Europe and Solidarity
Sligo, Ireland, 8-9 March 2013
Author: François Lafond
It is during the first Semester of 2013, while Ireland is holding the Presidency of the Council of the European Union, that the Institute of European Democrats decided to organise a two days roundtable tackling the issue of solidarity, considered as one of the one of the challenges for the Irish Presidency. During this two-days reflection, the Institute gathered together European politicians, economists and experts to share and exchange their views on strengthening solidarity within the EU. Under the dynamic moderation of François Lafond (IED Scientific Committee) and thanks to the lively interventions of MEP Marian Harkin (Irish EDP member) the IED roundtable offered a fruitful occasion for critical thinking boosted by the contributions from Luca Bader (IED CEO); Jean Marie Beaupuy (French politician and municipal councillor of Reims); Gerry Finn (Director Border, Midland & Western Regional Assembly); Professor Ray Kinsella (former economist at the Central Bank of Ireland); Jakub Michalik (PhD at the University of Vienna and assistant at the European Parliament); Jim Power (economist and journalist, Chief economist at Friends First).
Below: programme of the conference and contributions of speakers
During the 2013 Irish Presidency of the European Union, the Institute of European Democrats (IED) organized, in close collaboration with MEP Marian Harkin, a roundtable on “Europe and Solidarity” at Sligo, on March 8-9, 2013. The works of this seminar were focused on two themes at the heart of the Irish Presidency: the first session was dedicated to “Backing the banks after the financial crisis and the realization of the Banking Union” and the second one looked into details “Solidarity among Regions, Regional and Cohesion Policy”.
In such context, presentations and discussion were based on acute national examples brought into the discussion by Irish experts such as Professor Ray Kinsella (Michael Smurfit Graduate School of Business and former Economist at the Central Bank of Ireland), Jim Power (journalist, chief economist at Friends First), or Gerry Finn (Director Border, Midland & Western Regional Assembly).
The first roundtable on the forthcoming European Banking system was structured around three questions: If the systemic crisis of the European banks seems to be almost behind us, what have been the decisions and the actors which have played a key role in reaching such a stabilized situation? Will the European Banking new mechanisms, decided last December 2012, be able to prevent any other bank bankruptcy in the future? Could we consider this new regulatory package a crucial step forward a deeper European integration?
The second session aimed to analyze the idea of solidarity among regions, introducing into the debates the EU regional and cohesion policies. The starting point was the feeling that in such an European economic crisis context, solidarity between Member States seems less and less accepted. Despite that transfers from rich to poor countries continue to be considered as one of the most important features of the European architecture. But how the European funds should be oriented and implemented in order to maximize their use and their impact on the poor areas? And ultimately, with the recently adopted Multiannual Financial Framework (2014-20), how will evolve the solidarity tools and instruments newly designed by the Commission and the Member States?
The discussions have been incredibly fruitful and useful to get a clearer picture of the new stabilized bank system in Europe. Five years after the Lehman Brothers bankruptcy, and the initial measures contained in a guidance proposed by the European Commission “on how Member States can best support financial institutions in a financial crisis whilst respecting EU state aide rules and so avoiding excessive distortions of competition”, the European Union offers nowadays a dramatic different economic governance picture. One could say that the Members States -under the pressure of the events- have done what we could have expected for a long time. Not always at the right moment, with the right speed, or with a clear narrative for the European citizens, but the results represented an historical jump to a more coordinated economic and bank regulations.
One of the crucial moment of this fragile recovery has been the “Draghi putt” when the International markets have been impressed by the remarks of Mario Draghi, the President of the European Central Bank, when, in July 2012, he said in London “within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough”. In addition to the European Stability Mechanism, which will be able to recapitalize banks directly -once all European banks will be properly supervised-, the ECB will have direct responsibility for around 150 big banks and indirectly on all others European banks. Lastly, the ECB will keep the capacity to step in directly at any moment if needed. The Member States and the European institutions have been obliged to react in order to put in place as soon as possible such a new institutional framework. One institutional complexity was to insure that the new Banking supervision configuration works for the Eurozone members but also for the other EU members to be involved in the decision making process. The European Banking Authority will complete the design in addition to more specific regulations on capital requirements, deposit guarantee schemes, bank resolution or the structure of the bank activities.
Most of these decisions have still to be taken or implemented by the national governments. An example of this essential step will be the follow up of the Liikanen report presented to the European Commission in October 2012 which recommended, among other measures, to separate deposit taking from risky activities. The Irish bank situation was also discussed with the specific mortgages (cheap credit) as epicenter of the crisis in the country and by consequence the necessary State rescue done in 2008. In order to save its banks, the Irish government has been obliged to lend for 64 billion € to save the whole system (about 40% of the GDP). The economic consequences of such an intervention are still there: Irish public deficit should be stabilized around 7, 5 % of the GDP in 2013 but the public debt is about 120 % for this year.
The “Troikanomics” and the austerity measures put in place by the Irish government (like others), such as cuts in hospitals or in the education sector were discussed by the participants. Germany has permitted to save the Eurozone but the full consequences of this continuing German commitment to the Euro and the Eurozone are still to be understood on the mid and long term. The debates among economists are still vivid. But conditions to get this financial support are clearly expressed: new EU regulations (more coordination at the federal level) and strong incentives to clean public debts and public deficits are the current conditions asked in exchange of the bail out.
After a political and historical decision to create our common currency (euro) despite obvious economic limits or weaknesses in some countries, economics is back. To contain markets inefficiency or negative effects, governments are pushed to restore some classical budgetary rules. Still Eurozone is missing fiscal federalism, strong growth engines in comparison with the new globalized world, with in addition an unemployment rate dangerous for the social cohesion in most of south European countries. But the European Union overcomes crisis after crisis, putting in place much more regulation to prevent new bankruptcy.
What is still missing is a stronger involvement of the citizens. Otherwise, if we do not find accountable and concrete measures to engage public opinion, the European political system may not resist to such austerity policies, without short term concrete results. The right articulation between centralized decisions and flexibility for national specific cases is not a new discussion at the European level. Even during the negotiations on the potential role of the ECB in the new bank control and regulation framework, this right combination of central command and flexibility kept at local level has been one of the key contentious point between France and Germany.
The second session came back to this political critical issue of solidarity, with the regional development policy. Maybe less discussed than other elements of the European Union, and certainly less well known by the citizens, this is still about 30-40 % of the European budget which is involved in such chapter. Currently 308 billion euros for the period 2007-2013 and 325 billion decided for the next 7 years. Over the years, in some countries (Ireland, Spain, Italy, Portugal or Poland), these funds have been dramatically important for the development of infrastructures or economic development. Results are there and some data need to be kept in mind: for instance, in Ireland, their GNP impact have been measured about +3,5 % and 30 000 employment on the 1989-93 period, and +3 % on the 1994-9 period and 33 000 employment. All the observers recognized that solidarity among European Member States is a “notable success story” and the key areas on innovation, ICT, knowledge economy, environment and energy or urban development have benefited from the European funds.
Yet some weaknesses are obvious, and countries could have been stricter in their preparation of projects to get development and regional funds for specific areas. A typical example is Italy where less than 10% of the funds have been used by Southern regions in absence of valid projects in the last years. Beyond these difficulties, one could recognize the positive aspect of the structural funds, which imposes common and global priorities, requiring co-financing and a long term approach. With a new Multi-Financial Framework which will bring more than 370 billion euros for the forthcoming seven years, this is difficult to do not take seriously this tool.
A crucial and missing element is again linked to the citizens. Too often, this collective European solidarity is not perceived as coming from the European Union level. Member States should be more explicit about the effects of these important European policies. Success-stories and clear didactic communication have to be included in this funds transfer. Concrete examples will generate potential new ideas and a more appreciative European Union in all the countries where they are implemented. Solidarity is what European members could promote in parallel of what is done on the Economic and financial side.
The two days IED seminar in Ireland have been extremely fruitful to understand better the need we still have to communicate in a more articulated manner what the European Union is doing and the way the Member States are sharing sovereignty . From a more regulated European bank Union to a renewed regional development policy, examples are easy to find and to detail the positive consequences of such an intertwined evolution. With the participation of MEP Marian Harkin, this message was easily taken and will be strongly pursued. And the Institute of European Democrats will continue to promote initiatives in such direction.
Member of the Scientific Committee
Institute of European Democrats