenge was to solve the acute euro crisis without exacerbating the chronic crisis of declining European power. In the fifteenth in this series we hear from Narcís Serra from CIDOB.

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Mark Leonard offers a lucid appraisal of the risks of descending into populism or technocratic rule, and suggests that Europe “should therefore embrace a progressive policy agenda that serves the interest of ordinary citizens as well as bankers. It needs a growth union rather than austerity union”.

Just as populism in Europe has habitually drawn on problems linked with immigration to swell its audience, it is also true that we are concocting a new pretext that could be used by populist movements in both northern and southern Europe. This meshes with anti-European misgivings in blaming the European Union for our present plight, and also for the policies of austerity that are compounding lack of economic growth.

The remedy must come from a revitalisation of politics, which means confronting the problem of the legitimacy of EU organs, among other reasons because we need to bear in mind this question: if the politicians hand over power to the technocrats and they fail, what next step will be proposed?

Mark Leonard rightly draws attention to the proposal of direct election of the President of the Commission, or expanding the Commission’s present capacity for initiative in the European parliament. These are very good measures but we might also wonder whether less resounding initiatives might clear the way for progress. Mary Kaldor mentioned one such measure in a recent conversation: submitting to referendum the creation of a financial transactions tax (FTT), which is already supported by several European governments. I believe this is a good idea as it would involve European citizens in the effort of better governance of financial markets, and would mark a turning point in re-establishing the primacy of politics over markets.

As for a “progressive policy agenda”, this should take as one of its starting points the absence of internal demand in most countries as a result of growing inequality. It is quite well known that inequality has been increasing over the past twenty-five years in the United States, the United Kingdom and almost all the OECD countries. What is not so well known is that in China, the wage share of GNP dropped from 50% to somewhat less than 40% between 1995 and 2005, while corporate profits represented 32% of GNP in 2005, compared with 24% in 1995.

Income distribution has become a serious problem in market economies, as demonstrated in the recent OECD report Divided We Stand. Why Inequality Keeps Rising. A disproportionately rich minority has been forming while the middle class is getting poorer (and hence its contribution to domestic demand is diminishing). The wealthy minority does not invest capital in consumer goods but craves financial products, thus feeding the speculative bubble. A further consequence of this phenomenon is the creation of a thriving financial sector.

Meanwhile, the middle classes are witnessing how executives, especially those of the financial sector – with support from a good part of the academic community, consulting firms, remuneration consultants, big law firms, quite a lot of business schools, rating agencies and the financial press – have created a closed circle that is progressively removed from society.

The social contract implicit in the construction of the European Union has been cracking, among other reasons because it is incompatible with such an unequal distribution of income and also because the states are unable to keep playing their parts. There is no need to exclude globalisation or the competitiveness of emerging countries from the debate, but neither should we let these issues cover up the other causal factors I have mentioned.

For all these reasons, the “progressive policy agenda” Mark Leonard calls for should include measures that put an end to inequality-tending inertia and correct the present model of distribution. Some countries have sought to remedy (or palliate) the situation their own way. Germany has encouraged exports, as President Obama is now proposing for the United States. However, this measure has the evident drawback that it is not of general application since, by definition, the sum of the world’s exports is equal to that of its imports. Another way of tackling low domestic demand in the United States and many other countries has been increased credit facilities for the purchase of housing and consumption goods. The downside of this is obvious today: the creation of bubbles that are to be found at the root of the present crisis.

If we wish to favour economic growth in European countries, therefore, we must address the matter of income redistribution. This must not be done through fiscal measures alone but also by dealing with the heart of the productive structure itself. It means introducing policies that could be made compatible with the goals of healthy macroeconomics, such as those that Angela Merkel so tenaciously upholds and that are much more effective on the European scale than if they are embarked upon by only some member states.

In the “progressive policy agenda” it would also be necessary to include reform of the financial system, although in this case Mark Leonard’s proposal of serving “the interests of ordinary citizens as well as bankers” would not be easy to accomplish. Here, too, it would be a matter of going back to politics since technocracy cannot possibly solve the problem of regulating the financial sector, and it is also necessary to demonstrate that there is room for manoeuvre beyond the impotence induced by the “dictates of the market”. This means implementing measures that find support in the common sense of public opinion. Prohibition of non-transparent derivatives, the requirement that all financial transactions must be registered in some institution, the elimination of tax havens, the extension of some sort of regulation to all entities of the system, and the prohibition of structured vehicles and other ways of cooking the books are all measures that, while they involve great technical complexity in their conception and application, can be explained in easy to understand terms for the non-expert.

It would seem clear that President Obama has refrained from venturing into the politics of reforming the financial system. This does not mean that Europe should not attempt to do so, while trying to ensure that the repercussions on the City (or Wall Street) are no more than strictly necessary. Germany, which took the initiative, for example, of banning short selling operations, could very well lead a major European effort in this direction.

To conclude, a “progressive policy agenda” entails a return to politics. Here, I single out two important matters: income distribution and the financial reforms that could move Europe in this direction and that would contribute towards legitimating the Union among its citizens, apart from confronting with suitable instruments the predicament of technocracy and populism.

Also in this series:

Harold James - 'The more Europe suffers, the more its people will see that a reform agenda that is just an exercise in incrementalism is also nothing more than an exercise in futility'.

Richard Rosecrance - 'if Greece or Spain did not exist, they would have to be invented. Their participation in the euro keeps the value of the currency down from $1.80 to $1.20 or $1.30 or so, thereby ensuring the success of German exports to the rest of the world.'

Brigid Laffan - 'as the Union intrudes more and more into domestic budgetary and public finance choices, can party politics in Europe adapt to a very different governance regime?'

Charles S. Maier - 'The British can imagine that their banks will suffice, the Germans their autos, but such comparative advantage can dissipate quickly. I’d as soon wager on Greek beaches.'

Georg Sørensen - 'a substantial part of the present euro crisis has less to do with European cooperation and more to do with member states that are fragile, ineffective, have serious corruption problems...'

Chris J. Bickerton - 'Populism, after all, is politics without policies; technocracy is policy without politics.'

Carlos Gaspar - 'In an enlarged “Euroland”, Germany’s pre-eminence could be balanced by a Catholic coalition led by France, Italy and Poland.'

Dimitri Sotiropoulos - 'we still live in an era in which the nationalist project is more seductive than any project of integration among nations'.

Pawel Swieboda - 'no-one dares to ask the question if the euro is still a political project, as its founders tended to believe, or if it is today about nothing else than damage control'.

Claus Offe - 'Europe is not just needed as a defensive mechanism to prevent the weak being overpowered by the strong, who first administer an austerity cure without then providing the requisite support for recovery.'

Mario Teló - 'what is abusively decried by populist voices as a “German Europe” might in fact look a lot like the broadly endorsed “EU2020 strategy”. Input legitimacy may complement output legitimacy.'

Josep M. Colomer - 'For democracy to survive and retrieve in Europe, responsiveness and accountability of rulers should be moving from the state level to the EU level, where so many crucial decisions are already being made'

Marco de Andreis - 'a critical mass has been already assembled to make of Europe’s integration a possibility rather than an impossibility. And to at least consider the United States of Europe a fifth scenario for the reinvention of Europe.'

Miguel Maduro - 'the creation of European politics must go hand in hand with a change in the character of politics. For that, changes in policies may be even more important than changes in institutions.'

Brendan Simms: 'In 2020, President Radek Sikorski of the Democratic Union could long back at a turbulent, but successful first term in office...'

Christine Ockrent: 'In all the countries where people struggle with the economic crisis and fear for their children’s future, Europe has more than ever become the scapegoat'

1 comments

Ahmed 26th July 2012 at 08:07am

ሃገራዊ ባይቶ ንደሞክራስያዊ ለውጢshould implement the aidvse of the founders of our revolution.1) Woldeab W/ Mariam: “God blessed this crown (Eritrea) for us, Woe to him who dares touch it.”2) Ibrahim Sultan. “ Stand united my dear folks. Unite and work together for Eritrea.”The mad dog, the tyrant Isayas and his followers had destroyed our land and our people. We must destroy the mad dog Isayas and HIGDEF.ሃገራዊ ባይቶ ንደሞክራስያዊ ለውጢmust take action against the tyrant mad dog Isayas and his followers HIGDEF, just like IDRIS AWATE took against the #1 enemy of Eritrea.Death to the mad dog, the tyrant dictator and his followers!

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