CAN EUROPE RISE

TO THE CHALLENGE?

EU POLICY RESPONSES TO THE

GLOBAL CRISIS

CAN EUROPE RISE TO THE CHALLENGE?

The financial and economic crisis has revealed what is

A little more than ten years after its introduction, European

wrong with globalisation: lack of global regulation, the

monetary union sees its very existence threatened. A breakup

extreme imbalance between the world’s economies and the

of the euro zone could bring Europe to a political standstill.

unequal distribution of benefit and risk. Countries that, in

To avoid such a doomsday scenario, European leaders need to

recent years, have managed to lift themselves into a state of

take action and set up a proper European economic govern-

modest affluence are in danger of being cast back into their

ance. To do this, they will need to accept both more economic

previous survival mode. A return to economic nationalism, or

integration implying loss of some national sovereignty and

more popularly protectionism, would only make things even

more solidarity involving more transfers between states. This

worse. De-globalisation is no utopia but rather a spectre of

step is a long way from becoming reality for governments

doom. Not just because it will mean a loss of wealth around

anxious to defend their prerogatives and respective national

the globe but also because economic fragmentation can

interests. The long-term durability of the euro zone, however,

foment political nationalism − remember the 1930s.

depends on bringing Europe up to date.

The crisis has cruelly exposed the shortcomings of the European

In their time, De Gaulle and Adenauer, Kohl and Mitterrand

Union. We have a single market and a single currency but

knew how to make the sort of historical compromise that

no European coordination of economic and financial policy.

helped advance the construction of Europe. If Merkel and

European economies, however, are, for better or for worse,

Sarkozy will not find the political courage to support a new

interdependent. Standing by countries up to their neck in debt

equilibrium, they will have to assume the risk that monetary

is not altruistic but a rational act.

union could fall apart and as a consequence set Europe back

more than 50 years.

Heinrich-Böll-Stiftung

European Union, Brussels

15 Rue d’Arlon – B-1050 Brussels – Belgium

T +32 2 743 41 00 F +32 2 743 41 09 E brussels@boell.eu W www.boell.eu CAN EUROPE RISE TO THE CHALLENGE?

EU POLICY RESPONSES TO THE GLOBAL CRISIS

This project has been funded with support from the European Commission.

This publication reflects the views only of the author, and the Commission cannot be held

responsible for any use which may be made of the information contained therein.

Heinrich-Böll-Stiftung

Published by the Heinrich-Böll-Stiftung, European Union, Brussels

Printed in Belgium, September 2010

© The authors and the Heinrich-Böll-Stiftung, European Union, Brussels

All rights reserved

German-English translation and English language editing: Margaret Cameron

Proof-reading, sub-editing and general assistance: Alexander Tietz

Text editing, coordination and final editing: Marianne Ebertowski

Production: Micheline Gutman

Cover picture: © shutterstock.com

Other photographs: © with the authors, unless stated otherwise

D/2010/11.850/2

The views expressed in this publication are those of the autors alone.

They do not necessarily reflect the views of the Heinrich-Böll-Stiftung.

This publication can be ordered at:

Heinrich-Böll-Stiftung, European Union, Brussels

15 Rue d’Arlon

B-1050 Brussels

Belgium

T (+32) 2 743 41 00

F (+32) 2 743 41 09

E brussels@boell.eu

W www.boell.eu

TABLE OF CONTENTS

FOREWORD

4

INTRODUCTION

Fabian Zuleeg: The Impact of the Global Crisis on the EU and on Europe’s Role in the World 6

1. Pascal Canfin: How the Absence of Economic Government has led to the Current Crisis 13

2. Stany Grudzielski: Limits to Subsidiarity: A New Pattern of Public Intervention

18

for a Greener EU Internal Market

3. José Bové: The Financial and Agricultural Crises

24

4. Rebecca Harms and Silke Malorny: Climate Change Policy and the Economic Crisis

29

5. Reinhard Bütikofer and Roderick Kefferpütz: To be Green or not to be −

34

Tackling the Triple Crisis

6. Claire Champeix: What Future For Social Protection after the Crisis?

40

7. Helga Trüpel: The Financial and Economic Crisis and its Effect

47

on European Education Policy

8. Stefani Weiss: The Effects of the Crisis on the EU’s Foreign and Security Policy 51

9. David Král: The Impact of the Economic Crisis on EU Enlargement and Eastern Partnership 58

10. Karin Ulmer: How the Global Economic Crisis has Impacted on EU Trade

66

and Development Policy

4

FOREWORD

There are crises and crises. Some come and go

Global rules for global markets

without leaving any lasting trace but others signal

a break with the past. You do not need to be much

Market economies are demanding systems

of a prophet to predict that the current global

that require transparency, competition to limit

economic shock will go down in the history books

monopoly powers, effective price mechanisms,

as the end of an era. A growth period of almost

owner liability and a balance between profit and

25 years has come to an end that has helped lift

risk. If these checks and balances get out of kilter

around one billion inhabitants of emerging coun-

then the system spins out of control and this is

tries out of abject poverty and enabled the top of

exactly what happened.

the social pyramid to amass unbelievable riches

not only in the old developed world but also in the

If we are going to talk about failure of the

new rich countries such as China, Russia, India

markets we also have to consider the failure of

and Brazil.

governments. It is incumbent on the state to

keep order in the markets but it was national

This growth was driven by the liberalisation of

governments that, in the race to attract business,

global markets, international trade that increased

relieved whole sectors of the financial services

in leaps and bounds and, above all, by a feverish

industry of any regulation. It is absurd that all

expansion of the financial sector. It was here that

forms of medication have to undergo an exhaus-

the big money was made and events set in motion

tive authorisation procedure and every vehicle

that brought the global economy to the brink of

requires a technical certificate of worthiness

destruction. Yesterday, Wall Street and the city

while financial products that can leverage whole

of London were the beating hearts of capitalism.

economies can circulate without any form of risk

Today they are the epicentres of the crisis.

management being in place.

The crash began when the US property bub-

The crisis has revealed what is wrong with glo-

ble burst. So-called sub prime mortgages, used

balisation: lack of global regulation, the extreme

to finance this bubble, had been rebundled as

imbalance between the world’s economies and

mortgage securities and sold worldwide. In the

the unequal distribution of benefit and risk.

end this growth model collapsed under the sheer

Countries that, in recent years, have managed to

weight of both public and private debt.

lift themselves into a state of modest affluence are

in danger of being cast back into their previous sur-

Turbo-charged capitalism had finally gone

vival mode. A return to economic nationalism, or

too far. The time has now passed for making

more popularly protectionism, would only make

money out of ever changing financial products.

things even worse. De-globalisation is no utopia

In future, it will be more about producing value

but rather a spectre of doom. Not just because it

added sensible goods and services rather than

will mean a loss of wealth around the globe but

indulging in get rich quick speculative activities.

also because economic fragmentation can foment

The key economic figure of the future will not be

political nationalism − remember the 1930s.

the investment banker but the entrepreneur mak-

ing a contribution to society. It will no longer be

What is now needed is more cooperation

about maximising short-term profits but rather

and coordination. We need to strengthen the

establishing sustainable added value.

International Monetary Fund and the World Bank

so that they can play the role of global fire fight-

The capitalism of the future will be more

ers. This, however, is also not possible without

moral – because in the long term only responsible

political reform. There is no way that we can avoid

actions will create prosperity.

emerging economies and developing countries

Foreword

5

having a fair say in these institutions. The end has

competition that puts a burden on society. If the

now come for western hegemony over the glo-

EU uses this opportunity it will emerge strength-

bal economy. We will have to learn how to share

ened from the crisis. If European governments fail

power and wealth if we are to avoid everyone

then the Union will be gradually destroyed and

fighting everyone else.

the euro zone will break apart.

The crisis has also cruelly exposed the short-

The affect that the economic and financial

comings of the EU. We have a single market and

crisis has had on the European Union and its poli-

a single currency but no European coordina-

cies is the central theme of this publication. The

tion of economic and financial policy. European

authors have looked at European policies from

economies, however, are, for better or for worse,

different angles. They have analysed and evalu-

interdependent. Standing by countries up to their

ated how the Union has dealt with the different

neck in debt is not altruistic but a rational act.

aspects of the crisis: which measures have been

successful, which have failed and what still needs

What is also required is binding regulation

to be tackled. We hope you enjoy reading these

that enforces fiscal discipline and ends the tax

interesting and motivating articles.

Ralf Fücks studied social sciences, economics and political science in Heidelberg and

Bremen. He joined Bündnis 90/Die Grünen in 1982. After completing his studies he

worked as lecturer at the University of Bremen and as an editor for the two magazines

Moderne Zeiten and hefte für demokratie und sozialismus. Ralf Fücks served as

senator for urban development and environmental protection in Bremen from 1991

to 1995. Since 1996 he has been a member of the executive board of the Heinrich-

Böll-Stiftung.

6 CAN EUROPE RISE TO THE CHALLENGE?

INTRODUCTION

FABIAN ZULEEG1

The Impact of the Global Crisis on the EU

and on Europe’s Role in the World2

Risks and uncertainties

rapidly rising unemployment, ever lower cohe-

sion and social unrest in some countries.

Talking about the next crisis presumes that

the current crisis is over. This is far from clear.

The policy response

There are many continuing risks and uncertain-

ties which are hard to assess at this stage. These

In the developed countries, the policy response

risks include, for example, the possibility of a

was an unprecedented level of intervention by gov-

double-dip recession, further trouble in the

ernments. This took the form of massive increases

euro zone or further problems arising in global

in public spending as well as an expansion of

financial markets. The performance of certain

credits and guarantees for example in the finan-

economies, which is often tied to business and

cial sector and for sovereign debt. The immediate

consumer confidence as well as global markets,

effect has been deterioration in public finances,

might turn down rather than continue on a tenta-

which will take years, if not decades, to address.

tive upwards trend. Overall, the balance of risks

and uncertainties seems to point to a continuing

Much of the response has been characterised

downside risk.

by a lack of effective coordination or common

action at the European level. The tendency for

But assessing the degree of risk is difficult, not

most governments has been to focus on the prob-

least because the crisis has also had a profound

lems within their own borders. Only when the

impact on our ability to predict and forecast eco-

effect threatened to spill over across borders, have

nomic performance accurately. One lesson of the

attempts been made to work together as, for exam-

crisis is that economic models do not perform well

ple, in the Greek crisis. The fiscal stimulus packages

in extraordinary times: for example, the speed of

that were enacted were clear examples of this: in

deterioration, the degree of global interdepend-

line with the national responsibility for govern-

ence and contagion and the negative impact

ment spending and taxation, these packages were

on the effectiveness of monetary policy were all

only loosely coordinated at European level through

underestimated during the crisis. This meant that

the European Economic Recovery Plan.3

there was significant uncertainty about the right

policy response and the policy applied was not

To some extent this was understandable: the

always responsive and quick enough to address

scale of the response needed was unprecedented

the impact of the crisis, especially in the light of

and there were no mechanisms in place at EU

1 The author is writing here in a personal capacity.

2 This paper has been written to give a first overview of the impact of the global financial and economic crisis on the EU

and on its role in the world. In the author’s view, this impact is profound. Not only has the crisis aggravated many underlying trends and challenges which Europe will have to deal with in the coming years but it has also added new challenges.

More accurately we should talk about crises not crisis: the financial crisis was swiftly followed by an economic crisis and a public finance crisis. Arguably, we are now living through a currency crisis in the euro zone and, in the author’s opinion, we will face a low growth crisis in the coming years.

3 http://europa.eu/rapid/pressReleasesAction.do?reference=IP/08/1771

INTRODUCTION

7

level to coordinate actions more effectively. But

individual national supervision and legisla-

the key question will be whether the EU can now

tive systems, working in isolation, simply do not

create structures to deal with future crises. The

work. In the economic crisis, it became very clear

aftermath left by the policies used to deal with

that stimulating Europe’s economies could only

the economic and financial crisis also needs to

work if actions aimed at boosting the whole EU

be addressed: for example, the temporary distor-

economy were carried out simultaneously, not

tions to the Single Market will need to be removed

by individual countries or sectors. And the public

before they lead to more permanent damage.

finance crisis is clearly a crisis for all EU coun-

tries, with specific interdependent problems in

The crises have demonstrated that, in an

the euro zone.

interdependent world, Member States acting in

isolation is no longer a viable option for making

The current crisis

economic policy. This recognition is starting to

lead to change in certain policy areas: for exam-

At the time of writing this contribution, the euro

ple, the financial crisis has led to the recognition

zone countries, together with the International

that more effective supervision and legislation

Monetary Fund (IMF), had finally managed to

of financial institutions is needed – and that this

come together and propose effective crisis man-

should be at least at the European level if it is not

agement action. Greece was given access to the

possible to reach an international consensus. At

finances it needed to bridge public financing

the European level, the expert group under De

needs for the near future.5 In addition, a protective

Larosière4 has made a number of recommen-

umbrella was established to prevent contagion,

dations, which the European Commission will

with up to €750 billion in guarantees and credits

turn into legislative proposals. How these will be

(two thirds of which are coming from the EU and

turned into reality will depend on the co-legisla-

the remainder from the IMF).6

tors, the Council of the European Union and the

European Parliament.

This level of support for Greece and for the

other countries with public finance difficulties

The world has changed permanently

within the euro zone is likely to suffice in the short

term to stop the speculative spiral threatening to

Europeans must work together if they want

lead to the disintegration of the euro zone.

to shape events rather than being swept along by

them. The Greek crisis has not only demonstrated

The countries with public finance difficulties

that smaller and economically weaker countries

will now need to enact far-reaching reform, more

depend on others for support, it has also shown

closely supervised by the EU. For example, the

clearly that, for countries such as Germany, it is

recent commission proposal on the Europe 2020

not feasible to leave a fellow euro zone country to

strategy7 has been accompanied by ‘Integrated

fail without significant effects being felt by its own

Guidelines’,8 which set out further scrutiny of

banks and the common currency.

Member States’ public finances. While Europe

2020 and the governance of public finances are

This is the crucial lesson we can draw from

not integrated in a single strategy, the commission

all the crises we have endured so far: individual,

proposes much closer integration and simul-

country-by-country responses do not work.

taneity in the assessment of structural reform

The financial crisis showed that in a world of

and public finances. Concerns have been raised

cross-border banks and financial institutions,

about EU competence in this matter, but many

4 http://ec.europa.eu/internal_market/finances/docs/de_larosiere_report_en.pdf

5 http://www.imf.org/external/pubs/ft/survey/so/2010/car050210a.htm

6 http://www.consilium.europa.eu/showFocus.aspx?id=1&focusId=478&lang=en

7 http://ec.europa.eu/eu2020/index_en.htm

8 http://ec.europa.eu/eu2020/pdf/Brochure%20Integrated%20Guidelines.pdf

8 CAN EUROPE RISE TO THE CHALLENGE?

would now argue that a tightened EU approach to

cuts in expenditure and the increasing taxes will

overseeing public finance stability in all Member

further depress domestic demand. Since Greece

States is long overdue.

has few opportunities to benefit from trade

given its competitiveness position, it is likely that

But relying on existing mechanisms and com-

economic growth will permanently suffer, aggra-

petences will not be enough to prevent further

vating the public finance position.

crises. An immediate consequence is that the EU

must consider carefully how governance in the

The solution for Greece will have to be, implic-

euro zone needs to be revised, not least to give a

itly or explicitly, a reduction in the level of debt

signal to markets that the weaker EU economies

burden relative to GDP through, for example,

with public finance problems, such as Portugal,

rescheduling of debt. This cost will be borne by

Italy or Spain, will be forced to enact far-reaching

Greece’s creditors, including banks and insurance

reform to address their structural weaknesses.

funds but also other euro zone governments.

In addition to a more permanent crisis man-

While the Greek situation is particularly seri-

agement mechanism there has to be closer

ous, in the medium to long term much of Europe

scrutiny and a greater degree of European influ-

faces a similar position: a weak growth rate and

ence over national budgets as well as a revision

a continuing deterioration of public finances. In

of the Stability and Growth Pact with specific

the absence of effective policy intervention, the

emphasis on more effective implementation.

impact of the crisis is likely to not only include a

The commission proposals made in the spring of

temporary reduction in GDP but also a reduction

20109 are based on the Lisbon treaty10 (specifically

in the growth potential of EU countries.

Article 136 which allows for more coordination

in the euro zone), proposing a permanent cri-

The crisis has highlighted the structural weak-

sis management mechanism, a better-enforced

nesses in the EU economies with few options

Stability and Growth Pact and more budgetary

other than fundamental reform to drive European

supervision of Member States. The new perma-

growth. In the past, global economic development

nent President of the European Council, Van

has helped Europe’s economy but new competi-

Rompuy, has been charged with forming a task

tors will make it difficult to use the international

force to report by the end of the year on poten-

economy as Europe’s driver for growth.

tial changes in governance, which might involve a

treaty change but, given the urgency of the crisis,

The long-term effect of the crisis is far from

he intends to report in October.11

certain not least because policy can potentially

change the trajectory of developments. Without

The growth crisis

radical and far-reaching change and reform,

however, most European countries will stagnate

Even though a complete overhaul of the eco-

economically. This will aggravate social prob-

nomic governance of the euro zone is a necessary

lems – for example, labour markets are likely to

step, it will not be sufficient. For example, in the

stagnate – and this will lead to a continuing dete-

case of Greece it will become increasingly clear in

rioration in public finances. In short, without

the next few months that a financial support pack-

decisive policy responses, most of Europe faces

age is not sufficient on its own. The Greek economy

severe challenges to its economic and social

is taking a significant battering, which will make it

model in the medium to long term.

even harder to repay the debt, especially since the

9 http://europa.eu/rapid/pressReleasesAction. do?reference=SPEECH/10/237

10 http://europa.eu/lisbon_treaty/index_en.htm

11 http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/114585.pdf

INTRODUCTION

9

Slow burning crises

In future, demographic change and Europe’s

The impact of the current set of crises must

population will necessitate that not only are all

be seen in the context of Europe’s long-term

groups integrated into the labour market – and

challenges, which will further threaten the sus-

for longer – but also the European labour force

tainability of Europe’s economic and social

will increasingly have to be supplemented by

model. Europe is facing an unprecedented set of

migrant labour. The impact of the ageing society,

key challenges which threaten its way of life and

however, goes much further, making a radical

standard of living.

transformation of our economies and societies

necessary. To accommodate the changes in our

The impact of globalisation, and in particular

working population, our labour markets will

competition from emerging economies such as

have to look radically different with, for exam-

China and India, will challenge Europe’s long-

ple, different career paths, remuneration, social

term economic and social future. European

security arrangements, levels of technology and

countries have, by and large, been major winners

work patterns.

of the globalisation process, benefiting from glo-

bal trade and investment opportunities, not only

Climate change also provides a significant impe-

in terms of exports but also in terms of cheap

tus for the transformation of Europe’s economic

imports, which have raised our standard of living.

model. The need to move towards a much less car-

But the world will not stand still and the emerg-

bon-dependent growth model will require radical

ing economies have a huge labour force, which

change, with significant transitional costs, as well as

is willing to work at much lower wage levels than

an acceleration of the technologies, processes and

those prevalent in the EU. In addition, developing

innovation that will underpin this transition.

economies are increasingly investing in innova-

tion and higher skills, increasing the pressure on

These challenges are complex and inter-

European competitiveness.

related and none can be tackled in isolation.

Europe, however, does have the resources to

Global competition for resources, including

fall back on to help address these challenges

energy, food and commodities, will also con-

– including a high level of technology and inno-

tinue. While the significant upward trend in oil

vation, high levels of capital and human capital

and food prices was halted by the crisis, with a

and a disproportionate influence in global affairs.

global recovery these trends are likely to return.

Europeans have also attained a high standard of

Competition for other important factors of pro-

living, with a globally unrivalled level of social

duction – such as capital, investment and human

and environmental protection but the long-term

capital – is also likely to intensify with Europe not

impact of the crises will act as a brake on the

in the best competitive position.

level of public finances available to make long-

term investments. In future, European societies

These external influences will also impact

will need to investigate new models of finance

directly on European societies. Member State

and delivery.

populations have become more diverse, but at the

same time the challenge of achieving cohesion

The implications of the recent crises together

and integration has also increased. Not only are

with these long-term challenges mean that

populations more heterogeneous, there are also

Europe’s economic and social model is under

significant differences in the opportunities avail-

threat. Without decisive policy action, Europe

able to the different groups in society. This social

will be facing economic stagnation. At the same

divide poses a real threat to Europe’s social model

time, Europe’s relative weight in the world is

and signals that significant efforts will be required

declining. With a weaker economy this process

to reinforce Europe’s commitment to retaining a

will accelerate. But Europe still has an option: to

strong, socially responsible focus.

pool its resources and speak with one voice. Only

10 CAN EUROPE RISE TO THE CHALLENGE?

by acting together can Europe avoid international

tor reform, climate change, the EU budget, euro

marginalisation.12

zone governance, the Single Market or the rep-

resentation of Europeans in international fora/

A role for Europe

organisations could equally well have been

chosen. In fact, most EU policy areas need to be

There are many reasons why coordination

reassessed in the light of the crisis.

and common action are necessary to deal with

Europe’s new and persistent challenges. These

Europe 2020 has been chosen as a good exam-

include rising economic interdependence, lack of

ple of how the crisis has impacted as well as the

economies of scale in individual Member States

impact caused through the aggravation of some

and international marginalisation.

of the longer term challenges. This article does

not claim to present a fully detailed reform plan

This does not, however, mean that further

for this policy area. Rather it shows in what broad

economic and political integration is inevitable.

direction policy will need to change.

Integration remains a political choice. While in

the view of the author the rationale for integration

The Europe 2020 Strategy, the successor to the

has become stronger, this is not an assessment

Lisbon Strategy,14 was due to be finalised in 2010.

to which all are likely to subscribe. The critical

Its preparation thus fell in the midst of the finan-

question is whether some of the major EU pow-

cial and economic crisis and its aftermath. While

ers have recognised that there needs to be change

this to some degree was taken into account in its

of sufficient scale and magnitude or whether the

design, for example through a greater emphasis

temptation is to return to business-as-usual.

on social inclusion, the author would argue that

the proposed new strategy is not transformational

Pursuing change is difficult: often reform

enough to address Europe’s post crisis challenges.

involves unpopular political choices for future

gain. In addition, the extent of reform required is

Most importantly, the strategy is insufficient

very significant – and even harder for Europeans to

to address the fundamental underlying problem

swallow, given the effects of the recent crises. In the

of the European economy: low economic growth

view of the author, returning to business-as-usual

rates. As detailed above, the crisis has resulted

would be disastrous: it would condemn Europe to

not only in a lowering of the level of growth but

long-term stagnation with further crises to come

also in the level of potential growth, at least in the

and fewer tools available to deal with them.

medium term, leading to what many now term

a future ‘lost decade’.15 This has to be seen in the

Assessing current EU policies

context of the weak growth performance prior to

the crisis and the downward impact of population

In the light of these challenges, how appropri-

ageing on future growth.

ate is current EU policy? And how far will current

policy need to adjust post crisis?

In addition, the impact of the crisis on public

finances means that, in future, public investment

Given space limitations, this article focuses on

will be harder to come by. This creates a vicious

a single policy area to illustrate how policy needs

circle: lower economic performance in future

to adjust to the post crisis reality: the Europe 2020

means even tighter public finances. A continuing

strategy.13 This does not imply that this is the only

tightening of credit available from financial insti-

policy area affected. Areas such as financial sec-

tutions, presents challenges for generating private

12 http://www.epc.eu/PDF/SchuDec.pdf

13 http://ec.europa.eu/eu2020/index_en.htm

14 http://europa.eu/scadplus/glossary/lisbon_strategy_en.htm

15 The ‘lost decade’ is an option, which the commission has referred to as one possibility facing Europe’s economic future.

See for example http://ec.europa.eu/commission_2010-2014/president/news/statements/pdf/20102010_2_en.pdf INTRODUCTION

11

investments into future growth drivers. Given the

significant parts of the EU and fragmentation will

difficulties in public finances, these investments

lead to international marginalisation. In short,

will have to come from individuals/households

the EU leaders can choose not to integrate but the

and private sector firms, necessitating the crea-

price will be economic stagnation and interna-

tion of a legislative and support environment able

tional marginalisation. 17

to encourage this investment.

Implications for future European policy

This also illustrates the interdependence of

different policy areas. Europe 2020 must be seen

So what are the long-term implications of the

in the context of the exit strategy from the crisis,

crisis and their interaction with the other long-

the public finance crisis, monetary policy and

term challenges set out above? While it will take

the reform of euro zone governance. Structural

a number of years for the full extent of the crisis to

reform, fiscal and monetary policy have to work

become apparent, there are already a number of

together to ensure that the objectives of Europe

general conclusions which can be drawn:

2020 can be met.

1. Uncertainty and risk are higher than before

But Europe 2020 is, on its own, not enough

the crisis. The implication is that much more

to change the long-term growth trajectory suffi-

attention needs to be paid to contingency and cri-

ciently or to create the environment needed for

sis management mechanisms. The EU’s relatively

further investment. A more radical approach will

poor performance in responding through contin-

be necessary to drive growth, including, for exam-

gency planning or crisis management must be

ple, comprehensive tax reform and prioritisation

addressed as a matter of priority for the future;

of investment in education, incentivising the

commercialisation of research and innovation or

2. Investment in the future will be difficult

the further development of the Single Market.16

to finance. More needs to be done to create an

environment, which encourages investment by

In many relevant policy areas, however, the EU

individuals/households and companies;

does not have the policy competences to act: be it

in taxation, education or in the governance mech-

3. Public finances will severely limit the room

anisms to ensure that Member States stick to EU

for manoeuvre for government intervention. The

level targets. This does not necessarily mean that

degree of public finance difficulties implies a rad-

the EU needs new competences: one could equally

ical overhaul of spending, public service delivery

argue that the EU should limit its ambitions in

and taxation. There needs to be a serious commit-

these areas. But in the opinion of the author, this

ment among EU leaders to review and work with

would not be the most effective policy response.

other financing and service delivery models in

the future;

The crisis has shown the high degree of eco-

nomic interdependence which exists within

4. Low growth rates will undermine eco-

the EU. Not only will low growth in one country

nomic recovery and Europe’s role in the world.

limit the economic opportunities for the EU as

Enhanced efforts will be required to encourage

a whole but economic trouble caused by a loss

economic growth;

of competitiveness and economic performance

and consequent deterioration in public finances

5. The level of interdependence implies that

will need to be dealt with collectively by Member

governments cannot act alone. But European

States. In addition, a loss of growth potential in

governance mechanisms are lagging behind;

16 http://www.epc.eu/dsm

17 http://www.reflectiongroup.eu/wp-content/uploads/2010/05/reflection_en_web.pdf and

http://www.epc.eu/PDF/SchuDec.pdf

12 CAN EUROPE RISE TO THE CHALLENGE?

6. Credit will still be difficult to obtain for large

10. There is a significant threat that the long-

sections of the economy. In many cases public

term effects of the crisis will lead to greater social

authorities will have to step in, necessitating new

divergence and divisions. This will further perpet-

and innovative approaches;

uate the unease, which Europeans feel about both

national governments and the EU. Tough political

7. Growth will need to be sustainable in the choices will have to be made on where to focus long term – environmentally, socially and in terms

scarce public resources.

of public finances. This implies radical change to

the economic and social models which underpin

While the environment is challenging, the

Europe’s raison d’être;

worst effects can be avoided: policy does matter.

Much of the appropriate policy response should

8. At European level, means and instruments come at the European level where the sum of need to be aligned with the common objec-Member State actions can be greater than its parts.

tives which are set: too often the EU is asked by

But the key question is whether there is political

the Member States to do a job for which it is not

will in the Member States to recognise that the

equipped, due to lack of competence and/or a

world has changed. More European coordination,

policy vacuum;

cooperation and common action are not inevita-

ble. Without further integration, Europe is facing

9. Europe requires a greater ‘external’ focus to the toughest socio-economic challenges of its his-really appreciate the state of change and its per-

tory and without adequate tools to address them.

formance in the international context. Europe is

becoming relatively less important in the world.

In future, only through a single voice can Europe

play a significant role in the world;

Dr. Fabian Zuleeg is Chief Economist at the European Policy Centre (EPC) where

he is responsible for the Political Economy Programme. He leads the EPC’s work

in the Economic Policy Forum and on the Well-being 2030 project, a two-year joint

research project with the European Commission. His current work is focusing on the

economic crisis, the post-Lisbon strategy, the Digital Single Market and the future

sustainability of Europe's economic and social models. Fabian Zuleeg comments

regularly on current economic issues in the EU in the media, in print and on radio

and TV. He also chairs and contributes to a wide range of debates, conferences and

seminars and has researched and published widely on European economic and social policies. Prior to joining the EPC he worked as an economic analyst in the private and public sectors. Fabian Zuleeg holds a PhD in the Political Economy of EU Enlargement from Edinburgh University.

1. PASCAL CANFIN How the Absence of Economic Government has led to the Current Crisis

13

1. PASCAL CANFIN

How the Absence of Economic Government

has led to the Current Crisis

A first crisis for the euro

turn a blind eye to Greece’s dubious budgets and

statistics. The Greek government was thus able

A little more than ten years after its intro-

to undervalue its national debt with the help of

duction, European monetary union sees its very

bankers Goldman Sachs. Just as serious, they also

existence threatened. A break-up of the euro

did nothing to stop the credit expansion in Spain

zone could bring Europe to a political standstill.

and Ireland that resulted in a property bubble of

To avoid such a doomsday scenario, European

unprecedented proportions.

leaders need to take action and set up a proper

European economic governance. To do this,

Absence of economic government has led to

they will need to accept both more economic

the current crisis. By once more making a distinc-

integration implying loss of some national sov-

tion between the sovereign debt interest rates of

ereignty and more solidarity involving more

the euro members, financial operators formally

transfers between states. This step is a long way

noted the lack of budgetary integration. Unlike

from becoming reality for governments anx-

the United States there is no euro zone budgetary

ious to defend their prerogatives and respective

deficit but only the sum of 16 national Member

national interests. The long-term durability of the

State deficits. While the Greek debt is worrying,

euro zone, however, depends on bringing Europe

the German debt is one of the most sought after

up to date.

in the world with its very low long-term inter-

est rates. Given the mistrustful attitude of the

Incomplete economic integration has led

markets, a rapid return to balanced budgets is

to the current crisis

not a viable option for the European Union. The

health of European economies still depends to a

European economic integration is a con-

great extent on the drip feed of public spending.

struction site that has ground to a halt. Of course

If there is little consumer or business demand,

belonging to the euro zone has required the

cutting public spending is likely to cause a new

introduction of economic policies to ensure

recession and make the current social situation

that certain convergence criteria, notably con-

even worse.

cerning inflation, are met. For all that, signing

up to the euro has become the end of economic

Beyond budgetary issues, one also needs to

convergence. Those countries that joined have

consider the question of the relative competi-

forgotten that for a single currency to succeed,

tiveness of euro zone members. The relationship

the process of convergence has to be properly

between pay and productivity has not evolved in

maintained. With the removal of the devaluation

the same way across the Union. Germany that

option, all euro countries need to have a similar

has pursued a rigorous pay policy these last ten

rate of inflation in order to maintain their relative

years has seen its relative competitivity greatly

competiveness. The first ten years, however, have

advance. During the same period, Spain, experi-

been notable for the fierce desire of countries to

encing a property boom, saw pay rise much faster.

avoid the European Commission or their peers

This does not pose a problem for an economic

interfering in their domestic economic policies.

space in which the workforce can move freely but

In order to avoid any external look into their

it does for the euro area. Spanish unemployed

affairs, the euro countries actually preferred to

are neither able nor desirous of going to work in

14 CAN EUROPE RISE TO THE CHALLENGE?

Germany. The limited freedom workers have to

is no longer any necessity to give definitive target

move around the European Union because of

figures but rather set down rules relative to the

linguistic and cultural barriers is an unavoidable

economic situation of each country (recession,

reality that means we cannot rely on labour migra-

overheated etc). Budgetary balance is there-

tion to regulate pay inflation. As a result a country

fore maintaining an average over a long period

that has lost competitivity only has the choice of

and does not forbid either a surplus or a deficit

deflation: a solution that carries particularly high

depending on the stage in the economic cycle. For

economic and social costs and is not without risk.

all that a flexible SGP will require member coun-

In fact it could result in a deflationary spiral. If

tries adhere to flexible rules. These last few years,

this is the case then deflation feeds the recession

the European Commission has been unable to get

and unemployment and they in turn increase the

countries to stick to the pact. Promises made in

rate of deflation. Spain’s unemployment rate is

Brussels are quickly forgotten when governments

already 20% and if some euro countries get caught

return home. France lowered value added tax

up in such a spiral, there is a risk that their per-

(VAT) on restaurant meals at a cost of €3 billion

sistent underemployment rate will make staying

at a time when its deficit was already larger than

in the euro socially intolerable. To avoid this, the

allowed by the pact. A decision that completely

European Union needs to have proper economic

undermined the authority of the commission,

governance. To achieve this there will need to be

whose only means of enforcing the pact is to levy

a thorough revision of the Stability and Growth

monetary fines and this risks making things worse

Pact (SGP) and a European budget, with its own

in a country that is already in the red.

resources, capable of financing more solidarity

between members.

To get out of this situation of harsh non-com-

pliance measures, the first step would be to oblige

Create proper economic government by

euro members to use common macroeconomic

revising the SGP

criteria when deciding income and expenditure

thus avoiding unrealistic budgets. A more radical

The rigidity of the SGP and its absurd concen-

solution, proposed by Angela Merkel, is to remove

tration on national debt has rendered it obsolete

voting rights from those countries failing to meet

as a means of economic governance: the major-

SGP obligations: an idea that would appear to

ity of euro zone countries ignore it and its blind

be dubious. In fact it is difficult to imagine that

spots are obvious. Unless you are a demagogue,

France and Germany, the two countries that have

it is impossible to support the idea of a single

been driving the pact for the last few years, could

currency without common criteria for financial

have their council voting rights removed without

regulation and therefore common agreement on

bringing the European Union to a standstill. Once

budgetary deficits and managing national debt.

again, we have a sanction that is too harsh to be

The European Union therefore needs a new SGP

properly effective. It would appear that neither

that deals with the limitations of the current pact.

fines nor sanctions are effective means of keep-

ing member countries in line. You cannot use

Make the SGP more flexible so that it will duress of this nature against sovereign states but be better respected

the use of encouragement might be more effec-

tive. Offering countries respecting the pact the

Making the pact more flexible in 2005 was a

opportunity to issue Eurobonds, guaranteed by

good beginning. National deficits are not them-

the other euro zone members, would be a strong

selves a problem as long as they do not result

incentive to conform. Such a system would enable

in inflation, which is what can happen during a

European countries to borrow at the best rate, as

recession when consumer demand is weak. The

they would be guaranteed by the zone’s strong-

debt of a country should therefore be contained

est economies. In addition, such a system of

at a rate relative to its economic situation. There

Eurobonds would increase market liquidity and

1. PASCAL CANFIN How the Absence of Economic Government has led to the Current Crisis

15

allow smaller member countries greater access

This new target presupposes that, in addition

to finance. Simply respecting SGP budget crite-

to interest rates, the ECB has new instruments

ria, however, does not ensure economic stability.

of credit control that include adjusting capital

In the present situation, the only other criteria for

requirements for banks depending on the eco-

running the euro zone are control of consumer

nomic cycle of the country they are in.

price inflation, the responsibility of the European

Central Bank (ECB). But neither the ECB nor the

The second blind spot of the current economic

SGP had the ability to counteract the private credit

governance concerns the relative competitivity of

explosion in Spain and Ireland. As it is, European

euro zone members. Germany that has pursued a

economic governance consists of two blind spots

rigorous pay policy for the last ten years has seen

and, to a large extent, this is why it is currently so

its relative competitivity clearly increase. What was

ineffective. We need to establish two additional

not a problem at the beginning has become one

indicators for European Commission analyses: the

with the creation of current account imbalances,

level of private debt and relative competitivity.

principally in the area of goods and services. We

cannot reproach Germany for being the world’s

Get rid of the SGP’s blind spots

number one exporter thanks to the quality of its

products. On the other hand, it is unnatural that

Blind spot number one − private debt. The

due to its weak consumption checked by pay

euro zone countries that have the most dramatic

restraints, Germany has not imported more. A

economic problems are the ones that have seen

more productive German economy is only good

private debt explode in the last few of years.

for the euro zone if it results in redistribution in

Ireland and Spain for example have a private debt

the form of salaries. Pay deflation is no winning

rate of more than 160% of GDP. This has inflated

solution for the whole of the euro zone. In an

the prices of capital assets (essentially property)

economic area as integrated as the euro zone,

and financial assets. These blunders alerted nei-

surpluses on the current account of one country

ther the commission whose gaze was fixed on

are to a large extent the deficits of others. This

public debt, not the ECB concentrating on goods

kind of policy only serves to lower demand and

and service inflation. On the contrary, before the

condemns the area to long-term underemploy-

crisis Spain and Ireland were regarded as the good

ment. In order to avoid this situation, member

euro zone pupils because their public finances

country trading accounts for goods and services

met SGP criteria. Since the beginning of this cri-

need to become a key indicator for the European

sis, households in these countries that have taken

Commission. Should either the surplus or deficit

on excessive debt to purchase their homes are

exceed 3% of GDP, the commission should look

seeing the value of their capital assets diminish

at the situation and make policy recommen-

and their incomes decline as unemployment rap-

dations if necessary. These recommendations

idly rises. Their repayment obligations, however,

should be binding if the situation worsens and

have not gone down at all. As a result they have to

the figures reach 5% of GDP. Currently, Greece’s

cut back on private consumption but this in turn

current account deficit with other euro countries

leads to more unemployment. The only way out

(14.4% in 2008) would require the government

is for public debt to support private consump-

to take action. Germany’s surplus (7% of GDP

tion. But this in turn means a higher public deficit

in 2008 and more than half of it with other euro

that will put the country outside what is allowed

countries) would also require a change of policy.

by the SGP. Given this situation, the ECB and the

The commission’s announcement that in future it

European Commission need to extend their ana-

will look at relative competitivity in the euro zone

lytical scope. The commission needs to jettison its

shows that it has realised what is at stake.

dogma that the only destabilising factor is public

debt and the ECB needs to look at capital asset

In concrete terms, excess savings in some coun-

inflation in order to head off speculative bubbles.

tries could be reduced by a better redistribution of

16 CAN EUROPE RISE TO THE CHALLENGE?

wealth. The incomes of rich countries have rap-

is certainly the result of historical differences

idly risen in the last few years and this has led

but it does show that the European Union is an

to growing inequalities: inequality of income

economic dwarf. Member States are quick to

that leads to excess savings of the better off and

disparage the commission for its lack of proper

weak demand. A greater redistribution, espe-

policies for industry, research and infrastructure

cially in ecological investments (that in the end

and this criticism is justified but commission inac-

will lower mandatory expenditure of the poorest

tion is due to lack of funding. On climate change,

and middle classes) would reduce excess savings

for example, we should have a common research

and therefore lower current account imbalances.

effort to develop techniques capable of radically

Including such new criteria would, however,

reducing carbon emissions from our production

require member countries to give up some of

and consumption methods. Negotiations for the

the sovereignty over economic policy but this

European budget 2014-2020 commence in 2010.

would be more symbolic than real. In fact, if

France and Germany should propose a progres-

individual economic policies are possible in the

sive increase in the EU’s budget from 1% to 5% of

short term, being a member of a monetary union

European GDP by 2020, partially financed by a

drives convergence in the medium to long term.

direct EU tax.

Coordinating economic policies will allow for

shared sovereignty on these questions. The suc-

Put an end to fiscal competition

cess of the euro and, more widely, the European

project depend on this.

States will need to deal with fiscal issues in

concert if they are to finance the European budget

Increase the Union’s budgetary capacity

and have the sort of financial room for manoeu-

vre that can reduce deficits and public debt. The

If putting into place new rules will ensure the

absurd fiscal competition that members have

long-term viability of monetary union, they will

engaged in has led to a never-ending reduc-

not help Europe get out of its current rut. The

tion in company tax in the EU. Regaining fiscal

more or less ordered responses produced by the

sovereignty, as in the case of monetary matters,

pressure from the financial markets need to lead

will result from better coordination at European

to lasting mechanisms for dealing with crises. The

level. Europe needs to take back the fiscal con-

system of bilateral loans between euro members

trol it has lost over mobile capital. A directive on

is a response to deal with the immediate financial

the consolidated tax base of European multina-

problems of Greece. This emergency measure has

tionals, limiting their ability to relocate to lower

avoided a probable Greek default followed by its

tax areas, will allow for an increase in company

exit from the euro zone. In the same way, the cre-

tax. This is imperative for those countries most

ation of a European financial stability fund, with

deeply in debt. The directive could also impose

members contributing €440 billion, is a guarantee

a European company tax, along the lines of the

for all the members of the zone. These funds rep-

US federal company profit tax that could flow

resent the first form of solidarity that upsets the

into the Union budget. This budget should also

principle of no bail-out established at the creation

receive proceeds from a form of energy tax, if it is

of the euro. Even so, the conditions imposed on

imposed at EU level that favours ecological means

Greece by its partners are far from being advan-

of production and does not distort Single Market

tageous and might well not be sufficient to avoid

competition. Finally, a financial transaction levy

future insolvency. Above and beyond loans and

at the European level is desirable. This will tax the

guarantees, the European Union needs to accept

most speculative activities of the banks that make

greater budgetary solidarity.

no contribution to the real economy and return to

the state some of the profits from these activities

The EU’s budget today is limited to 1% of

that currently escape duty. Establishing this kind

European GDP. The federal budget of the United

of fiscal cooperation means that there will need

States has an upper limit of 20% of GDP. The gap

to be an improvement in European anti-fraud

1. PASCAL CANFIN How the Absence of Economic Government has led to the Current Crisis

17

measures. It is inconsistent to have free move-

governance. Germany will not accept an eco-

ment of goods and capital but tax authorities that

nomic government unless it sees its interests best

are partitioned nationally. There needs to be auto-

served by accelerated integration. In their time,

matic exchange of fiscal information between the

De Gaulle and Adenauer, Kohl and Mitterrand

national and EU authorities if fraud is to be tackled

knew how to make the sort of historical com-

efficiently. This information exchange should also

promise that helped advance the construction

apply to all third countries, especially tax havens,

of Europe. Let us hope that Merkel and Sarkozy

wishing to participate in the Single Market.

will find the political courage to support a new

equilibrium. If they do not, they will have to

The current situation has the potential to

assume the risk that monetary union could fall

trigger a whole succession of European crises.

apart and as a consequence set Europe back

Angela Merkel could block all reform of euro zone

more than 50 years.

Pascal Canfin, born in Arras in 1974, became a Member of the European Parliament

in July 2009 for Europe Ecologie, a French electoral coalition created for the

European elections. Holding a master degree from the Institut d'études politiques

de Bordeaux and the University of Newcastle, he was a consultant in human

resources from 1999 to 2003 and a policy adviser at CFDT Nord-Pas de Calais.

Pascal Canfin was also responsible for the economic and social issues committee

for the French Greens from 2005 to 2009. From 2003 to 2009 he worked for the

magazine Alternatives Economiques as a journalist specialising in issues linked to

the environment, social economy and corporate social responsibility. He is the author of four books, including "L'Economie verte expliquée à ceux qui n'y croient pas" (2007) and "Le contrat écolo pour l'Europe" (2009). In the European Parliament he is Vice-Chairman of the Special Committee on the Financial, Economic and Social Crisis and a member of the Committee on Economic and Monetary

Affairs as well as the Delegation for relations with the United States.

18 CAN EUROPE RISE TO THE CHALLENGE?

2. STANY GRUDZIELSKI

Limits to Subsidiarity: A New Pattern of Public

Intervention for a Greener EU Internal Market

The EU internal market: a zone for

intervention to what has become shared EU and

lawyers or for policy makers?

national public intervention. The imperfection of

this transitional period arises from the fact that

When Professor Mario Monti met a delegation

national states have not retained all their inter-

of Green Members of the European Parliament,

vention instruments, while the EU has not had

in the framework of his initial consultations for

the capacity or the willingness to take over the

the preparation of his report on re-launching the

responsibility abandoned by national authorities.

Single Market18 (commissioned by Jose Manuel

As a result when the global crisis hit we found

Barroso), he expressed the view that the notion

ourselves with a gap in ways to intervene and this

of ‘internal market’ should be replaced by ‘Single

gap is still far from being filled.

Market’. The latter, he said, is based on the idea

that national economic areas are brought together

EU intervention in the internal market has,

into a European one, whereas the former, whose

until now, mainly consisted, of regulation whose

meaning is very similar, risks giving the rest of the

approval for the most part is subject to codecision

world the impression that the EU’s economic area

procedure.19 The EU, however, only has very few

is closed.

of the intervention instruments that are key tools

for public authorities: fiscal instruments, con-

This distinction between the two concepts

trol of public spending and redistribution of the

is quite interesting especially when one reflects

means and services of general interest. Indeed, it

on the impact the financial and economic crisis

is quite dramatic that, when facing the enormous

has had on the EU internal market. Contrary to

challenges of the global crisis, the EU is mainly left

Monti's view, the global nature of the crisis and the

with regulatory instruments that for the most part

difficulty, or even the impossibility, of addressing

are designed to enforce legislation. The EU has a

this challenge with global – multilateral – solu-

parliament and a council to approve legislation,

tions, also provide good reasons to prefer the use

a commission to propose and enforce legislation

of ‘internal market’. With all its insufficiencies,

and a court to interpret the law, but no real other

the EU internal market has – at least theoretically

means of efficient intervention. It has the trap-

– one big advantage over individual European

pings of a state but it is not a state.

countries operating in isolation in the global

market: this advantage is an EU public authority

The Monti Report: an overview

capable of intervening in the EU market.

The Mon

e M ti tr

on

a

ti tr de-off prop

de-off pr osal

Since the 1980s, this public intervention

capacity has not been fully used. For the most

If there is one central message to be found

part, the last three decades have undergone a

in professor Monti's report "A New Strategy for

very imperfect transition from full national public

the Single Market", then it is that a trade-off is

18 See M. Monti, ‘A New Strategy for the Single Market at the Service of Europe's Economy and Society’, Report to the President of the European Commission, 9 May 2010.

19 Codecision procedure is the legislative process which is central to the European Union’s decision-making system. It is based on the principle of parity and means that neither institution (European Parliament or Council) may adopt legislation without the other's assent.

2. STANY GRUDZIELSKI Limits to Subsidiarity: A New Pattern of Public Intervention for a Greener EU Internal Market 19

needed between deepening the Single Market

The need for more c

or

oord

or inat

in e

at d tax p

d t

olicies

and meeting the public’s social and environmen-

tal concerns.

At first glance, the trade-off proposed by the

Monti report appears as a balanced, hence wel-

The first element of this trade-off consists

come and reasonable step towards reinforcing the

of fostering Single Market integration, which,

EU’s internal market while also answering social

according to Monti, has been subject, in the recent

and environmental concerns in the manner of

years, to a double ‘fatigue syndrome’: ‘integra-

the ‘social market economy’ model. It should be

tion fatigue’, i. e. less support for the idea that the

noted, however, that the main, and perhaps only

obstacles to the free movement of persons, prod-

real concession towards translating citizens’ and

ucts, services and capital should be removed or at

consumers’ concerns into concrete measures, is

least reduced and ‘market fatigue’, i. e. less support

its proposal regarding fiscal coordination. Other

for market mechanisms and their self-regulatory

citizens’ and consumers’ concerns are exten-

capacity. According to the Monti report, these

sively dealt with in the report but this model of the

‘fatigues’ have to be tackled because, more than

orthodox market economy is not questioned.

ever, the EU needs to enjoy the economic benefits

that the Single Market can bring, in particular the

Monti's call for more fiscal coordination

added economic growth that one can expect from

within the EU should not be underestimated.

more integrated EU markets.

The report points out that "the functioning of the

single market - coupled with the wider globalisa-

The second element of the trade-off is more

tion process - places a growing challenge for the

original, especially coming from a long-standing

operation of tax systems and may erode in the

and strong advocate of the market economy. It

long term their revenue raising capacities, as well

consists of recognising that many of the concerns

as their ability to pursue social and redistribution

expressed by citizens and consumers vis-à-vis

policies at the national level" and that "addressing

the Single Market are, if not completely justified,

this underlying tension between market integra-

at least understandable and must be addressed

tion and tax sovereignty is one of the avenues for

properly. The report emphasises the following

reconciling the market and the social dimension of

concerns: those of rent-seekers, consumers, citi-

the single market." 21 Hence, the call to minimise

zens, social, environmental and business groups.20

harmful tax competition and remove the in-built

bias towards taxation of less mobile tax bases.

In addition, Monti identifies a series of con-

cerns about the Single Market that depend on

Although the report does not go as far as

the economic and social model favoured by the

proposing real EU tax harmonisation, which,

individual Member State. He sees Member States

according to Mario Monti, remains "unnecessary

as belonging to one of the following models:

and not very realistic" ,22 it recognises that, in order

the continental social-market economy; Anglo-

to address the problem of the huge deficits and

Saxon; new Member State and Nordic. According

debts arising from the stimulus packages under-

to Monti, a trade-off needs to be found between

taken by governments to combat the economic

these four different models, which have differ-

and financial crisis, Member States will need not

ent perceptions and expectations regarding the

only expenditure cuts and fiscal discipline but

Single Market.

also tax increases. Mario Monti therefore under-

lines the advantages of a more coordinated fiscal

20 Idem, pages 25-28.

21 Idem, Page 79.

22 Idem, page 81.

20 CAN EUROPE RISE TO THE CHALLENGE?

policy, in particular the idea of targeting more

market" ,23 the fundamental belief remains that

mobile bases instead of focusing on less mobile

"openness to global trade and investment is key for

ones such as labour. Monti proposes areas where

Europe's long term prosperity". 24

there could be more tax coordination such as:

corporate tax; consumption and environmental

This international trade orthodoxy is increas-

tax. At least the first and third of these areas are

ingly paradoxical in the context of the global

consistent with improving EU economic govern-

economic and financial crisis and even more so

ance. It should also be pointed out, however, that

if we consider the extreme difficulties encoun-

the Monti proposals do not involve essential areas

tered by some EU Member States facing the

such as taxation of financial transactions, a bank

consequences of this crisis. The international

levy or a more active fight against tax fraud.

crisis has shown that the absence of a strong reg-

ulatory framework for the international economy

A chang

A ch

e of para

ar digm, or m

igm

ere

er

entails dramatic global consequences. The ten-

window-dre

w-dr ssing?

sions among EU Member States also show that

the internal market suffers from a lack of regula-

The rest of the report is mostly an attempt to

tion. The internal market has long been seen as a

sell the Single Market more effectively because

success story due, in the main, to two factors: (i)

Monti views it as having to be built on consensus.

significant protection of the internal market from

In the first part of his report, he explains that such

the unfair competition from non-EU countries;

a consensus is necessary because deepening the

(ii) the relative proximity of productivity levels

internal market would not be successful if the

among the founding Member States. The recent

majority of citizens and consumers felt that this

attacks against the weakest members of the euro

was being done against their and society's general

zone show that productivity discrepancies among

interests. Therefore, the impression prevails that

all EU Member States are perhaps now too wide

the Monti proposals to address citizens’ concerns

and that stronger regulation is needed to avoid a

are a way of convincing the public that the Single

further disintegration of the internal market.

Market is in their interest. He does not offer any

real alternative approach to the logic that has

Therefore, it is even more paradoxical to keep

been implemented so far in the EU internal mar-

calling for more free trade at a global level where

ket building process.

productivity levels can vary from 1 to 100 or even

more! The defenders of global free trade, in their

A new shape for the EU’s internal market

call for more of this model, often cite the positive

factors experienced by a number of emerging

The int

e in ern

t

al m

ern

ar

al m k

ar et in a g

k

lobalised economy

om

economies and also the ability of some of the old-

est industrialised countries to maintain positive

In his report, Mario Monti repeats the

trade balances under this system. They simply

classical view that there is no fundamental con-

forget that (i) the key explanation for economic

tradiction between the objective of achieving an

take-off in some emerging economies is the

EU internal market and the constraints of insert-

educational advances that have improved their

ing the EU market into a globalised economy, in

productivity levels; and (ii) one country’s trade

which most protection provisions ought to be

surplus is another’s deficit: there is simply insuffi-

removed. Although this view should not be con-

cient worldwide demand capable of absorbing, at

fused with simple removal of any international

the per capita rate of Germany, the huge surplus

trade regulation (as shown by the significant title

created by demographic giants such as China or

of this chapter of the Monti report: "open, but not

India. Therefore the German export economy

disarmed: the external dimension of the single

model cannot be seen as viable at the global level

23 Idem, page 89.

24 Idem.

2. STANY GRUDZIELSKI Limits to Subsidiarity: A New Pattern of Public Intervention for a Greener EU Internal Market 21

– and probably not even at the EU internal market

services, for which there is a relative elasticity

level.

of demand (prices reflect demand and supply)

and relative heterogeneity (consumers are able

Hence, one first pillar of an alternative organ-

to express preferences). For products or services,

isation of the internal market would be to get rid

for which elasticity is relatively low and which

of the idea that the abolition of protection meas-

are relatively homogeneous (for example water),

ures within the internal market could serve as a

however, market mechanisms are not really justi-

model for the worldwide abolition of economic

fied.

protectionism. On the contrary, the most recent

economic difficulties demonstrate the need for

One big mistake of the economic growth

stronger regulation measures: both within the EU

mantra is the tendency to ignore this distinction

internal market (through a reinforcement of the

and promote market mechanisms in all areas of

legal social, environmental and consumer protec-

economic activity. As a consequence, the recent

tion framework) and beyond for example through

history of the EU internal market has been, to a

the establishment of various geographical zones

large extent, the use of market mechanisms for

outside the EU that have relatively homogeneous

sectors (water distribution, postal services for

productivity levels.

standardised mail and local transport networks)

that would be better served by the use of public

Gro

Gr wth, c

th ompetition and monopoly

ol

monopolies at local, regional, national or even

European level.

Another orthodox economic belief consists of

a two-fold paradigm, in which (i) the purpose of a

Hence, a second pillar of an alternative

market economy is to boost economic growth and

organisation of the EU internal market would be a

(ii) a well-functioning market economy requires

redefinition of the respective roles of market and

more competition and less public intervention.

competition mechanisms on the one hand and

public monopolies on the other. Of course, such

Looking at the ecological crisis into which the

a redefinition would require calling into ques-

world has plunged there is ever less support for

tion a series of liberalisation measures that have

the idea that growth maximisation is a desirable

already taken place, in particular in areas such as

aim. The debate is still open, including within the

transport, postal services, water and energy. As a

Green movement, as to the desirability of adopt-

first step, an in-depth, multi-dimensional evalu-

ing a low growth policy or whether a redefined

ation of these measures needs to be undertaken

growth model could be compatible with a green

to assess how they will meet social and environ-

transformation of the economy. It is already clear,

mental objectives. In this context, it should be

however, that even adopting the second option,

remembered that already the Treaty establish-

economic growth cannot be considered as an

ing the European Community explicitly allows

objective in itself. Supporters of economic growth

for the precedence of general interest objectives

as a solution to social problems (in particular the

over competition rules. A new article 14 of the

problem of economic redistribution) contribute

consolidated EU Treaty provides EU legislative

to disseminating wrong expectations about the

protection for public services.

EU internal market. Indeed, even according to

classical economic theory, the purpose of a mar-

From r

Fr

e

om r gulation t

ul

o a

ation t

ction: the necessity of

ket economy is not economic growth (although

appropri

appr

at

opri e t

at o

e t ols

economic growth could come as a consequence

of a well-functioning market) but rather to allow

Even in the context of economic activities that

(i) better prices for products and services and

are not considered ‘services of general (economic)

(ii) more diversified consumer choice. A logical

interest’, public authorities are entitled to pursue

consequence of this is that market mechanisms

public policy objectives and adopt measures to

are better suited when it comes to products or

ensure that the general interest prevails over sim-

22 CAN EUROPE RISE TO THE CHALLENGE?

ple implementation of market mechanisms. The

Commission contained a very simple, but very

nature of public intervention can vary and in the

dangerous provision, i. e. the ‘country or origin

framework of the EU internal market the most

principle’, according to which cross-border serv-

common instrument has consisted of adopting

ice providers had only to respect the national

legal provisions through EU directives and regu-

legislation of their own Member State and not

lations using the codecision procedure.

the legislation of the Member State where the

service was provided. Although this principle

Until the 1990s, there was a considerable

was removed from the final directive, it has not

amount of such EU internal market legislation

been replaced with a clear alternative. The direc-

in particular for products. One key feature of this

tive is unclear and therefore poor legislation.

legislation was that it set very detailed technical

Furthermore, the horizontal scope of the Services

standards for such diverse sectors as children’s

Directive is so wide that it includes sectors, which

toys and motor vehicles. The thinking behind

are of a pure commercial nature and those in

it was that products needed to circulate in the

which public interest concerns should prevail.

internal market without obstacles and they must

therefore adhere to a strict set of harmonised

This situation reveals a major gap in the EU

standards.

internal market framework: not only has the way

in which legislation is made taken a dangerous

Since the 1990s, however, two quite significant

direction with its democratic deficit and legal

developments have taken place. The codecision

uncertainty but public authorities also encoun-

method for adopting even the most technical

ter increasing difficulties in finding appropriate

specifications has now often been replaced by the

means of action. In particular, their capacity to

‘new regulation system’ in which only the major

use public services for general interest purposes is

regulatory measures are adopted by codecision

more and more contested. Similarly, in the public

and the more technical aspects are adopted via

procurement field, public authorities' capacity to

procedures in which the parliament and the

include general interest purposes in their calls for

council are not playing an active role, leaving it

tender is under threat.

to the commission and to ad-hoc standardisation

committees. The method for adopting specific

Hence, a third pillar of an alternative organi-

(so-called vertical) legislation for each type of

sation of the EU internal market would be a

product has now sometimes been replaced with

reinforcement of public intervention instruments,

horizontal legislation covering a whole range of

not only as law-makers in the framework of the

products or sectors − a good example being the

EU codecision procedure but also as ‘action-

General Product Safety Directive. But the most

takers’, in the organisation of services of general

significant development in recent years has

interest. These services should be seen as corner-

been the use of this legislative instrument in the

stones of sustainable development as they touch

services area with the adoption of the Services

all three of its dimensions (social, environmental

Directive.

and economic) via sectors such as health and

social services, energy, transport, education and

These two developments raise difficult ques-

financial services. Burkard Eberlein in his paper

tions of democratic legitimacy (more difficult

on the Regulatory State in Europe25 said that the

for legislative bodies to control standards) and

liberalisation processes have tended to limit the

legal issues as a one size fits all legislation cov-

role of public authorities to that of market regula-

ers very diverse products, services and sectors.

tors, which entails the risk that they will lose their

The Services Directive has raised particular prob-

capacity to pursue social and political objectives.

lems. The initial proposal from the European

25 See E.Burkard, ‘L'Etat régulateur en Europe’, Revue française de science politique, 49ème année, n°2, 1999, pages 205-230.

2. STANY GRUDZIELSKI Limits to Subsidiarity: A New Pattern of Public Intervention for a Greener EU Internal Market 23

Harm

H

onisation, sub

ation, s sidiarity, s

i

ub

arity, s stitution

stit

but should also have ways of intervening in the

public interest, it becomes clear that a recon-

Finally, in addition to the relations of the internal

ciliation of these two options is possible if the

market with the globalised economy, the respective

‘subsidiarity principle’ is complemented by a

roles of market mechanisms and public monopolies

‘substitution principle’. The notion of subsidi-

and the nature of the instruments of public interven-

arity, now firmly enshrined in euro jargon had

tion, another central issue at stake for an alternative

its origin in the social doctrine of the Catholic

internal market model is the appropriate level of

Church. It does not mean that the correct level

intervention of public authorities.

of organisation is always at the lowest level but

rather the most appropriate one. The substitution

Traditionally, this issue is presented with EU

principle means that when a problem exceeds the

harmonisation supporters on one side and those

capacities of a smaller entity a higher one has an

favouring the subsidiarity principle on the other.

obligation to intervene.

The former insist on the need for common rules

for the sale of products and the provision of serv-

In the context of an alternative model for the

ices. The latter emphasise the need for elected

organisation of the EU internal market, a correct

representatives at lower levels of power to take

combination of the subsidiarity and substitution

into account local, regional or national interests

principles would certainly make for better-shared

in regulating economic activities.

responsibility between the different levels of pub-

lic authority intervention.

If we admit that the role of public authorities

should not be limited to that of market regulators

Stany Grudzielski (1962) graduated in Public and International Affairs at the University of Louvain, Belgium. In 1992 he became Director of the European Union’s

Migrants Forum. Between 1992 and 2000 he worked at the European Commission as

project and programme officer for EUROTECNET and the employment programme.

Prior to becoming an advisor at the European Parliament for the Greens/EFA Group

on the Internal Market and Consumer Protection Committee in 2004 he worked at

the Cabinet of the Belgian Minister for Mobility and the Cabinet of the Minister for

Mobility of the Walloon Region.

24 CAN EUROPE RISE TO THE CHALLENGE?

3. JOSé BOvé

The Financial and Agricultural Crises

The financial bubble has left the poor

institutions like Lehman Brothers, Goldman

starving and small farmers ruined

Sachs, JP Morgan, Bank of America, Citigroup

and Morgan Stanley26 and did not hesitate to set

The crisis in agriculture is a consequence of

up call centres to encourage their clients to profit

the collapse of international financial markets

from the surge in prices. Tens of thousands of

and the loss of political control over global mon-

investors were persuaded without even realising

etary movements. Against the background of a

that their actions would, quite literally, provoke

‘bull market’ caused by a rising demand for agri-

starvation. The prices of the three most important

cultural commodities, driven to a great extent by

cereals, wheat, corn and rice reached levels never

increasing consumption of biofuels in the rich

before seen and completely disconnected from all

countries, significant change in the food consump-

economic reality. For the hundreds of millions of

tion habits of developing countries and long term

people in southern countries, who already spent

droughts in some cereal producing regions such

80% of their income on food, all this stock market

as Australia, the search for short term financial

activity had catastrophic effects: instead of eating

gain provided the spark that ignited the powder

twice a day they now had to be satisfied with just

keg. Some experts in world markets have spent

a single meal. This misery underlined once more

nigh on three years trying to determine exactly

the need to have access to food. Food is abso-

how far the price surge was the result of specula-

lutely vital; an empty stomach and it is impossible

tion. While their findings differ, the majority now

to work and earn money to provide the bread for

agree that speculation was an important, not to

the next day. Hundreds of food riots broke out,

say crucial factor.

especially in the poor areas of mega cities. In

Cameroon at the end of February 2008, desperate

During 2005, 2006 and 2007, non-commercial

people demonstrated against the high cost of liv-

actors (banks, insurance companies, pension

ing and their inability to feed themselves and their

funds, guarantee funds and sovereign funds)

families. The army and police opened fire with ter-

became massively involved in raw materials mar-

rible consequences: more than 40 fatalities.

kets, particularly derivatives based on futures

contracts. Their objective was not to be involved

The cynical indifference of financiers and

in issuing futures contracts nor the demand

investors speculating on life is intolerable. The

for agricultural products and neither was it to

French Revolution in 1789 came about after suc-

facilitate a more transparent view of medium to

cessive bad harvests and bouts of speculation. The

long-term prices. They wanted to protect those

grain merchants stockpiled grain thus removing it

financial interests that looked endangered as the

from the market in order to sell when they could

first indications of the sub-prime crisis appeared

get the maximum price. At least in the eighteenth

in the United States: the speculators now began

century, the dealers were able to see the conse-

their assault on the food sector.

quences of their acts. Nowadays, decisions are

made in air-conditioned rooms full of computers

In Europe, the big banks such as Credit Suisse,

and the traders are not even able to establish a

Deutsche Bank, HSBC, Rabobank, USB and the

direct link between their actions and the images

Crédit Agricole, followed the example of American

they see on television in the evening. The mon-

26 See ‘Financing Food – Financialisation and Financial Actors in Agriculture Commodity Markets’, SOMO paper April 2010.

3. JOSé BOvé The Financial and Agricultural Crises

25

strous disconnect between the virtual world of

Congress has endeavoured to control the stock

finance and reality is now total.

market and fight speculation. Regulations intro-

duced in 1910 were criticised by large commercial

The multinationals advocate laisser-faire -

enterprises such as Cargill and, little by little in the

but the people don’t!

1920s, these companies managed to rob them of

their effectiveness. In February 1927, the Secretary

In December 2008 the European Commission

of State for Agriculture removed the obligation

estimated the value of private derivative contracts

that required the principal brokers to declare

that escape all form of governmental supervision

their interests. That was the end of openness and

to be $4037 trillion.27 Some $4.4 trillion of these

the Crash of 1929 was just around the corner. It

contracts were in raw materials (metals, oil and

needed years of crisis and for the world to teeter

agricultural products). These figures are so diffi-

on the edge an abyss for the Roosevelt adminis-

cult to grasp that they are meaningless. A trillion

tration to take things in hand. The Commodity

is a 1000 billion, as a reference, the French budget

Exchange Act entered into force on 15 June 1936

for 2010 is €550 billion.

imposing new regulations on raw materials mar-

kets. It also declared option markets illegal but

World production of wheat is about 660 mil-

this was repealed in 1981. Regulation was main-

lion tons, with the price being around $160 per

tained by successive US administrations both

ton. This implies that the value of global wheat

Republican and Democrat. Regulation did not,

production for an average year is about $105.6. In

however, prevent the ‘great grain robbery’ by the

addition only about 19% of this amount is traded

Soviet Union in 1972. In the wake of a catastrophic

on the world market. The value of wheat traded

harvest, Soviet leaders made very discrete con-

between countries is only $20 billion per annum,

tact with the main trading houses (Cargill, Louis

or expressed in financial jargon €0.02 trillion – an

Dreyfus) for the purchase of almost three million

insignificant sum!

tons of grain, a colossal volume representing 30%

of US grain production and 80% of US domestic

The above example demonstrates just how far

consumption. During this period, world prices for

derivative markets are no longer based on any-

all primary agricultural products shot up. Between

thing tangible. They are contracts based on other

August 1972 and August 197329 the price of wheat

contracts, guaranteed by contracts and can be

went up threefold, corn and barley twofold. Food

exchanged, bought or sold by financial institutions.

prices for the American consumer registered a

Just before the crash of September 2008, Lehman

rise of 50%. This shock that came a few months

Brothers held more than 138 000 assorted deriva-

ahead of the oil shock was one of the major unrec-

tive contracts that lacked sufficient collateral.

ognised causes of 1970s inflation.

The attitude of laisser-faire towards financial

The market panic and the speculative bub-

and raw material markets is the result of a long

ble of 1973/74 resulted in the creation of the US

process of voluntary disengagement by political

Commodity Future Trading Commission (CFTC),

authorities and today we are reaping the conse-

an independent federal agency to regulate agri-

quences.

cultural futures and options markets in the

United States. It was Nixon, not exactly sympa-

From the first appearance of the futures mar-

thetic to ideas in favour of the Third World, who

ket some 150 years ago in the 1880s,28 the US

was responsible for this decision. The lesson is

27 SEC (2009) 905 final, 7 July 2009 – table 4.

28 See http://www.cftc.gov

29 See D. Morgan, ‘Merchant of Grain: The Power and Profits of the five Giant Companies at the Center of the World’s Food Supply’, 1979.

26 CAN EUROPE RISE TO THE CHALLENGE?

clear: without political control multinationals

From 1982 to 1995 our leaders were active

will do what they are programmed to do, namely

in the creation of the World Trade Organisation

make profits. Public interest is the least of their

(WTO). The opening up of global markets has

concerns.

become the norm. The European Commission has

since recognised on a number of occasions that

The election of Margaret Thatcher in 1979 and

agriculture in the international context had been

that of Ronald Reagan in 1981 marked the advent

only considered a simple means of exchange to be

of a new ideology, that of neoliberalism. The state

bartered for unlimited access for service sectors

should disengage from the economy, markets were

(banks, insurance companies, health, education,

supreme and multinational enterprises should

environment, energy, transport, tourism, intel-

have the power to expand without constraint or

lectual property…) to emerging economies and

control. The expansion in speculative derivatives

poor countries. The successive reforms of the CAP

linked to basic agricultural products would never

in 1992 and then in 2003 aligned EU and global

have been possible if the rules that had been cre-

prices. The 2008 CAP ‘bill of health’ confirmed

ated had been upheld. In the US the Commodity

this trend, as did the decision of the European

Futures Trading Commission (CFTC) became

Council to get rid of milk quotas, the last real ves-

less and less active as the financial markets grew

tige of regulation.

exponentially. The CFTC progressively reduced

the limits imposed on the number of derivative

As in the US, this policy of laisser-faire has had

contracts that could be held by a company. At the

disastrous consequences for the European Union.

same time, it opened up the possibility for banks

The financial crisis, in particular, has had a violent

and hedge funds to buy futures directly on the

impact on the two most fragile links in the food

commercial stock exchanges.

chain, namely the producers and the consumers.

The development of a futures market for agri-

The rise in prices for agricultural products has

cultural products was not at first as popular in

sent misleading signals to farmers. In 2007, the

Europe as it was on the other side of the Atlantic.

price of wheat and other major cereals shot up.

In providing a price framework for important

Prices for milk and meat products followed the

products, the Common Agricultural Policy (CAP),

same upward curve. The rising standard of living,

instituted at the end of the 1950s, offered farmers

the appearance of a middle class, especially in

and food processors a clear medium term view of

China and India, created the impression of stable,

prices. Price variations were less sudden and more

up and coming, rich international markets.

predictable. The CAP allowed risks and uncer-

tainties associated with agricultural activities

The European agricultural machine had to get

dependent on climate to be taken on by the state.

itself fighting fit to capture new business. The illu-

sion did not last long, barely more than a year. But

Regulation and stockpiling allowed for the

it was sufficiently long to intoxicate the spirits. It

temporary removal of large quantities of agri-

is worth noting what cereal producers did. At the

cultural products thus stabilising prices but they

Paris agricultural shows in 2007 and 2008 they

also did something we have always condemned;

flocked to the stands with the latest models of giant

they subsidised exports. These intervention poli-

tractors and enormous combine harvesters, their

cies have gradually been reconsidered as the

purchases putting them into heavy debt for many

European Commission has come to regard liber-

years. Why would they have done any different

alism as the incontrovertible economic dogma,

given that the agroindustry, the seed and fertiliser

the sole way of thinking. Following the example

multinationals and farm machinery manufacturers

of the US and prodded by some Member States

were all pushing then in this direction? In addi-

led by the United Kingdom, the European Union

tion, the signals from the French government and

began, in the mid 1980s, to dismantle its agricul-

the European Commission were doing their best to

tural policy.

get rid of any remaining hesitations.

3. JOSé BOvé The Financial and Agricultural Crises

27

Dairy producers were subject to the same

multinationals. In 1992, the union of small farm-

brain washing. The ending of milk quotas was

ers in France (Confédération Paysanne) and the

presented as a godsend, an opportunity not to be

international peasant movement Via Campesina

missed. The most ‘enterprising’ were encouraged

demonstrated at the headquarters of the WTO

to invest in milking machines, to increase their

in Geneva against the ‘steamroller’ that was

productivity, boost production. As in the cereal

being put into place. Demonstrations against the

sector, the market reversal was brutal. From the

WTO were held at Seattle in 1999, Doha in 2001,

beginning of 2009, EU prices were no longer

Cancun in 2003, Hong Kong in 2005. Other dem-

enough to meet production costs. In 2009 small

onstrations in Rome at the Food and Agriculture

farm incomes collapsed: at least 12% on aver-

Organisation of the United Nations (FAO) in 1996

age in Europe and at least 20% in France.30 The

and 2002 called for more credible alternatives and

bankruptcies caused by the financial crisis and

food sovereignty (the right of people to take con-

then the bursting of the agricultural speculation

trol over the supply of food). World Social Forum

bubble were innumerable. In the space of one

meetings have provided essential points of con-

year, Hungary lost 30% of its jobs in agriculture.

tact. During these years, we have been up against

The number of small farmers in France able to

an economic and political brick wall. Today, this

claim the minimal subsistence income distrib-

wall is cracking and the cracks are now gaping. The

uted by the state reached 75 000 or one in eight.

ideas of the social movement that were the origin

The shock wave emanating from the demise of

of this fight must now be taken into account when

Lehman Brothers swept from Cantal to Silesia via

reshaping economic, social and political policies.

Yorkshire.

The Greek crisis in the spring of 2010 dem-

The big food processing companies such as

onstrated that speculation will not cease until

Danone, Nestlé and Unilever were quick to pass

finance comes under proper political control.

on the price rises of 2007 and 2008 to retail cus-

Having torn apart tax payers and shattered agri-

tomers, who were already feeling the effects of the

cultural markets, the financial speculators are

crises. As commodity prices started to drop at the

now directly attacking countries and their public

end of 2008 and the beginning of 2009, these same

debt. Anything is good that makes a profit. Within

companies suddenly became blind to the signals

a few hours on Friday 7 May, Wall Street plunged

sent by the markets. Their prices stayed up, their

almost 9% as the result a computer data typing

margins increased greatly and profits hit record

error that caused things to spiral out of control.

levels. In October 2009, Danone in a financial

Man has been overtaken by the financial technol-

report on its internet site said that its sharehold-

ogy he has created. He is no longer in charge.

ers had done particularly well that year as a result

of the exceptionally low prices it had had to pay

This seems to have at last been accepted by

for agricultural commodities. This scandalous

most people even if there is little agreement as to

comment, published as producers were pouring

how to put things right. In January 2010, Michel

milk onto their fields, has since been altered.

Barnier, the new EU Commissioner for the inter-

nal market said: “Speculation in food products is a

Towards global governance:

scandal as long as we have a billion people suffer-

taking control of our food

ing starvation.” These words are a first step. They

are unfortunately not sufficient to counteract the

We have struggled for years to denounce

markets. Reform of CAP gives us the opportunity

neoliberalism and oppose the politicians, who in

to reconstruct European and global agriculture

creating the WTO tied our hands behind our back

with a single aim: to be able to feed 6 billion today

and left the field free for finance and food industry

and 9 billion in 2050.

30 Eurostat, Agriculture and fisheries 18/2010.

28 CAN EUROPE RISE TO THE CHALLENGE?

The challenge is immense. The Chicago

of the terrain, climate variations and other social

Merchandise Exchange, a private organisation,

factors. Speculation will end when there is super-

listed on the New York stock exchange, fixes the

vision of production, consolidation of quotas and

world price of wheat. This is a bad system and

the setting of price floors and ceilings that allow

should be got rid of! One of the essential factors

farmers to make a living and consumers to have

to get things changed is to give back some real-

access to affordable food. In other words we will

ity to the economic world that surrounds us. The

have control over our food.

prices of agricultural goods should reflect real-

ity. They need to cover the costs of production

All these urgent reforms will, just as the strug-

and offer a reasonable return to the producers.

gle against climate change, have to lead to a new

They are of necessity different from one region

global governance based on cooperation and sol-

to the other due to farming methods, the nature

idarity rather than competition and profit.

José Bové was born in 1953 in Talence, France. At a young age he became involved

in the civil disobedience movement. He became a sheep farmer and helped set

up Confédération Paysanne, a union for small farmers, in 1987, where he later

became a member of the national secretariat and spokesman from 2000 to 2003.

José Bové has campaigned against the industrialisation of agriculture and the

liberal commercial policies of the WTO. In August 1999, his participation in a

demonstration at the building site of a MacDonald’s restaurant to raise awareness

about the multinational’s use of hormone-treated beef resulted in a prison sentence

of four months. Fiercely opposed to the use of genetically modified organisms (GMOs) in agriculture he has participated in numerous actions to destroy GMO crops that led to a further prison sentence in 2003. He was a candidate in the French presidential elections in 2007 and became a key figure in the creation of Europe Ecologie. José Bové was elected to the European Parliament in June 2009 where he is now the vice-chairman of the Committee on Agriculture and Rural Development.

4. REBECCA HARMS AND SILKE MALORNY Climate Change Policy and the Economic Crisis

29

4. REBECCA HARMS AND SILKE MALORNY

Climate Change Policy and the Economic Crisis

Before Copenhagen, the conference to end

ever clearer. Old established companies went

all climate change conferences, something akin

out of business, thousands of people lost their

to euphoria swept through the international cli-

jobs and whole countries teetered on the brink of

mate change movement. It was hoped that with

bankruptcy. The fear of losing one’s job, pension

an excess of 190 countries and more heads of

or hard won savings overlaid fears about climate

government than ever before in attendance a

change whether in the future or in far away coun-

catastrophe could effectively be headed off before

tries. The media and public interest moved away

it actually happened: politicians and scientists

from the climate crisis – there were more important

from around the globe poured into the summit.

or at least more urgent matters to deal with. The

Decisiveness, solidarity and reasonableness were

industrial lobby and all those for whom European

hoped for. Above all, people hoped for a binding

climate change policy had long been a thorn in

agreement to protect the climate. The actual result

the side, now found an ideal situation in which to

of the summit was therefore all the more sobering.

demand that such ambitious policy be put to one

Instead of the hoped for historical treaty binding

side. Increasingly loud voices said that European

all nations, there was the Copenhagen accord

industry was already overly burdened by the crisis

whose goals are neither binding nor wide ranging

and the unilateral goal of meeting a 20% cut in CO 2

enough to tackle catastrophic climate change. In

emissions (compared to 1990) by 2020, especially

addition, this politically weak document was not

as the latter did not apply worldwide. Currently

even agreed by the conference but merely ‘taken

the most energy intensive industries are the ones

note of’.

lobbying national governments, the European

Commission and Parliament. This well funded

After the failure of Copenhagen there were,

campaign aims, inter alia, to ensure that the con-

into the bargain, headlines proclaiming errors in a

ditions for meeting emission reduction goals are

report from the UN’s Intergovernmental Panel on

as industry friendly as possible: energy intensive

Climate Change (IPCC). At the same time, Europe

industries should, for the most part, receive free

disappeared under a blanket of snow and experi-

emission trading certificates. In addition, they

enced a cold and very long winter. The errors in

wish to avoid at all cost any rise in the EU’s CO 2

the IPCC report did not really call into question

emissions reduction goal to 30% by 2020.

either the basic causes of global warming or its

consequences and while the winter in Europe

The Connie Hedegaard paper

and the US was cold, the period from January to

March in other parts of the world was as warm as

In this atmosphere of climate scepticism

it had rarely been. As a result, slowly but surely,

and global warming fatigue, the European

the feeling grew, (one could even say it was ban-

Commissioner for climate change, Connie

died about) that climate change was not really as

Hedegaard set about strengthening European

serious as previously thought. The urgency for

CO emission targets. On taking up office she

2

common action and the readiness to make the

commissioned a study on how much it would cost

cuts necessary to protect the world from a catas-

to increase emissions reduction targets. When

trophe simply disappeared from public debate.

European heads of state and government agreed

in 2007 to a target of a 20% reduction by 2020

While this was going on, the effects of the

the cost was reckoned to be around €70 billion.

international economic crisis were becoming

Since then, however, a number of factors have

30 CAN EUROPE RISE TO THE CHALLENGE?

changed. During the economic crisis, industrial

May, the commissioner presented her document

emissions have dropped significantly. In 2009,

with very few changes. Curiously, the figures that

European emissions fell about 12% compared to

clearly demonstrated that raising the emissions

2008. The commission has calculated that this

reduction target was financially feasible, good

reduction in emissions means that costs have

for the climate and good for European business

dropped by around one third. In other words,

were preceded by a text making it clear that this

with the same budget one could achieve far more

should in no way be interpreted as a proposal for

in the current circumstances. Achieving a 20%

an immediate rise to 30% – at least a partial vic-

reduction today would cost €22 billion less than

tory for the influential industry lobby.

calculated at the time the agreement was signed.

Raising the reduction target to 30% would cost

Before one joins in the chorus of complaints

about €33 billion. In other words, a further 10%

from business, one needs to look at what kind of

cut in CO emissions would only cost an addi-

burden this target actually places on industry.

2

tional €11 billion, a sum we should in any case be

One complaint is that the current reduction rate

investing in climate change projects. These calcu-

and emissions trading system make European

lations do not include the fact that greater climate

companies less competitive than their Chinese,

protection measures today will save money on

Indian or American counterparts. At the moment,

environmental damage and energy imports in the

however, the situation looks somewhat differ-

future. Above all, a greater emissions reduction

ent. The British non-governmental organisation

today will mean enormous savings in the future.

Sandbag, recently published a study that looked

Any delay today will mean that climate change

at ten ‘carbon fat cats’ or companies that had

measures will be more complicated and therefore

made enormous profits from emissions trading.31

more costly if we are to meet the 2050 target of

Strangely this list includes, of all things, some of

80-95% emissions reduction. At a time when we

Europe’s largest emitters of CO . Steel concern

2

our heads swim with the countless billions that

ArcelorMittal and cement company Lafarge and

have gone to rescue the banks, saving the world

Co have, during the economic crisis collected

appears to be relatively cheap.

emissions trading certificates worth around €3

billion. The majority of these certificates cost

Complaints from business

them nothing. During 2009, 70% of companies

in the emissions trading scheme received more

The Climate commissioner’s paper came

certificates than they needed for their own pro-

under heavy fire even before it had been pub-

duction. A smaller number was bought by firms

lished. Other commissioner as well as industry

during the time CO emissions were cheaper. This

2

lobbies took to the barricades. The most impor-

surplus of certificates needs to be carried over

tant industry associations in Germany, the BDI

into the next trading period. During the next few

(employers’ association) and the DIHK (trade

years therefore emissions trading in these sectors

and industry association) absolutely rejected a

will not lead to a reduction in CO production but

2

unilateral raising of the emissions reduction tar-

rather an increase. No way can we speak of an

get. The industry lobby message was that such a

unbearable burden for industry here!

target could only be met by cutting production

and this would lead to massive job losses. The

Another recent study by the Dutch institute,

chairman of the European Parliament’s industry

CE Delft, came to the conclusion that even the

committee, German conservative Herbert Reul,

most energy intensive industries had passed CO 2

even accused the commissioner of pursuing a

costs onto the consumer, even though they had

strategy of de-industrialisation. At the end of

received free emissions certificates.32 This sort of

31 The Carbon Rich List: Companies profiting from the EU Emissions Trading Scheme, Sandbag, February 2010.

32 Does the energy intensive industry obtain windfall profits through the EU ETS? Sander de Bruyn et al. CE Delft, April 2010.

4. REBECCA HARMS AND SILKE MALORNY Climate Change Policy and the Economic Crisis

31

practice has resulted in millions in profits for the

words carbon leakage. Carbon leakage describes

energy industry, which is why they will need to

the danger that some industries in Europe will

sell their emission rights on the stock market dur-

no longer be competitive if EU requirements

ing the next negotiating period. Energy intensive

to tackle climate change become much stricter

industries on the other hand have always used the

than what is required in other countries. As a

argument that they would be unable to pass the

consequence, some companies or even whole

cost of CO onto their customers, as this would

industrial sectors in Europe might migrate to

2

make them uncompetitive on the global market.

countries where there are less demanding regu-

According to the study there are indications that

lations. This would weaken Europe’s industrial

this was at least not the case for refineries, iron

base, lead to unemployment and not even protect

and some steel and synthetic products. From

the climate. Nobody really wants to see this hap-

2005-2008 the free distribution of emission trad-

pen. It is, however, irresponsible that as soon as

ing certificates allowed these industries to make a

the first companies threaten to move exceptions

financial gain of up to €14 billion.

are made, the emissions trading system is demon-

ised and massive numbers of free CO certificates

2

The British and Dutch studies demonstrate

are thrown around. The Green Group in the

the weaknesses of the European emissions trad-

European Parliament commissioned a study that

ing system. It was not introduced to drive industry

put carbon leakage under the microscope. The

away. It was and is, however, not to allow the

scientists at the Climate Strategies Institute came

major polluters to pocket additional billions in

to the conclusion that some 13 sectors would be

cash. International agencies and the European

seriously affected by carbon leakage.33 The list of

Commission predict a poor future for this trad-

endangered industries prepared by the European

ing scheme. They both conclude that, if we keep

Commission currently encompasses some 164

to our 20% reduction target, sectors participating

sectors. In other words, more than ten times

in the scheme will be at about the same level in

the number mentioned in our recent study. The

2020 as they were in 2008. One of the main rea-

reason for this is that the criteria used to define

sons for this is the current oversupply of carbon

what constitutes ‘endangered’ actually lead to

certificates. Connie Hedegaard has indicated

an overestimation of the problem. These criteria

that reduction targets that are too low mean that

were put together at the last stages of the climate

carbon trading, the most important instrument

change negotiations but not by scientists. They

of European climate change policy, remains

were rather the result of pressure from politicians

ineffective. The commissioner has said that the

in certain Member States and powerful indus-

current CO price of €15 per ton is too low to

trial lobbies. The Climate Strategies study also

2

prompt innovation. Commission investigations

came to the conclusion that free distribution of

have shown that it would need a price of at least

CO certificates for many in the less ‘endangered’

2

€30 per ton to get industry moving on the sort of

sectors is not even a good way to head off the

aspirational innovation that would make it clean

danger that they might leave the EU. On the other

and climate friendly. A higher reduction target

hand, the disadvantages of free certificates (they

and a proper auction system for carbon trading

hold down the price of CO and provide indus-

2

certificates, rather than the current free distribu-

try with windfall profits) have been known for a

tion, would do the trick.

long time. The problem of carbon leakage is much

less dramatic and much more manageable than

Carbon leakage

many in industry pretend. From the Green point

of view, it would be more sensible and practical

Especially during this time of economic

to look at the problems of those sectors affected

crisis, politicians shudder when they hear the

and find appropriate solutions. The possibilities

33 S. Dröge und S. Cooper, ‘Tackling carbon leakage in a world of uneven carbon prices’, Climate strategies, May 2010.

32 CAN EUROPE RISE TO THE CHALLENGE?

are manifold. Alongside free certificates we could

and fought tooth and nail against any binding

also consider import duties and state aid. What is

regulation from Brussels. While European auto

important is that carbon leakage is not hyped up

manufacturers continued to bring bigger, faster

to be the basis of a strategy that will put a break

and heavier cars onto the market, the Japanese,

on ambitious climate change policy and provide

realising which way the wind was blowing, had

competitive advantage for domestic industries.

switched to producing efficient vehicles. During

the crisis, the gas guzzlers have stayed firmly in the

Resistance from industry

showrooms as consumers have preferred smaller

more economical models. In the end, it was not

Resistance from industry unfortunately

strict environmental standards that caused the

comes as no surprise. The sob story that measures

industry problems but their own inaction. They

to tackle climate change will either lead to indus-

simply failed to innovate. EU regulations to pro-

trial ruin or mass migration of firms has pretty

tect the climate and promote efficiency need to

much accompanied all environmental legislation

be about modernisation so that, in future, Europe

in Brussels. To give one example: during nego-

can produce cars for the global market.

tiations to fix the level of car emissions the auto

industry painted the nightmare scenario of an

New ideas in times of crisis

industry on the verge of collapse. They threatened

the loss of thousands of jobs if emission levels

Ambitious climate change policy will not

were too strict. Their complaints did not fall on

mean less employment. During the crisis, green

deaf ears. In the council, environment ministers

industries have done better than many traditional

and heads of government fought for exceptions,

ones. In Germany in 2009, renewables increased

delays and a loosening of the draft legislation,

their contribution to energy supply, attracted

ostensibly to help industry and employment

more investment and saw a rise in employment.

in their home countries. Even in the European

There are now more than 300 000 jobs in renewa-

Parliament the Germans were looking after the

ble energy in Germany. Green industries are often

interests of the big heavy automobile producers,

more labour intensive than traditional ones and

the French and Italians were protecting the mak-

the sector will, in future, provide the more secure

ers of smaller cars and the British were especially

and crisis proof job opportunities. Greenpeace

concerned with niche manufacturers. The net

Europe and the European Council for Renewable

result is legislation that will prove, for the most

Energy came to the conclusion that if investment

part, ineffective with its unambitious emissions

in the energy sector was switched to renewables,

reduction target, countless exceptions and feeble

for every job lost in coal or the atomic industry,

penalties. Scarcely had this awful piece of legisla-

seven could be created in the renewable sector.

tion been approved than an expensive European

Even the commission assumes that raising the

car manufacturers’ marketing campaign began

emissions reduction target to 30% would create

proclaiming the efficiency of their new models.

more employment in the EU. Investment in effi-

Many of these cars had emission rates below the

cient energy production, better use of resources,

CO standards against which they had fought so

better-insulated houses and sustainable traffic

2

hard. The conclusion to be drawn from this is

systems will pay for themselves several times over.

that we should never underestimate industry’s

There will be lower emissions, costs of raw mate-

innovative powers. Industrial research and devel-

rials will fall, there will be less reliance on imports

opment departments are far better prepared for

and more secure employment will be created.

the challenges of climate change and efficiency

than those heading up the board rooms. The auto

Modernising our society in an ecological way

industry is also a prime example of misguided

will neither be for free nor come without effort but

lobbying. The industry had already signed up to a

the opportunities this step will offer have never

self- regulating system of fuel consumption reduc-

been better. Of course, we should not expect

tion in the 1990s but then failed to do anything

that ambitious plans for protecting our climate

4. REBECCA HARMS AND SILKE MALORNY Climate Change Policy and the Economic Crisis

33

will be greeted enthusiastically by those who

The economic and climate change crises

make good profits from coal power generation.

should not be viewed as independent phenomena.

We should not, however, allow those unwilling

Tackling one does not necessarily mean neglect-

to change to make a fool of our policy. It is now

ing the other. Instead of paddling backwards into

time to overcome opposition: not just talk about

the economic crisis in the hope that we can soon

sustainability strategy but actually get on and do

return to what we had before, we need to learn

it. The demands on the industry of the future will

how to use this opportunity to institute change.

be different to those of the past. In a world where

The economic crisis is forcing us to change our

raw materials are limited and fought over, energy

industry. We must ensure that we emerge from

costs are on the rise and climate is changing. Only

this crisis in better shape than before. We need a

those companies meeting these new challenges

green new deal that can tackle the economic and

will be successful. Some countries are already

climate crises together. The efforts we are now

in the starting blocks. What is certain is that the

making need to help us overcome both these cri-

future belongs to technologies that are intelligent,

ses. Only when we have intelligent, clean and cost

economical and efficient. It is, however, uncertain

conscious industry will we have secure employ-

that these technologies will come from Europe.

ment for the future. The EU has what it takes to

Deindustrialisation and job losses will be a threat

be to the forefront on climate change technology.

if we do not change. If the EU wants to be suc-

Half way between Copenhagen and the next cli-

cessful in green and climate technologies it needs

mate change summit in Cancun, the question is:

to set very clear parameters so that its products

does the European Union have the kind of politi-

will be of interest to these future markets. We will

cians who have what it takes to try out new ideas

require all the tools that policy can offer. Clear

in times of crisis?

ambitions and binding targets are just as impor-

tant for the market as intelligent inducements

and regulatory specifications.

Rebecca Harms is a qualified landscape architect. As a joint founder of the initiative to stop nuclear waste being stored in Gorleben she was active in the anti-nuclear

movement. She began working closely with the Green party in 1984 as assistant to

MEP Undine von Blottnitz. From 1994 to 2004 she was a member of the Lower

Saxony state parliament where she headed the Green parliamentary party. At the

elections in 2004 Rebecca Harms entered the European Parliament as top of the

Green list and was co-chair of the parliamentary Greens. Re-elected in 2009, she is

currently a substitute member of the Committee for Industry, Research and Energy

and of the Committee for Environment, Public Health and Food Safety.

Silke Malorny has a Master’s degree in Biology from the University of Göttingen.

Before becoming Rebecca Harms’ adviser on energy and climate change issues, she

was adviser to Michaele Hustedt, Member of the German Parliament and energy

spokesperson for Bündnis90/the Greens. Silke Malorny’s special areas of interest in

recent years have been EU climate change policy and its international dimension,

EU energy policy and vehicle regulation.

34 CAN EUROPE RISE TO THE CHALLENGE?

5. REINHARD BüTIKOFER & RODERICK KEFFERPüTZ

To be Green or not to be − Tackling the Triple Crisis

It's déjà vu all over again. Once more the

The credit crunch and economic recession,

European economy finds itself in turmoil. Having

however, have not been the only factors adversely

been for the past two years in the midst of the

affecting European industry. The European econ-

worst economic recession since the 1930s, many

omy has also had to come to grips with increasing

hoped we were finally entering the upward curve

competition for scarce resources such as fossil

of a V-shaped recession. While in June 2009, year-

fuels, rare metals as well as the need to lower car-

on-year industrial production plunged by roughly

bon emissions in order to combat climate change.

20%, latest Eurostat data show a 6% increase

The former, demonstrated by the oil price shock of

(March 2009-2010).34 This has given rise to some

2008, which precipitated the recession, as well as

optimism. Then ‘Greece’ happened. The Greek

the overall increase in resource prices, is a partic-

debt crisis and its contagion effect on other major

ular burden as the cost of materials, largely based

European economies such as Italy, Spain and

on the production of resources, represents almost

others have shattered market confidence and are

40% of the cost structure in the manufacturing

putting the overall recovery at risk.

sector. In addition, with almost three tonnes per

capita per year Europe has the highest net imports

While as recently as a year ago, governments

of resources in the world, making it particularly

were scrambling to provide financial assistance

vulnerable to future supply constraints.36

to the banking sector, they are now scrambling to

finance their own debts. In the meantime, major

The aforementioned three pressure points –

European industries continue to struggle. The car

the economic crisis, rising energy and resource

and shipbuilding sectors in particular are facing

prices, and the climate crisis – are all interrelated

difficult times. Orders for vehicles have collapsed

and have created a difficult context for Europe’s

and are now just slowly beginning to recover

industry, Europe's industrial policy and European

while Asian competitors are busy securing the

policy-making more generally. The financial and

next round of orders in the shipbuilding indus-

economic crisis in particular has had an immense

try. This is having ripple effects on other sectors

influence on the energy and climate change chal-

such as second and third-tier suppliers, resource

lenge. In the short term, it has actually provided a

producers, as well as the manufacturing sec-

respite in a number of ways; while in the medium

tor in general. Subsequently, foreclosures have

to long term it has been, quite to the contrary,

increased and the European unemployment rate

undermining the necessary model shift.

has risen from an average of 7% in 2008 to almost

11% this year.35

34 ‘Europe industrial production declines by record 21. 6%’, Bloomberg News, 12 June 2009.

See: http://www. bloomberg. com/apps/news?pid=20601087&sid=aik2bxsFFvWM

‘March 2010 compared with February 2010 Industrial Production’, Eurostat News Release – Euroindicators, 12 May 2010.

See:http://europa. eu/rapid/pressReleasesAction. do?reference=STAT/10/68&format=HTML&aged=0&language=

EN&guiLanguage=en

35 Economic Crisis in Europe: Causes, Consequences and Responses, European Commission, July 2009.

See: http://ec. europa. eu/economy_finance/publications/publication15887_en. pdf

36 ‘Overconsumption: Our use of the world's natural resources’, Study by Friends of the Earth Europe (FOEE) and the Sustainable Europe Research Institute (SERI), September 2009.

4. REINHARD BüTIKOFER & RODERICK KEFFERPüTZ To be Green or not to be − Tackling the Triple Crisis 35

The economic recession, by decreasing out-

of permits. This coupled with the possibility of

put, has also reduced the demand for energy,

banking emission rights for future use is negating

thereby bringing down prices and providing some

incentives to cut emissions.38 Crucial investments

form of comfort to industry and consumers. The

in energy efficiency and green technologies are

oil price dropped from its high of $150 per bar-

thereby being delayed. This is important given the

rel (bbl) to $40/bbl and is now recovering at $80/

fact that according to the 2006 Stern Review, fail-

bbl, while gas prices, due to a glut in LNG supplies

ing to take action now will cause future economic

and unconventional gas in the United States, have

losses in the range of 5-20% of global GDP, while

plummeted from $15 per million British thermal

the annual costs of climate mitigation would be

units (mmbtu) to $4/mmbtu.

around 1% of global GDP.39

The crisis has simultaneously led to a reduc-

In addition, the credit crunch is leading to a

tion of carbon dioxide. Emissions decreased by

sizable underinvestment in research and devel-

11% in 2009 not only due to reduced industrial

opment, innovation, and particularly energy

production but also because it was more profit-

infrastructure, most notably in renewables.

able for energy utilities to switch to cheaper and

According to the European Bank for Reconstruction

cleaner-burning natural gas.37

and Development (EBRD) a whole range of

projects, such as wind farms and gas-fired power

Major drawbacks

plants have had to be put on the back burner due

to a lack of liquidity.40 In the first quarter of 2009,

These short-term benefits, however, mask

investments in renewable energy, for example,

some major drawbacks. The fact of the matter is

dropped by 53% compared with the same period

that the financial and economic crisis is also an

in 2008. This is eroding Europe’s leadership in the

obstacle to the long-term structural changes that

renewables industry with China and the United

are needed to revitalise the economy and insu-

States giving us a run for our money. The US has

late it from future energy price shocks, as well

already outstripped Germany to become the larg-

as put European industry on the sound path to

est producer of wind energy while China is set to

sustainability thus retaining its industrial com-

even surpass the US and has overtaken the EU in

petitiveness.

the production of photovoltaics. Commissioner

Hedegaard recently said that the European Union

The economic recession has not only put a

is in danger of losing its competitive advantages in

strain on important climate change measures,

this sector.41 This will also have a significant knock-

with the December 2008 European Council

on effect on the manufacturing industry.

watering down the climate and energy package.

It has also had an adverse effect on the EU’s flag-

Furthermore, reduced investments in energy

ship emissions trading system (EU-ETS). Having

are raising the spectre of a future energy sup-

reached a high of €32.90 in April 2006, the price

ply crunch when the economy begins to pick

for carbon permits tumbled nearly 70% to €10 in

up again. Although the reduction in demand is

January 2009 and is currently trading at €15 as

providing some breathing space, the necessary

reduced industrial output has led to an excess

energy investments are, as mentioned above, more

37 ‘EU’s carbon pollution drops record 11% as recession cuts output’, Bloomberg News, 1 April 2010.

See: http://www. bloomberg. com/apps/news?pid=20601130&sid=aadYdhUVdquI

38 ‘Carbon price raises fears of renewables lag’, Business Green, 30 January 2009.

See: http://www. businessgreen. com/business-green/news/2235485/carbon-price-raises-fears

39 ‘Summary of conclusions’, Stern Review: The Economics of Climate Change, see: http://www.

hm-treasury. gov. uk/stern_review_report. htm; while the costs of climate change will be higher than 1% of GDP, it is given that the costs will be lower than delayed costs will be.

40 ‘Freeze risks energy future of Europe’, Financial Times, 18 June 2009.

41 ‘EU needs green boost to stay competitive’, European Voice, 15 April 2010.

36 CAN EUROPE RISE TO THE CHALLENGE?

difficult to make as capital has dried up. Instead

while South Korea and China invested respec-

of building new energy infrastructures, compa-

tively 80 and 37% of their stimulus funding into

nies are embarking on a strategy of minimising

sustainable measures such as energy efficiency

operating costs, cutting capital expenditure and

and renewables, the EU average was a paltry

reducing capacities – in short they are sweat-

8.5%.42 In terms of hard cash, this translated into

ing their assets; and this at a time when many

$221 billion by China, $112 billion for the US stim-

of the existing power stations are coming to the

ulus, $31 billion by South Korea and $23 billion by

end of their operational lifetimes and need to

the governments of the European Union.43

be replaced. By 2020 more than 100 GW (giga-

wat) will need to be replaced and 200 new GW

While some of the EU’s financial institutions,

capacity will need to be constructed if the com-

such as the European Investment Bank (EIB),

mission indeed moves to a 30% greenhouse gas

have attempted to provide more finance during

(GHG)-abatement scenario. The commission’s

the credit crunch, the bank’s record in support-

Green Paper A European Strategy for Sustainable,

ing sustainable measures is not encouraging.

Competitive, and Secure Energy estimates that

According to a report from CEE Bankwatch the

up to 730 GW will need to be installed by 2030 in

European Investment bank invested nearly 50%

order to meet the increasing demand for electric-

of its energy portfolio in fossil fuels in the period

ity and replace retiring plants. The risk of lack of

2002-2008 while only 16% were dedicated to

investment is that it could lead to a future supply

renewables.44

crunch, which would potentially lead to another

bull run on energy prices, adversely affecting the

European Economic Recovery Package

European recovery and costing industrial as well

as household consumers dearly.

The European Commission has also put forth

its own stimulus package, the European Economic

Short- and long-term policies

Recovery Package (EERP), amounting to €5 bil-

lion. This money has essentially been split three

As such, there is a need to address the eco-

ways, with €3.98 billion earmarked for fossil fuels

nomic, energy and climate crises together rather

and electricity interconnections, €1.05 billion for

than separately. In this vein, the European Union

carbon capture and storage projects (CCS), €1

needs on the one hand a short-term integrated

billion for broadband infrastructure and projects

policy that relieves immediate pressure from this

working with the common agricultural policy

triple crisis and on the other a coherent long-term

(CAP) and €0.57 billion for offshore wind farms.

strategy that lays the foundations for a broad trans-

formation of its industry. The first has failed to

What is most worrying about this stimulus

adequately materialise, however, and discussions

package, besides the relatively low level of financing

surrounding the second do not look promising.

provided for renewables, is its spectacular failure

to give adequate attention to concrete energy effi-

In their immediate response to the financial

ciency measures. Originally, €500 million were

and economic crisis, European governments

earmarked for the ‘smart cities’ initiative, which

have, regrettably, failed to address the energy and

supports cities and regions to reduce greenhouse

climate challenge sufficiently. A study by HSBC,

gases by 40% by 2020, which would, inter alia,

looking at the economic recovery measures taken

also provide energy security and socio-economic

by over 30 countries, came to the conclusion that

advantages in terms of quality of life and local

42 A Climate for Recovery, HSBC Global Research, 25 February 2009, found in: ‘Low Carbon Jobs for Europe –

Current Opportunities and Future Prospects’, WWF, June 2009.

43 ‘Green stimulus spending by country’, World Resources Institute, 2009.

44 Change the lending, not the climate. CEE Bankwatch, November 2009.

See: http://bankwatch. org/documents/changing_the_climate. pdf

4. REINHARD BüTIKOFER & RODERICK KEFFERPüTZ To be Green or not to be − Tackling the Triple Crisis 37

employment.45 European Commission President

Energy efficiency

Barroso, however, decided in a last-minute change

of heart to cancel this crucial funding.

In terms of energy security, a report by

Cambridge Energy Research Associates (CERA)

Following pressure from our Green Group

states that the European Union could cut back its

in the European Parliament, the European

natural gas consumption by 125 bcm per annum

Commission finally ceded to a compromise

– equivalent to the combined consumption of

agreement whereby it would direct any unspent

Germany, France and Spain – by 2030 using exist-

stimulus funding towards energy efficiency.

ing technologies to increase energy efficiency.47

Commissioner Oettinger acknowledged this as

In addition, a 2005 study by the European

recently as May 2010 at a hearing, stating that

Commission entitled Doing More With Less,

this money would go to energy efficiency and in

found that energy efficiency investments to save

particular the smart cities initiative. These funds,

20% of EU energy consumption could create up to

however, are expected to be rather small in vol-

one million direct and indirect jobs in Europe.

ume (€115 million) compared with the funding

dedicated to other portfolios.

Energy efficiency measures could also play an

important and innovative role in the long-term

The European Union is therefore missing a

stability of financial markets. A robust financial

great opportunity as energy efficiency is one of the

framework with adequate regulation and oversight

most relevant and cost-effective tools providing

for trading in energy efficiency certificates and the

numerous advantages to European industry as it

creation of energy efficiency funds, for example,

simultaneously cuts costs, increases energy secu-

could provide the requisite security for those insti-

rity, decreases emissions, and creates employment

tutions that need assets to match their long-term

opportunities.

liabilities, such as insurance companies, pension

funds or even sovereign wealth funds.

In terms of costs, the International Energy

Agency (IEA), for example, estimates that, on

It is therefore particularly unfortunate that the

average, every additional $1 spent on more

European Council still refuses to make the 20%

efficient electrical equipment, appliances, and

energy efficiency target mandatory, especially

buildings avoids more than $2 in investment

when current trajectories show that the EU will

in electricity supply. A study by the McKinsey

only achieve an 11% energy consumption saving

Global Institute (MGI) has calculated that an

by 2020.

annual global investment of $170 billion in

energy efficiency improvements over the next 13

Had the European Commission and the

years, (a figure far lower than the size of the bank

national governments proposed more sustainable

rescue packages) would yield up to $900 billion

measures in their stimulus packages, particularly

annually by 2020.46 For the European Union in

focusing on industry-friendly support for energy

particular, the European Climate Foundation

efficiency, their aim to bring some temporary relief

concluded that realising the EU’s 20% energy

to European industry and consumers from the

efficiency target would result in savings of €107

economic, energy and climate crises would have

billion per year by 2020, translating into over

been more promising. This would particularly

€600 per household.

have been the case if the European Commission

45 ‘European Initiative on Smart Cities’, European Commission Website.

See: http://setis. ec. europa. eu/initiatives/technology-roadmap/european-initiative-on-smart-cities 46 Curbing global energy demand growth: The energy productivity opportunity, McKinsey Global Institute (MGI), May 2007.

47 'EU energy curb strategy hailed', Financial Times, 24 April 2009.

See: http://www. ft. com/cms/s/0/2992fcde-3067-11de-88e3-00144feabdc0. html

38 CAN EUROPE RISE TO THE CHALLENGE?

had employed its €5 billion European Economic

such an important issue for European industry.

Recovery Programme to leverage funds from the

Furthermore, while the commission likes to use

private sector. This could have had a multiplier

the 'green jobs' and 'green public procurement'

factor of 5 to 15, as indeed the Green Group in the

rhetoric, it is unwilling to put a target on either,

European Parliament recommended.

even though, particularly with regard to the latter,

numerous organisations, such as the European

Europe 2020

Environmental Bureau, have called for a 100%

green public procurement target to be set.

With regards to the European Union's long-

term strategy to address the multiple challenges

While the Europe 2020 strategy naturally

faced by industry, the EU is now in the process of

does not look beyond the horizon of 2020, the

adopting a new 10-year strategy entitled ‘Europe

European Commission will sooner or later also

2020’, which aims at creating “smart, sustainable

have to come up with targets and policies taking

and inclusive growth”. This strategy follows the

into account a 2050 timeline. Here, a long-term

failure of the Lisbon Agenda, which aimed to

renewable energy target of 100% in the electric-

make the EU the “most competitive and dynamic

ity sector by 2050 will be absolutely crucial. This is

knowledge-based economy in the world capable

particularly the case given that numerous studies

of sustainable economic growth with more and

by organisations such as PricewaterhouseCooper

better jobs and greater social cohesion”. While the

(PwC) and the Heinrich-Böll-Stiftung have illus-

Europe 2020 strategy includes numerous points

trated that, contrary to common belief, 100%

that deserve merit, such as the flagship initiatives

renewable energy in the electricity sector by

on innovation, resource efficiency and industrial

2050 is achievable.48 In addition, new analyses by

policy, the overall strategy lacks ambition as well

McKinsey have come to the conclusion that the

as coherence.

EU can fully expand its renewable energy without

leading to a rise in electricity prices.49 This is due

First and foremost, the current EU budget

to the fact that, while the initial up-front invest-

proposal by the European Commission that is

ment for renewables is higher than their fossil fuel

being discussed in the European Parliament does

counterparts, the running costs of renewables are

not foresee any adequate financing for the Europe

significantly lower. An ambitious and compre-

2020 strategy. This begs the question how this

hensive roll-out of renewables in the European

strategy is supposed to have any chance of suc-

energy sector would boost employment across

cess if it lacks the necessary resources?

the European Union and insulate the economy

from rising energy prices while simultaneously

Second, the strategy lacks ambitious targets

addressing the climate change challenge.

and indicators for some of its key policies. The

commission speaks at length about increasing

New green deal

resource efficiency but fails to put a number on

it, such as an annual 3% increase in resource

As set out at the beginning of this article, the

efficiency as suggested in the Greens/EFA reso-

European Union is facing the immense chal-

lution on EU2020. In this context, it is even more

lenge of providing future economic dynamism

regrettable that the European Council adopted a

in the context of increasing competition for

position on energy efficiency without any men-

scarce resources while simultaneously greening

tion of overall resource efficiency, particularly

its economy in order to combat climate change.

given the fact that resources and their costs are

This challenge is taking place under increasingly

48 100% Renewable Electricity, PricewaterhouseCoopers, 26 March 2010.

See: http://www. pwc. co. uk/eng/publications/100_percent_renewable_electricity. html ;

Schreyer, Michaele and Mez, Lutz. ERENE: European Community for Renewable Energy.

Heinrich Boell Foundation, 2008. See: http://www. boell. de/downloads/ecology/ERENE-engl-i. pdf 49 See: http://www. roadmap2050. eu/

4. REINHARD BüTIKOFER & RODERICK KEFFERPüTZ To be Green or not to be − Tackling the Triple Crisis 39

difficult circumstances. The financial and eco-

that shifts the currently unsustainable mode of

nomic crisis has dried up bank lending, exhausted

operation to a sustainable one, the EU’s economy

public coffers and increased Europe’s unemploy-

risks a steady decline and loss of competitiveness.

ment rate. At the time of writing, and in the context

A green new deal based on renewable energy,

of the Greek debt crisis, it is even calling into ques-

innovation, efficiency and green technologies with

tion the very foundations of Euro and European

vast investments in job-intensive infrastructures

solidarity. In addition, the EU has to deal with

can revive our economy and put into place the

increasing global competition from emerging play-

foundations that will create wellbeing and pros-

ers such as China, India and Brazil.

perity for our society and future generations. The

European Union has already missed a valuable

Europe's industry is at the heart of these mat-

opportunity with its stimulus funding. Let's hope

ters and is struggling. Without substantial reform

its long-term strategy can do better, in spite of the

and the right mid- to long-term political support

fact that its outlook does not look promising.

Reinhard Bütikofer is a Member of the European Parliament and Vice Chairman

of the Group of the Greens/European Free Alliance. He is the group's Spokesperson

on industrial policy and also works on issues of climate change, energy, European

foreign and security policy and transatlantic relations. From 2002 until November

2008, he was Co-chairman of Germany’s Alliance 90/The Greens. Prior to this, he

was the party’s National Executive Director. Reinhard Bütikofer is a board member

of the Berlin Aspen Institute, an advisory board member of the American Jewish

Committee's Ramer Center in Berlin, a member of the German-Chinese Dialogue

Forum and a member of the European Green Foundation. He studied philosophy and history at Heidelberg University.

Roderick Kefferpütz is a parliamentary assistant and policy advisor to MEP

Reinhard Bütikofer, responsible for his work in the industry, research and energy

committee (ITRE) in the European Parliament. Prior to that he was a project

manager at the European Union Office of the Heinrich-Böll-Stiftung where

he was responsible for energy, climate change and Russian affairs. Roderick

Kefferpütz is a regular commentator in the international media and has authored

and edited a number of publications. He holds a degree in International Relations

and an MPhil with distinction in Russian and Eastern European Studies from

the University of Oxford.

40 CAN EUROPE RISE TO THE CHALLENGE?

6. CLAIRE CHAMPEIx

What Future for Social Protection after the Crisis?50

The financial and economic crisis that began

1. Serious economic crisis, tremendous

in 2008 had immediate social consequences but

social consequences

we are only now starting to see its long-term

impact. The visible and obvious effects include

The consequences of the crisis in terms of ris-

rising unemployment, increased poverty, grow-

ing unemployment are well known. The number

ing homelessness and over-indebtedness. There

of people who have lost their jobs, however, is only

are other less obvious effects such as worsening

the visible part of the unemployment iceberg. The

working conditions, more mental health prob-

consequences of the crisis are many and often not

lems and growing feelings of despair. NGOs and

immediately obvious. The crisis is far from being

their services are increasingly unable to allevi-

over and consequences will continue to emerge.

ate the scourge of poverty and social isolation. It

is Member States’ exit strategies, however, with

Un

U employm

emplo

ent an

en

d the deterior

e det

ation

erior

threats to cut social protection, minimum income

of work

or ing c

k

onditions

schemes and public services and without the

slightest guarantee of support for the unemployed

High unemployment in some countries has

to find work that will have the most damaging

been one of the first and most visible conse-

long-term impact.

quences of the economic crisis. In April 2010 the

number of unemployed in the EU was 7.1 million

The crisis has had a two-pronged impact on

(or 44%) higher than in March 2008 when unem-

social protection. On the positive side the role of

ployment was at an all-time low. In 2009, the

social protection as an automatic stabiliser has

unemployment rate for the EU-2551 was 9% com-

been recognised and some countries have taken

pared to 7,2% in 2007. Some countries have been

short-term ad hoc measures to reinforce poli-

particularly badly affected: in Spain e.g. unem-

cies aimed at those, who have been hit hardest.

ployment in 2009 was 18%.

Some governments have initiated reforms likely

to improve the efficiency of national social pro-

However disturbing these figures are, they

tection systems.

underestimate the reality of unemployment. In

many countries, a dramatic increase in unem-

On the other hand, because of the enormous

ployment has been partly avoided by widespread

sums used to bail out the banks and ever grow-

use of part-time and/or short-time employment

ing public deficits, Member States have started

and a reduction in the number of hours worked.

to make big cuts in public expenditure, cutting

This means that many people, without being

education and social protection budgets. This

made redundant, have lost part of their income.

has made the situation even more difficult for the

Some self-employed people have lost their busi-

people concerned.

nesses and may not appear in the unemployment

statistics because they are not entitled to benefits

50 The present article is based on the report ‘Social Cohesion at stake, the social impact of the crisis and of the recovery package’, drafted by Claire Champeix and Sian Jones and published by the European Anti-Poverty Network (EAPN) in December 2009 (www.eapn.org). An updated report will be published at the end of 2010.

51 Without the new Member States Bulgaria and Romania which had joined in 2007.

6. CLAIRE CHAMPEIx What Future for Social Protection after the Crisis?

41

and therefore may not register as unemployed.

Pensions un

P

der thre

der thr at

e

Informal workers, including undeclared migrants

and those working while on benefit (some of the

Pensions have also been affected by the

first to suffer) also do not appear in unemploy-

financial crisis both through reductions in money

ment statistics.

paid out and the wider impact the crisis has

had on the value of pension funds. The trend to

Working conditions have also suffered a

reform pension schemes through a gradual shift

negative impact. In some cases, cuts in wages are

of responsibility from the state to the individual

implemented without any reduction in working

citizen has left people’s savings for their old age

hours and working conditions have deteriorated

at the mercy of economic fluctuations and finan-

as some companies have also cut non-wage costs

cial market speculation. This will reduce incomes

in a bid to improve competitiveness.

in old age and create a group of ‘new poor’ older

people.

Housing ex

H

clusion an

ousing ex

d homelessness

Wor

W k

or ers with l

k

ittle job s

it

ecurity the first victims

As people can no longer pay their mortgages

or rent, housing eviction is growing. There has

Clearly, those workers with the least secure

been an increase in the number of repossessions,

jobs (agency workers, workers on short-term and

evictions and other collection procedures related

temporary contracts, on-call workers etc.) have

to credit. Migrants and ethnic minorities face

been the first victims of the economic crisis. The

growing discrimination in accessing affordable

first to lose their jobs, they are also the last in line

housing. Homelessness is an increasing real-

when seeking employment in the current diffi-

ity, notably in Spain, the Netherlands, Sweden,

cult labour market. These workers share similar

Germany and Ireland and there is a growing

problems in that they are often poorly trained/

number of homeless families in Latvia.

educated, suffer from long-term sickness or a dis-

ability or are migrants. What will happen to these

In

I debt

de e

bt dness and finan

d fin cial ex

i

clusion

al ex

groups, who may now be permanently left with-

out any chance of a decent job?

There are increasing problems of over-indebt-

edness in Spain, Ireland, the Czech Republic,

Furth

F

er deterior

er det

ation in l

erior

iving conditions and

Sweden, the Netherlands, Denmark and the UK.

social c

i

ohesion for the poore

or st

In Germany and Finland, massive over-indebted-

ness is expected to be part of the delayed impact

People with no or limited income and with lit-

of the crisis. In other countries people living on

tle chance of finding support are more and more

limited incomes are no longer in a position to

deprived. Demand for food, shelter and clothing

deal with daily expenses. This results in greater

is often on the rise in groups that previously did

demand for NGO services to provide basic goods

not need these kinds of services. With increasing

like food, clothing and shelter.

poverty there is often growing insecurity – stress

levels rise, mental illness and suicide are more

Financial exclusion is a serious problem. It is

common. Vulnerable people compete for scarce

difficult to understand why credit is still so dif-

jobs and limited support in the context of ever

ficult to access for ordinary people as well as for

increasing demand. This tension is responsible

small enterprises, despite millions of euro of pub-

for growing racism and xenophobia as well as

lic money being used to bail out the banks. The

increasing domestic violence within families.

lack of access to fair credit is making the poor easy

There are strong feelings of hopelessness, a lack of

prey for loan sharks who charge exorbitant inter-

trust in the future and a loss of confidence in the

est rates, often using unscrupulous and aggressive

ability of society to challenge growing inequalities

collection methods.

and ensure social cohesion.

42 CAN EUROPE RISE TO THE CHALLENGE?

Impact on women

Particular attention must also be given to the most

vulnerable and to new risks of exclusion.” 52

The impact of the crisis on women has been

under-reported. Women in the service sector, on

Not all Member States, however, have social

insecure contracts, have been very vulnerable to

protection systems generous enough to fully

dismissal and are big losers in the area of unde-

execute this role. The capacity of such systems to

clared work, particularly in community services.

address a rapidly growing demand, both in terms

Often, when a man loses his job, women, who bear

of administrative capacity and budget, is also an

the primary care burden are pressurised into get-

important consideration.

ting full-time jobs. In many cases this leads to major

challenges in the work/family balance as well as

Holes are clearly appearing in social security

new poverty traps. Women who have migrated to

safety nets at the very time when they are needed

the EU on the basis of family reunification now

most. Social protection schemes ensuring mini-

face reviews of their residence permit when their

mum income and specific support for the most

husband/partner becomes unemployed.

vulnerable are proving insufficient to cushion

the impact of the crisis. There is clearly an issue

Children

Childr

concerning the adequacy of minimum income

and social benefits, at a time when eligibility rules

Children are directly affected by the unem-

have been tightened in a number of countries. So

ployment of their parents and experience

called ‘activation policies’, tightening sanctions

increased poverty, as well as a tense and anxious

imposed on the unemployed to get them back to

atmosphere in the home. Family stability can

work at any price, are being pursued even more

also be jeopardised with parents unable to afford

rigorously even though there are fewer jobs avail-

to raise their children and having to let them

able. Increasing housing difficulties caused by

be taken into care. In some eastern European

the crisis only serve to highlight the insufficien-

countries – where emigration can involve leav-

cies of public housing policies in providing access

ing children in the care of relatives – the need for

to affordable housing for all. In addition, existing

child protection is on the rise.

policies are threatened by cuts as governments

seek to address their budget deficits.

2. Social protection and good social

policy – key factors to help societies

Some positive re

e r sponses to h

s t

elp the poor

in difficult times

Some countries, however, have taken a number

In the recent turmoil at least one thing is clear:

of good additional ad hoc social measures. For

social protection plays a key role as an automatic

example, Spain has introduced a moratorium

stabiliser. Social protection not only prevents the

on 50% of the mortgage payments of those made

dramatic rise in poverty associated with unem-

redundant. In Ireland, where many houses built

ployment but also sustains the functioning of the

by developers are now empty, the government, at

economy through guaranteeing a minimum level of

the request of homeless organisations, has pro-

consumption. This link was recognised in June 2009

vided local authorities with funding to rent out

by the heads of state and government during the

some of these houses and address some of the

European Council. “Social protection systems and

needs of those on the housing waiting list.

social inclusion policies play their role as automatic

economic stabilisers and as effective mechanisms

Improvements in employment benefits have

for cushioning the social impact of the downturn

also been made, for example in Belgium where

and for helping people back to the labour market.

a social fund has been created that provides an

52 http://ec.europa.eu/regional_policy/cooperation/danube/documents/council_conclusions.pdf 6. CLAIRE CHAMPEIx What Future for Social Protection after the Crisis?

43

income supplement to unemployment benefits.

This is to be expected as the private and corporate

Improvements in the guaranteed minimum

tax base shrinks and unemployment and social

income have been announced in Spain and in

benefits rise and governments have financed

Finland. Measures to improve pensions have

‘extraordinary measures’. In 2009, public deficits

been made in Finland, with the introduction of a

were: 5-6% of GDP in Spain; 13% of GDP in the

guaranteed pension in 2011.

UK, where the total amount of public debt is 80%

of GDP, with a corresponding figure for Ireland

Some governments have decided to allow

approaching 34%.

extra support for households, especially fami-

lies with children, in the form of a one-off

Belt-tig

elt

htening spr

ht

e

ening spr a

e ds

allowance (France), an increase in children ben-

efits (Germany, Czech Republic), a noticeable

The current trend, supported by the EU

improvement in health care packages (Malta),

Stability and Growth Pact, however, is to reduce

fiscal policy (Austria) and payments to allevi-

these deficits through belt-tightening policies. The

ate energy bills (Greece, Cyprus). In the Czech

Spanish and Irish governments, hit particularly

Republic, Sweden and Finland education and

hard by the crisis, have already made significant

training have been given a renewed boost as a tool

cuts in the education and social sectors, includ-

against unemployment. In the UK, the Future Jobs

ing benefits and pensions. These cuts have been

Fund has been launched that aims to provide ‘real

bewildering and deeply disturbing. Other coun-

jobs’ for 150 000 young people aged between 18

tries are also doing the same thing. Public housing

and 24. The Swedish government has given local

projects are being abandoned at a time when they

and regional authorities funds to avoid a decline

are most needed. In Ireland, deflation is used by

in the quality of the health and social sectors.

the government to reduce rental allowance, mak-

ing it even more difficult for people to manage.

3. Management of the crisis in EU

Member States puts social protection

Thre

Thr ats t

e

o s

ats t

ocial rig

i

hts in some new and

systems at risk

poten

ot ti

en al M

ti

em

al M

b

em er St

er S at

t e

at s

The qu

e q estion of public budget man

et m ag

an ement

en

As a direct consequence of the crisis, the

credit crunch and the dramatic fall in their curren-

The reality is that national budgets have been

cies, the debt burden of some eastern European

jeopardised because governments first chose

countries has become unsustainable. Hungary,

to bail out the banks and major industries. As a

Iceland, Latvia, Serbia and Romania have taken

result, many governments have now very little

up International Monetary Fund (IMF) and

room for manoeuvre. There has been discussion

European Commission loans. They now have to

as to the amounts spent on the bailouts and the

comply with budgetary and structural reform

efficiency of such a choice. Some Member States

requirements and this has led to massive cuts

point to the huge amounts of public budgets

in social services and public administration.

engaged to safeguard the demand side in the

Voices have been raised in defence of social

worst hit sectors.

rights in recovery and exit plans. In the European

Parliament, a written declaration (0056/2009)53

Several factors are contributing to widening

requested that social conditionality become an

public deficits. There are drastic reductions in

integral part of any financial assistance and that

public revenue as expenditure continues to rise.

the commission and Member States evaluate the

53 http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//NONSGML+WDECL+P7-DCL-2009-

0056+0+DOC+PDF+V0//EN&language=EN

44 CAN EUROPE RISE TO THE CHALLENGE?

social impact of all anti-crisis measures on a regu-

expense of those least able to participate in the

lar basis and report back.54

labour market or benefit from equality policies.

Pro

Pr gre

gr ssive taxation

e t

The majority of NGOs are concerned not just

about maintaining the quality of the support they

An option adopted by a number of govern-

provide to people in need but they are also find-

ments is to increase public revenue by introducing

ing their advocacy and networking work even

new taxes. The majority, however, have shown lit-

more difficult as further cuts bite.

tle concern as to how these measures will impact

social issues. Instead of using the opportunity to

4. Minimum income and social protection

ensure that the poor do not pay for the crisis (i.e.

central in the fight for recovery

higher tax rates for the rich, lower for the poor),

they prefer flat tax increases or indirect taxes (e.g.

What sh

Wh

ould be done?

VAT) that proportionately hit the poor the hard-

est. There is little attempt to shift the tax burden

Initiatives have been taken at EU level to

from labour to capital or to make use of the pol-

trigger a coordinated approach among Member

luter pays principle.

States and a number of EU instruments have been

used to help overcome the effects of the crisis,

At

A t

t a

t cks on s

ck

ocial pr

i

ot

al pr e

ot ction finan

ction fin cing

including the Stability and Growth Pact, the eco-

nomic recovery plan of November 2008 and the

As a way to boost the economy, support

Europe 2020 strategy.

business and limit unemployment, some govern-

ments have chosen to reduce employers’ social

But this approach will not lead to the sort

security contributions (France, Czech Republic

of change that we need if we are serious about

and Finland). This raises questions concerning

putting people first. Current measures are likely

the future of our social protection system. Will

to make the situation even more difficult for those

solidarity remain a core principle? Apart from

worst off. Given the key role they are playing in the

loss of funding, what will be the long-term impact

management of the crisis through their services

of these reductions on social protection?

and advocacy, NGOs, together with other stake-

holders including trade unions, should be part of

St

S at

t e bu

at

dgets disengag

eng e from s

e fr

ocial a

i

ctivities

the process shaping and implementing exit strate-

gies, within a structured dialogue. A commitment

NGOs are assuming an increasing role as pub-

to a sustainable recovery, which ensures inclu-

lic authorities disengage and public services are

sion and reduces poverty and inequality, should

cut. In some cases, budget cuts are also applied to

be the objective of all exit strategies.

services they provide on behalf of public authori-

ties, with preventative services the first to go.

Against this backdrop, the EAPN (European

Anti-Poverty Network) has proposed the following:

In response to the crisis, the EU has taken sig-

nificant steps to re-channel EU structural funds

Tackling the causes as well as the conse-

mainly towards stimulating growth and main-

quences of the crisis is a top priority. The current

taining employment. In some Member States

model of growth is questionable and a link should

negatives changes are noticeable as there has

be made with the unfair distribution of wealth

been a focus on maintaining employment at the

and growing inequalities. Not all EU countries

54 At the time of writing, the Greek budget crisis was unfolding with help being offered by the IMF and the EU to reassure financial markets. This help will require dramatic belt tightening. Drastic measures are also planned by France, the UK and Spain.

6. CLAIRE CHAMPEIx What Future for Social Protection after the Crisis?

45

are affected to the same degree. Those with a

Although the subsidiarity principle applies to

better-developed universal services and social

social protection in the EU, the new Lisbon treaty,

protection models have done better.

with the Charter of Fundamental Rights as a bind-

ing instrument, enhances the social objectives

Alternative strategies for tackling the cri-

and mission of the EU and confirms its key coor-

sis, based on a more flexible approach to public

dination role in social policy. A series of measures

deficits and a more redistributive and alterna-

have already been put in place at the EU level to

tive tax system ensuring the poor do not pay for

ensure coordination of employment and social

the crisis, reduces the inequality gap as well as

policies. It is now time to use them more effec-

the burden on labour and makes sure that the

tively to avoid the financial and economic crisis

polluter pays. It is time to reinforce minimum

becoming a long-term social crisis.

income and social protection schemes and invest

in universal services not only as ‘automatic stabi-

The new framework strategy Europe 2020

lisers’ but also as the most effective and efficient

which replaces the Lisbon strategy for Growth and

way to reinforce social cohesion and build a more

Jobs was adopted in June 2010.55 The EU Member

sustainable model of prosperity.

States agreed to work to pull 20 million Europeans

out of poverty and gave their political endorse-

The most vulnerable should be the most

ment to the Integrated Guidelines for economic

protected: increased budgets should be devoted

and employment policies. Progress and impact

to emergency support, as well as social policies,

should be publicly and transparently debated in

including the delivery of services.

national and the European parliaments and lead

to tangible change for people living in poverty.56

Unemployment should not be solved by

creating insecure jobs. The promotion of good

The current dramatic situation, however,

jobs is needed more than ever and public ini-

requires more than the good will of governments

tiatives in partnership with social and economic

to work together. We need to create binding

actors should be developed to this end.

instruments at the EU level, such as a frame-

work directive on adequate minimum income,

Governments should put values and

which would guarantee that all Member States

rights at the centre of their approach to the crisis,

implement minimum income schemes at a level

ensuring that short-term options dictated by the

compatible with human dignity and at least above

strongest interests, do not undermine a long-term

the agreed poverty threshold (60% of the national

vision.

median income).

Ho

H w sust

w s

ain

ust

a

ain ble s

a

ocial r

i

e

al r covery can be

Today, the capacity of EU governments to

booste

st d at EU le

d at E

vel

shift up a gear in the building a ‘Social Europe’

will demonstrate their political willingness to put

Member States have not been equally hit

the needs of people before the needs of business

by the crisis, but their economies are interde-

and banks. How governments choose to deal with

pendent. Coordination is not only needed in

the crisis will in the end be of paramount impor-

the financial and economic fields but also in the

tance to those threatened by poverty.

employment and social fields. This is to prevent

social dumping and avoid damaging the founda-

Lessons need to be learnt from the mismanage-

tions of the European Social Model. Such damage

ment of the crisis. Defending and strengthening

would result in some people losing their ability to

social protection and minimum income schemes

participate fully in society.

must be a core priority. Otherwise, the crisis will

55 http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressData/en/ec/115346.pdf

56 More detailed proposals for EU instruments can be found in EAPN policy papers accessible on www.eapn.org

46 CAN EUROPE RISE TO THE CHALLENGE?

lead to a significant long-term weakening of our

social exclusion is crucial if we are to ensure that

social model, increasing poverty and a widening

the recovery is built on sound foundations. The

of the inequality gap. The fight against poverty and

EU should lead the way to a sustainable recovery.

Literature

European Commission, EU employment situation and social outlook, April 2010.

European Parliament, Declaration on the protection of social rights when fighting economic crisis (056/2009).

Social Protection Committee, Updated joint assessment by the Social Protection Committee and the European Commission of the social impact of the economic crisis and of policy responses, 29 May 2009.

European Council, Presidency conclusions, Brussels 18/19 June 2009.

European Commission, Recommendation on the active inclusion of the people excluded from the labour market, 3 October 2008.

European Commission, A European economic recovery plan, November 2011

EAPN, EU we can trust, June 2009.

EAPN Press release, EAPN reacts to the Commission proposals for the integrated guidelines for 2020, 30 April 2010.

EAPN website: www.eapn.org

Claire Champeix has been a policy officer at the European Anti-Poverty Network Secretariat in Brussels since 2003. She previously worked for 6 years in France with

social services in charge of child protection. Claire Champeix holds a degree from the

Institut d'Etudes Politiques de Paris (Science Po) and a degree in sociology.

7. HELGA TRüPEL The Financial and Economic Crisis and its Effect on European Education Policy 47

7. HELGA TRüPEL

The Financial and Economic Crisis and its Effect

on European Education Policy

We still find ourselves in one of the most

Greece is in a similar position especially

serious economic and financial crises we have

now with the current crisis. In recent years there

ever faced. It is a crisis whose shock waves have

have been successive cuts in funding so that

impacted all aspects of national and international

in 2008 only 2.9% of GDP was spent on educa-

policy. Naturally it has also had an effect on edu-

tion, the lowest figure in the European Union. In

cation and training in many European countries

Germany, education is the responsibility of the

as they struggle to face funding cutbacks.

individual states although the federal govern-

ment provides an annual budget of €10.9 billion

The European Union has no formal compe-

for education and research. Despite the crisis the

tence in education policy: in accordance with

Federal Ministry for Education and Research saw

the principle of subsidiarity Member States are

its budget increase by 6.5% from 2009 to 2010. It

responsible for the form and content of their own

would appear that Germany, in comparison with

systems. As all Member States, however, face sim-

other European countries, has maintained sta-

ilar problems as for example an aging population

ble budgets in this area. The state of Bremen for

and the necessity to remain internationally com-

example has escaped cuts in education in the

petitive; they have common goals that guarantee

last couple of years with the 2009 education and

there is a coherent European policy.

training budget (€232.9 million) showing a small

increase over 2008 (€223.9 million). These figures

The European Union funds a number of

are, however, misleading as increasing numbers

programmes that enable adults and young peo-

of universities have too little funding and even

ple to study or train some of the time in another

kindergarten places have become ever more

European country. In parallel there is also a spe-

expensive. The plan that, by 2013, 35% of all young

cial programme of lifelong learning. In total the

children in Germany should be able to attend day

European Union will invest some €1.1 billion in

care will be difficult to achieve. In the area of the

education and training in 2010.

old Federal Republic some 300 000 places will

need to be created to meet this target.

Examples from the Member States

It is therefore clear that the global economic

If one looks at developments in education

and financial crisis has had a significant impact

policy in the last few years in the EU one can

on European Union education policy. Education

see how much it has been affected by the finan-

budgets have not been so directly affected but

cial crisis. There have been drastic funding cuts

the general savings cuts have impacted all policy

especially in the eastern Member States. For

areas. This is serious, especially when investment

example, in the last two years Latvia has reduced

in so-called human capital is so vital for our

its 35 000-strong teaching force by 6 000. In addi-

future economic development. Today, success

tion salaries in the education sector were reduced

and competitiveness are more and more depend-

by 20% in April 2009. In the same period Spain,

ent on know-how and service provision and these

France and Sweden have closed state schools to

require investment in education and training.

reduce government spending.57

57 See J. A. Douglass. ‘Higher Education Budgets and the global Recession, Tracking various National Responses and Their Consequences’, Research & Occasional Paper Series CSHE, Berkley, Nr 4, 2010.

48 CAN EUROPE RISE TO THE CHALLENGE?

European education policy

edge and experiences but it also helps dispel the

often negative image of vocational education.

There is recognition at the European level that

something must be done to counteract negative

Comenius is also a programme to improve

developments in some Member States. Brussels

mobility within the EU. It is designed for school

cannot interfere or regulate national policies but it

pupils and teachers and aims to increase under-

tries to encourage and support life long learning by

standing and appreciation of Europe’s rich cultural

means of various European Union programmes. In

heritage. Its promotion of school partnerships

this way it can make recommendations and provide

allows young people to acquire better life skills and

a lead without direct involvement at national level.

develop into active European citizens. Comenius

exchanges also give an extra dimension to teacher

The idea of lifelong learning is that learning is

training and professional development.

not just for young people in school but for all ages

and at all stages of life. The idea of a European life-

Education and Europe’s 2020 Strategy

long learning programme is that people should

be free to move between education and employ-

At the beginning of March 2010, the European

ment throughout the Union to make the most of

Commission presented its new 2020 Strategy that,

their professional and other skills. This is espe-

in straight response to the current financial crisis,

cially important given our current demographics,

provides guidelines for the coming ten years. A

as we need to take into account the needs of an

major focus of this strategy will be education and

aging population. In the near future, when we will

training. It mentions efforts to reduce the number

have an increasing percentage of pensioners, it is

of school dropouts, ways to increase the number of

essential that we provide educational opportuni-

graduates as well as an overall improvement in ter-

ties for the less qualified up until old age.

tiary education throughout the EU. Such a strategy,

however, is just a beginning and needs to be com-

The European Union education budget for

plemented by concrete actions at national level.

2010 is 4.4% higher than in 2009. Around €1 billion

is for the most part invested in life long learning:

Commission President Barroso recognised the

this includes the Erasmus student exchange pro-

importance of this and at a meeting in April 2010

gramme that has helped more than two million

the majority of European Education ministers

students study in another European country; the

declared themselves in favour of the 2020 goals.

Leonardo Da Vinci programme that enabled 68

But the European Council took its final decision in

000 trainee exchanges in 2008 and the Comenius

June – and took on a far less ambitious strategy.58

Programme to organise exchanges for pupils and

school teachers.

This is simply not enough. The Greens think

that Europe needs a new strategy to secure a

The Leonardo Da Vinci programme aims to

future for our young people. A stronger focus

bring theory and practice together in the area of

on inter-cultural exchange and lifelong learn-

vocational training. Young trainees undertake part

ing is absolutely vital. In July 2006, the European

of their course in a partner organisation in another

Parliament approved a report I had prepared

Member States thus bringing about better cooper-

on the key significance of lifelong learning.

ation between EU training institutions. At the same

The Commissioner for Education and Culture,

time, participating companies are able to exchange

Androulla Vassiliou, has taken a first step in

best practice and develop their employees’ skills.

improving mobility and intercultural exchange in

This not only allows Europeans to gain new knowl-

the EU with her Youth on the Move programme.

58 The strategy had already come into conflict with Germany’s federal structure. Chancellor Merkel and the federal government were reluctant to be subject to aims set by the EU and pressured the council to remove more homogenous education targets from the from the Europe 2020 strategy agenda.

7. HELGA TRüPEL The Financial and Economic Crisis and its Effect on European Education Policy 49

Such cultural exchanges allow European citizens

people, regardless of their qualifications, should

to develop their skills further and equip them to

be able to study or work in another EU country.

make a meaningful contribution to the debate on

Equally, school and college teachers should also

European integration. In addition, the economic

have the opportunity to improve their profes-

potential of the EU is maximised as knowledge

sional qualifications by working in another part of

and experience are exchanged.

the EU. Only in this manner can we achieve high

educational standards in Europe and guarantee

Youth on the Move will enhance other EU

access to lifelong learning.

programmes. Existing universities and other

institutes of higher education will be reinforced

Unfortunately the goals of the European

not just because they will guarantee a high level of

Commission and Commissioner Vassiliou are not

education but also because they will ensure that

quite as ambitious as we would like. Many of the

their graduates are better prepared for employ-

aims that can be found in the 2020 Strategy were

ment. Eleven years after the introduction of the

already in the Lisbon Strategy in 2000. It is not

Bologna Process59 we are on the right track but

just about having things on paper – they need to

there is still a lot of work to be done. Universities

be implemented. We need concrete benchmarks

must, as a matter of urgency, create a better sys-

and mandatory objectives for Member States.

tem of mutual recognition of diplomas, more

room for development and, by means of real

Youth on the Move goes some way in the right

reform, reduce the burden on students.

direction but there is the danger that, given the inte-

gration of so many programmes, adults and young

One of the goals of the 2020 Strategy is that

people alike will find it difficult to understand.

40% of all people between 30 and 34 years of age

Even today, there are many complaints about lack

should be university graduates. But this is not

of information and clarity concerning the various

enough. We will only be able to talk about a suc-

funding opportunities. There needs to be better

cessful strategy when conditions for students and

communication between the EU and its citizens on

teachers have been improved and course content

educational matters. To this end, better use could

is appropriate to the time allowed. In addition

be made of the EU’s structural funds, the European

we need to ensure that the number of pupils who

Centre for the Development of Vocational Training

drop out of school before obtaining any qualifica-

(Cedefop) and the European Training Centre as

tions is less than 10%.

information conduits. We also need to provide

European citizens with the means to have a better

A second aspect of the programme is to

understanding of both traditional and new elec-

improve student mobility. In 2009 the Erasmus

tronic media. It is not just a case of understanding

programme made it possible for some 200 000

the content but also having the ability to look at

Erasmus students to study in another European

what is behind it. An effective education system

country but of course this still is only a small per-

needs to encourage a critical approach to the

centage of the total number of students in Europe.

media and therefore the European Commission

The Greens are of the opinion that we need to

has recommended that Member States undertake

redouble our efforts to make it possible for all stu-

the necessary measures to ensure this.

dents, regardless of their social origins or income,

to be able to study abroad. Other programmes,

In the forthcoming reform of national educa-

such as Comenius for school pupils or Leonardo

tion systems attention must, above all, be paid to

Da Vinci for those in vocational training, are also

efficiency and fairness. In many countries the edu-

unfamiliar to the majority of the population and

cational system often does little to remove injustice.

therefore reach only a small number. All young

Indeed in some cases the system promotes it. Of

59 The Bologna Process to create a single European university system takes its name from the Italian town where, in 1999, European education ministers signed a declaration to this effect.

50 CAN EUROPE RISE TO THE CHALLENGE?

particular concern are those with few qualifica-

(Europass CV) thus making their application more

tions or the poorly educated, who clearly do not

easily understood in other countries.

have the same opportunities as the highly educated

and qualified. We cannot afford to shut the disad-

Redistribution of the European budget

vantaged out of lifelong learning. Every EU citizen

should have access to decent education and train-

Developing and improving all these projects

ing throughout his/her life. One way of tackling

will not be possible with the current level of

under achievement is to improve preschool educa-

funding. We can only guarantee that every pupil,

tion. Preschool education has a positive influence

student and apprentice will have equal access to

on later achievement and helps reduce the school

education and be equally mobile when the EU

drop out rate. Member States should take note of

budget is redistributed.

best practice in other countries in order to create an

EU education system that constantly adds value.

The 2020 Strategy requires Member States to

devote a least 3% of their GDP to research and devel-

One factor that is of special importance is the

opment in the next ten years. But we are far from

ability to speak another language as this plays an

achieving this. We have a very lopsided budget when

important role in facilitating social and cultural

40% goes on industrialised agriculture and an ever-

integration in the EU. If we can understand our

decreasing sum goes to education and training.

neighbours, we will be better able to live with

and learn from them. Pupils in the EU should, in

Alongside the reform of formal education

addition to their mother tongue, learn at least two

there should also be better integration of non-

foreign languages.

formal and informal education. It is important

that the contributions youth organisations and

The European Qualifications Framework (EQF)

non-governmental organisations (NGOs) make

agreed by the European Parliament and the European

to developing young people are given proper

Council in 2008 is another initiative designed to assist

recognition. Partnerships with such bodies will

integration. The EQF aims to relate different coun-

only serve to strengthen the system. This kind of

tries' national qualifications systems to a common

cooperation could lead to forms of learning more

European reference framework. Individuals and

attractive to certain groups. This area could well

employers will be able to use the EQF to understand

focus more on European values such as solidarity,

better and compare the qualification levels of differ-

sustainability and the importance of culture.

ent countries and different education and training

systems thus promoting more mobility. The imple-

A good education system and its resulting

mentation of the EQF, however, requires Member

well-qualified work force have a positive effect on

State willingness to fit their national qualifications

a country’s economy. If we recognise this posi-

into the 8-point framework reference. In future,

tive relationship we must also accept the reverse,

job seekers will be able to use the appropriate EQF

namely that without proper investment in our

grade (corresponding to their national qualification)

‘human capital’ we will not find our way out of the

and a standardised form for their curriculum vitae

current economic and financial crises.

Helga Trüpel (1958) studied psychology, German and religious education at

Bremen University where she also obtained a PhD in literature in 1988. She has

been a member of the Green party since 1980 and from 1987 to 1991 and 1995

to 2004 was a member of the Bremen state government. Her special interests are

culture, education and the sciences. From 1991 to 1995 Helga Trüpel was Senator

for Culture and Immigrant Integration in Bremen. Before entering the European

Parliament in 2004, she worked in her own company, Agentur Art, providing advice

on cultural issues. In the European Parliament she is vice-chair of the Committee

on Culture and Education, a member of the Committee on Budget, member of the Delegation to China and alternate member of the Committee on Budgetary Control.

8. STEFANI WEISS The Effects of the Crisis on the EU’s Foreign and Security Policy

51

8. STEFANI WEISS

The Effects of the Crisis on the EU’s Foreign and

Security Policy

“Cela est bien dit, mais il faut cultiver notre

The current crisis finds the West in a funda-

jardin,” Candide, Voltaire.

mentally different geo-political situation to that

of the 1930s. Even if it were able, the West can

The current economic and financial crisis is

no longer solve this crisis, neither on its own nor

the most serious for 75 years and is as critical as

acting purely in its own interests. For some time

the Depression of the 1930s whose political con-

there have been other major actors on the world

sequences are only too well known. Its impact

stage. China and India have closed the gap with

and repercussions were only really properly

the West to such an extent that they now confi-

resolved after the Second World War in the proc-

dently lay claim to seats in global organisations,

ess of European integration and the later process

a reflection of their growing economic strength.

of reunification. There is now a certain unavoid-

Both countries have so far withstood the cri-

able air of tragedy as the process of integration,

sis astonishingly well and have even been able

Europe’s greatest achievement in foreign and

to expand their economies. China has posted

security policy, is now itself coming under

a growth rate of nearly 10% for the first quarter

increasing pressure.

of 2010. This is a significant boost for the global

economy and has created preconditions that

Historical comparisons can fool. It is, how-

could help both Europe and the US to get back

ever, important to see that the current crisis has

on their feet. In addition, the state coffers of these

its epicentre once more firmly in the West. It has

emerging markets are well filled. They now have

not been imported. It is clearly marked ‘made in

the liquidity that the West so urgently needs for

USA’ and is a crisis of capitalism and its ideology

investment and to close increasingly large budget

of growth. Even if one does not wish to go so far as

deficits. China’s reserves alone are worth around

to see this crisis as an existential one for the West,

€2 trillion.

one has to admit that such a serious amount of

economic damage could only happen in a system,

Far-reaching consequences

epitomised by the US, that rejects state paternal-

ism and has unshakeable faith in the markets.

The effects of the current crisis on the EU’s

foreign and security policy can, without exag-

This is no excuse for the Europeans. The

geration, be described as far-reaching. They

European banking and financial sectors were

are so dramatic because the crisis has come at

active players in the events that led to the crisis.

a time when the world is changing and recent

The unimaginably large profits that this casino

events have accelerated this change. China’s self

capitalism made possible over many years were

proclaimed ‘peaceful rise’ is in no way guaran-

just as happily and recklessly pocketed in Europe.

teed and will only be done according to Chinese

The self-styled financial masters of the universe

specifications that may well go beyond the pain

created a new version of the magic words ‘open

threshold of other countries. Russia, equally

Sesame’ with liberalisation and deregulation. The

badly affected by the crisis, has shown itself to

City of London enjoyed a boom that was little dif-

be moderate but it is a long way from finding a

ferent to that of Wall Street and provided 20% of

role in the new constellation. It is likely that, for

Britain’s gross domestic product (GDP) until the

some time to come, Russia will continue to swing

Lehman Brothers’ crash marked an abrupt return

between overestimating its position and depres-

to reality.

sion. Whatever its mood, it is a difficult partner for

52 CAN EUROPE RISE TO THE CHALLENGE?

Europe. Even if in the post Cold War period there

there are fears that full recovery may never hap-

was a unipolar moment in US history, in the clas-

pen and Europe will be decoupled from the more

sical sense of an economic, military and cultural

powerful economies. For some time, other adver-

super power, this has now vanished. The dream

sities have been awaiting us. Comprehensive

of a Pax Americana is now over. In the wake of

packages to rescue banks and stimulate the econ-

the Iraq invasion, this might not come amiss for

omy alongside sinking tax revenues have further

many Europeans. There are no signs anywhere

increased budget deficits that were already high

that the emerging new world order will be influ-

pre-crisis. Europeans are caught in a debt trap.

enced by Europe. The crisis has not brought the

The situation in Spain, Italy, Portugal and Ireland

world any closer to Kant’s famous concept of ‘ per-

is especially bleak. For the moment, Greek bank-

petual peace’. In the current difficult economic

ruptcy has been averted but it is in no way certain

situation the predominant reaction is to look to

that the EU’s €800 billion rescue plan of May 2010

save oneself. This was clearly demonstrated at

will be sufficient to calm things down. It does not

Copenhagen. Concerns about the alarming con-

look much better in other Member States outside

sequences of climate change were thrown to the

the euro zone. Hungary, Rumania and Latvia for

wind. Individual states are far from seeing them-

example have, for a long time, depended on a

selves as a community able to deal with common

drip feed from the International Monetary Fund

challenges in a collective way. Soon some 8 billion

(IMF) and EU emergency credits. Some European

people,60 the majority of them in Asia, will seek to

investment banks that in the past were happy to

make a livelihood and find happiness around the

earn money buying government bonds from euro

globe. Conflicts about water, food, fuel and land

zone member states are now edging dangerously

are already pre-programmed without any sign of

close to the abyss. And if bank, economic and

binding and effective regulation to deal with them

debt crises were not enough, Europe now has to

peacefully. The EU’s first security strategy in 2003

face a currency crisis to boot. Speculators are bet-

entitled ‘Europe in a Better World’61 would there-

ting that the euro will fall. These developments

fore appear to be an unfulfilled, perhaps never to

will, in every way, prove fatal for the EU.

be fulfilled, promise. Post crisis, the world will be

different for Europe, but in no way a better one.

Testing European integration

Alarming state

First of all, the crisis presents European inte-

gration with its severest test to date. It is still not

It is not only the geo-political situation that is

clear if the EU will emerge successfully. The debt

not looking good for Europe. The EU finds itself

crisis and the euro’s weakness cut to the quick

in an alarming state. The banking crisis, so pain-

of the EU. The Union is paying the price of not

fully averted, was actually only the beginning.

having followed the original policy of working

As a consequence, Europe is now experiencing

towards proper political union but rather of pur-

a deep depression from which there will be no

suing European integration almost exclusively by

swift phoenix-like rising from the ashes. The signs

integrating markets.

point in another direction – long and difficult.

Given Europe’s demographic development62 as

Member States so far have only surrendered

well as its reliance on imports such as oil and gas

that amount of sovereignty required to complete

60 2030 figure estimated to be 8.308.895. United Nations Population Division, World Population Prospects: The 2008 Revision, United Nations 2009, http://esa.un.org/unpp

61 A secure Europe in a Better World, European Security Strategy, Brussels, 12 December 2003, http://www.consilium.europa.eu/uedocs/cmsUpload/031208ESSIIDE.pdf

62 By 2030 almost 30% of Europe’s population will be older than 60. In Asia it will be 16%. At the same time Europe’s population is declining – by 2030 it will be -0.16%, while in Asia the rise will be 0.6%, United Nations Population Division: http://esa.un.org/unpp/p2k0data.asp

8. STEFANI WEISS The Effects of the Crisis on the EU’s Foreign and Security Policy

53

the various stages of the Single Market. In actual

declarations, there was no real common foreign

fact, even in this area they have only transferred

policy. Now that economic success appears to

some powers to supranational decision-making

be on a downward slope, the Single Market has

areas. In this respect the rules that govern the

shown itself to be no substitute for a ‘United

functioning of the Single Market, both internally

states of Europe’. This particularly appears to be

and externally, form the real core of the EU. The

the case when the Single Market has not shown

Single Market is controlled and administered

itself capable of closing the gap between Member

by the European Commission, with the accent

State living standards. Also contrary to what one

being on administrated. The financial and eco-

would expect from this policy, every round of

nomic crisis has made it absolutely plain that the

enlargement has multiplied the different interests

Union does not operate at this level. In spite of

to such an extent that any agreement on common

the Single Market, the Member States only allow

aims or methods is now totally impossible. This

their economic policies to be coordinated within

would now appear to be the situation we are in.

the framework of the EU. Given the wide differ-

ences between the Union’s now 27 members, this

The history of European integration has

is practically an impossible undertaking. Even

always been marked by crises but they were never

euro zone members’ autonomy over their indi-

as significant as things are at the moment. A deci-

vidual finance policies was in no way reduced

sive factor in this critical and bleak picture is the

with the introduction of the common currency.

current generation of European political leaders.

Just how negative an impact this could have has

Unlike their predecessors, who had been through

been clearly demonstrated in Greece’s inability to

the war, this generation does not seem to grasp

pay its debts.

the reasons for the integration process and why

it needs to be advanced, regardless of circum-

To the present there has been no transfer of

stances or opposition. There is no other reason

sovereignty from the Member States to the EU in

to explain why, throughout Europe, policy seems

the area of security and defence policy and the

to be made on the basis of tabloid opinions, old

Lisbon treaty has done nothing to change this.

prejudices, a know-it-all attitude and nationalist

Lisbon has, however, created two new offices

egotism instead of thought for the community.

designed to give a better foreign policy profile. In

Politicians, especially in France and Germany, are

addition, a new European External Action Service

irresponsibly suppressing the fact that even today

under a High Representative for Foreign and

European policy is still about peace on our conti-

Security Policy will represent the EU internation-

nent. The level of normality and civility achieved

ally. But these treaty reforms are also based on

in the last 60 years of European integration would

the principle of cooperation and fail to take the

appear (given European history and the chal-

final step. Foreign and security policy does not

lenges of globalisation) not to run so deep as to be

belong to the tasks of the European Community

irreversible. In the end, the EU could break apart

nor, as it is now known post Lisbon, the Union.

or become what the British have always wanted: a

All substantial decisions have to be made unani-

large free trade area with London as the banking

mously by the Member States. This is not only

and stock exchange centre.

time consuming but, given the differing priorities

and interests of the Member States, it also means

Gambling away soft power

that agreements are based on the lowest common

denominator. You cannot conduct serious foreign

Secondly, a self-doubting EU with little confi-

policy in this fashion.

dence in its integration process has gambled away

a large part of its soft power and seeks to shape

Economic success was able for a long period

international relations according to its norma-

to mask the EU’s lack of economic, fiscal and

tive values. The world listens to and takes notice

social policies. This success also provided sig-

of the EU not least because it has been success-

nificant cover for the fact that, apart from public

ful in bringing Europe peacefully together using

54 CAN EUROPE RISE TO THE CHALLENGE?

the law, supranational organisations and the

basis of properly functioning multilateralism and

transfer of sovereignty. The EU therefore stands

the primacy of politics.

as a tried, tested and unique model as to how

peace, stability and prosperity can be achieved

The idea that there can only be stability in

through economic integration. This has, in the

international relations if the strongest keep order

past, encouraged others to follow its example.

(imperial system) or terror maintains a balance

Regional organisations such as Mercosur, ASEAN

of power is now of limited use. There are now

and the African Union were all created with clear

many more new actors with power and influence

reference to the EU model.

operating alongside sovereign states. One advan-

tage of this is the increase in the influence of civil

In the wake of the EU crisis and the manner

society but it also carries a downside. The world

in which the Member States have reacted, these

of global finance, quite capable of demolishing

organisations are now very unsure as to whether or

whole countries, cannot be controlled by the use

not to continue with this European model of peace

of missiles but only by regulation applied by inter-

and reconciliation. With the best will in the world

national legislation.

the EU would now have difficulty finding any new

takers for its integration model in such crisis areas

Losing influence in global affairs

as the Black Sea or the Caucasus. A currency union

on the lines of the euro is also currently not top

Thirdly, European influence in global affairs

of the bestseller list. Various Arab states are now

is, for the most part, due to the EU’s economic

drawing back from such plans. Estonia’s recent

productivity, not forgetting the attractiveness of

decision to join the euro zone is hardly likely to

its Single Market. Even using 2009 figures, the total

convince them to change their minds.

GDP of the EU Member States puts it just ahead

of the USA as the world’s highest. The next best,

Self doubt and disputes cause damage in

China, India and Japan are some way behind. If

a more fundamental way. In the debate as to

the current crisis and shaky foundations cause

strategy, Americans particularly like to accuse

the EU to decline economically, then it will lose

Europeans of not having any strategic vision. But

its influence in global affairs.

this is incorrect. Europe most certainly has a very

clear idea as to how, post Cold War, to create a new

Money is power, brings you loyalty and can

and stable world order. With enlargement to the

buy good will. This was never really to the fore-

east and the south east, the EU has demonstrated

front in the EU. There was a preference to present

how such a concept can work in practice. Its

the Union as a civilian power. This does, how-

neighbourhood policy follows the same logic. The

ever, not change the fact that the larger western

European model is: stability through democracy.

European powers, along with the USA, were for

many years, able to shape global events to suit

History offers evidence to support this idea

their needs because integration had made them

− and not just because the EU itself provides an

so economically powerful. The Union’s Member

example. In the past there have been hardly any

States were some of the world’s leading econo-

examples of democracies going to war with each

mies, making up the core of the G7. Together

other. Being based on a constitution, their struc-

with the USA, they have been able to dominate

tures are non violent and are experienced at

international organisations – especially the World

resolving disputes amicably and peaceably. Just

Bank and the International Monetary Fund (IMF)

because today’s world is different and transform-

where they hold a blocking minority.

ing unstable and authoritarian states requires

patience and perseverance is no reason for the

Since the Pittsburg summit in September 2009

EU to forsake its ideals and give in to other mod-

to discuss the financial crisis all that is now his-

els of world order. Globalisation is dependent on

tory. The latest form of global governance is the

the European model and can only function on the

G20. Even though France, Britain, Italy, Germany

8. STEFANI WEISS The Effects of the Crisis on the EU’s Foreign and Security Policy

55

and the EU belong to this forum of global players,

The uncertainties that the Europeans have

Europeans now only make up about a quarter of

about their most important strategic partner,

the members. Their influence has accordingly

the USA, have increased during the crisis. The

already visibly declined.

new president, so enthusiastically welcomed

in Europe has revealed himself to be a cool and

One could, however, argue that it is not pre-

calculating (too cool and calculating for many

dominantly about quantity but rather quality.

Europeans) pragmatist, for whom questions of

But Europe does not have much of that either.

status and cultural tradition are only marginal.

Europeans have been totally unable to pool what

For him, Europe is only the first port of call when

power they still have for more efficient use. They

it can help him solve a problem. It is on this point

are still overrepresented but rarely able to speak

that the Europeans begin to have difficulties. Post

with one voice. Even when they can, they are easy

Cold War, Europe is only a second rank geopo-

to drive apart during negotiations. This always

litical space for the Americans. Europeans are not

presents the other side with the advantage of

even required to act as creditors. This role has now

being able to choose with whom they prefer to talk

been taken over by China and Japan. On the other

when they need to break down the common front.

hand, the USA is still strategically relevant for the

European politicians pursuing personal prestige

Europeans as it is only with American help that

manage to do the rest. What is also difficult to

they can guarantee their own security. In addi-

grasp is why EU Member States, in their current

tion, they are unable to implement any significant

difficult situation have chosen such colourless

action within the framework of the Common

personalities as their new foreign policy leaders.

Security and Defence Policy (CSDF) without the

agreement of the USA, as they are dependent

The crisis has made the chance of any fur-

upon the leadership and intelligence structures of

ther, especially any swift, enlargement practically

NATO. Finally, the way the USA chooses to get out

impossible. This is particularly critical for devel-

of the current financial and economic crisis will

opment and stability in the Balkans, where what

determine the EU’s room for manoeuvre. So far,

little improvement in their standard of living has

it appears that the US speeded up deficit policy

been achieved after the long years of conflict, is

will only make it more difficult for the Europeans

now threatened by the recession. Frustration is

to agree a common agenda to tackle the crisis. An

growing and in the Balkans this can explode at

additional factor is the new division of the world

any time. It will be even more difficult for the EU

into countries with trade surpluses (the bad) and

to keep the Balkan countries on the path to demo-

those with trade deficits (the good). The USA’s

cratic transformation if the reward for progress

historical unipolar moment would appear, in the

(requiring economic and social sacrifices), recedes

classical sense, to have passed. It has, however, for

too far into the future. Just how Turkey’s EU mem-

some time regained its status as the world’s lead-

bership will be possible given current economic

ing power not least because of its unimaginable $1

and political conditions is something that not

800 billion deficit63 that makes it more relevant to

even its strongest supporters know how to deal

the working of the system than all the large banks

with. It would seem that the EU has lost one of its

in the world. Every country in the world would try

most important strategic options, namely to bring

to avert it going under.

within its borders a new global trading hub. It also

misses its one long-term opportunity to show that

During the last year and a half, Russia has

a country with an Islamic background can also be

shown itself to be very cooperative and anxious to

a stable democracy in which human and women’s

improve its relations with the West. It is possible

rights are observed and minorities defended.

that this new policy is down to the crisis. After the

63 http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt_histo5.htm;

http://www.bundesfinanzministerium.de/DE/Presse/Reden_20und_20Interviews/01072009__DGB-Fachkongress.html 56 CAN EUROPE RISE TO THE CHALLENGE?

successful completion of the nuclear arms control

reaching a common EU position on other impor-

treaty between the USA and Russia, Russian sup-

tant foreign policy issues difficult.

port on Iran and the thawing of Polish-Russian

relations, it would appear that conditions are now

The Greek military budget cuts could, how-

favourable even for use of the reset button in EU

ever, have an overall positive effect. A relaxation

Russian relations. Russia needs western know

in Turkish-Greek relations would unblock many

how to modernise its economy. Europeans could

issues in NATO and the EU and make it easier to

consume Russian raw materials, providing a key

find a solution to the Cyprus conflict. On average

market. Both sides have an interest in expanding

the EU spends less than 1.7% of GDP on defence.

and deepening their relations that, given the new

If there are further cuts, the EU will find it even

global order, also offer a new strategic outlook.

more difficult than at present to participate in UN

Why should a stable and democratic Russia not

peacekeeping or peace enforcement missions

become a member of the EU? And why should

and provide UN-mandated civilian military CSDP

the EU do without a stable and democratic Russia

missions. We will therefore see fewer of these

as part of the Union?

CSDP missions in future but those we provide may

be restricted to training missions for military and

Empty treasuries reduce options

police, whose value for the maintenance of stabil-

ity has become even more important in recent

Fourthly, empty treasuries reduce political

times. In addition, for budgetary reasons the EU

options at all levels. The EU is still the largest

should shy away from becoming involved in cri-

development aid donor. Nobody at the UN, how-

sis situations far from its area. This will primarily

ever, still believes that Europe will be able to

affect Africa which has most need of engagement

meet the agreed 2015 Millennium goals. As a

from the international community and where the

result of the crisis both the EU and its Member

EU is especially in demand to assist with human

States will be looking very carefully at other for-

rights, the protection of minorities and good gov-

eign and security policy areas. Programmes to

ernance. The EU’s contribution to a more stable

advance human rights, democracy, a market

and secure world will therefore scarcely be much

economy, the rule of law and good governance

greater than at present. Less security and stability

will not escape the red pen. Funding for interna-

in the world will also mean less security and sta-

tional cultural activities, not be underestimated

bility for the citizens of the EU.

as a means of furthering understanding between

countries, will be even more difficult to come by

One cannot anticipate if Europe’s political

than at present.

class will finally find the strength and will to use the

crisis as an opportunity to throw off the pettiness

Defence budgets will be disproportionately

and bureaucracy of their usual policies and create

slashed and this is already happening. The risk

a political union. The crisis is certainly big enough

of war in Europe is as low as it has ever been but

and Europe’s future certainly looks dark enough.

there is no similar feeling about security. Central

and eastern European countries are suspicious of

For years, there have been plans (although

Russian intentions. As Europe is unable to defend

given current problems they are only of minor

itself without NATO assistance and is therefore

significance), as to how more security/defence

dependent on the USA, we cannot rule out that

can be obtained with less money by means of

American interests in eastern Europe, given

common procurement procedure, pooling of

Europe’s ever decreasing military capability, will

resources and getting rid of duplicated structures.

need to be taken even more into account. What

New foreign and security policy structures such

this actually means for EU policy towards Russia

as the European External Action Service (EEAS)

is not only visible in the area of American missile

will provide opportunities to save money without

defence planning. Pro-American calculations in

having to give up political goals. We could start

some Member States will also repeatedly make

by dismantling structures duplicated within the

8. Stefani WeiSS The Effects of the Crisis on the EU’s Foreign and Security Policy

57

EU’s own bureaucracy, make more efficient and

colleague Voltaire. Voltaire’s hero Candide, hav-

considered use of available instruments and fin-

ing seen enough of the world’s misery, retreated

ish with Member States saving money by using

to his garden that he looked after most carefully.

EEAS for their representation in third countries

Would this be sufficient for Europe to make its

or international organisations instead of national

mark in a globalised world? We shall see. Certainly

embassies.

more attention paid to our own European garden

would not do any harm. Today there is a lot of talk

If, more than two hundred years after Kant’s

about the EU having to be a visible global player.

writings on Perpetual Peace, Europeans have no

This is possibly true but to do this it will be abso-

wish to follow one of their most enlightened phi-

lutely necessary for the Union to first cultivate its

losophers and found a ‘republican United States

own garden.

of Europe’, then they should at least listen to his

Stefani anna Weiss (1960) studied politics, international law and sociology at the

University of Bonn. From 1992 to 1999 she was head of the European Law and

Politics programme at the Gustav Stresemann Institute. Before becoming director

(Future of Europe/International Governance) in 2007 at the Brussels’ office of

the Bertelsmann Foundation, she was project manager for European foreign and

security policy in Gütersloh. Stefani Weiss spent a sabbatical year 2009-10 in the

office of MEP and Green foreign policy spokesperson Franziska Brantner.

58 CAN EUROPE RISE TO THE CHALLENGE?

9. DAvID KRáL

The Impact of the Economic Crisis on EU

Enlargement and Eastern Partnership

Assessing the impact of the financial and eco-

sion in 1973, the EU has grown gradually every

nomic crisis on EU enlargement is rather complex,

decade: from the original six founding members

as it is a long-term process that does not influ-

to the current twenty-seven. Enlargement is not a

ence the day-to-day life of the Union. This article

separate policy area in the founding treaties. The

will argue that the short-term impact of the crisis

basic legal framework is defined only in Article

on further expansion of the Union is limited, as

49 (with a reference to Article 6) of the Treaty on

enlargement does not represent an immediate

European Union, which states “any European

challenge to the EU, except for the possible forth-

State which respects the principles set out in

coming accession of two countries – Croatia and

Article 6(1) may apply to become a member of the

Iceland still possible under this financial perspec-

Union”. This article has been based on decisions

tive (2007-2013). However, the long-term impact

adopted by various EU institutions, of which the

ultimately linked to the will of current EU members

most important are the European Council con-

to pay for poorer members of the club and other

clusions of December 1993, generally known as

associated risks, is potentially far more important.

the Copenhagen criteria.64

The crisis has certainly contributed further to scep-

ticism of both the political leadership and public

Some pundits have argued that the EU does

opinion across the EU and to ‘enlargement fatigue’.

not have a foreign policy, only an enlargement

These factors will potentially complicate the whole

policy. This ultimately expresses a widely shared

process, as it will be increasingly difficult to sell

assessment of the enlargement as a powerful tool

enlargement to the domestic electorate should

through which the EU exerts its soft power and

the negative consequences of the crisis endure.

transformative potential. The Union using its nor-

The outcome of the recent crisis in the euro zone

mative influence pushes the candidate countries

further exacerbates concerns about the future

to adopt its acquis communautaire and undertake

homogeneity of the EU and the sustainability of

the reforms that will make it possible for a given

solidarity as Member States face serious problems.

country to function as an EU member. This was

The main challenges to EU enlargement policy at

particularly important in the case of the southern

the moment, however, lie equally in the political

enlargement to Greece, Spain and Portugal, as

and economic domains as well as in the EU and

well as the ‘big bang’ enlargement to the former

those countries hoping to join it.

communist countries of Central and Eastern

Europe. Enlargement, however, has caused con-

Enlargement – the success story of

cerns about the functioning of the Union which

EU external relations

now includes more countries and precipitated

a parallel process of reforming decision-mak-

Enlargement has been part of the EU agenda

ing and adjusting EU institutional structures.

since as early as the 1960s. Since the first expan-

Furthermore, the big bang expansion of 2004

64 The Copenhagen criteria lay down entry requirements for applicant countries. They were particularly designed for the former communist countries of Central and Eastern Europe. Politically, the candidate countries must be functioning democracies, have stable institutions and respect the rule of law and human rights, especially minority rights. Economically they must be functioning market economies and their companies must be able to withstand the competitive pressures of the EU internal market. The candidate countries must also adopt European legislation, known as the acquis communautaire. For its part, the EU has to be prepared (mainly institutionally) to accept new members.

9. DAvID KRáL The Impact of the Economic Crisis on EU Enlargement and Eastern Partnership 59

has raised questions as to how far the enlarge-

But the Icelandic bid could still have negative

ment process can go, as the founding treaties do

repercussions. Firstly, there is the unsettled deal

not specify criteria allowing us to judge whether

between Iceland, the UK and the Netherlands,

a country is European or not. The Union has so

who are seeking compensation for their citizens,

far made a political promise to integrate the

who were Landsbanki Icesave clients. The agree-

countries of the Western Balkans and Turkey (the

ment, enacted in December 2009, was massively

eligibility of Iceland, Norway and Switzerland is

rejected by the Icelanders in a referendum held in

not being contested), while no promises have

March 2010.65 Both the UK and the Netherlands

been made to eastern European countries such as

have been using EU accession as a bargaining chip

Ukraine, Moldova or Belarus. Instead, the EU has

to get better terms in the Icesave case. The result

conceived a new policy of the so-called Eastern

is an Icelandic public opinion that is increasingly

Partnership (EaP), aimed primarily at a form of

anxious and, which despite its initial support EU

economic integration for the EU neighbours on

accession negotiations, now views the pressure

the model of the European Economic Area (EEA

exerted on Iceland as unjust. By the time accession

an organisation for developed European coun-

negotiations are completed, the memory of this

tries that are not in the EU).

case, along with that of the humiliating search for

foreign aid to avoid sovereign debt default might

Icelandic bid – uncomplicated

well result in a repetition of the ‘Norwegian sce-

only seemingly?

nario’. This is when a country, despite being totally

ready for EU membership, cannot join because of

Iceland is the only one of the current candi-

a negative referendum outcome. One must also

dates whose accession aspirations are a direct

not forget that there is at least one very conten-

consequence of the economic crisis. The sharp

tious issue to be negotiated – fisheries, which is

depreciation of the Icelandic króna (falling by

extremely important for Iceland, accounting for

half against the euro since January 2008), surging

almost half of its exports and roughly 10% of its

external debt (currently exceeding 100% of GDP),

GDP. There is the possibility that if the accession

a growing budget deficit (around 18% of GDP in

deal negotiated is not deemed satisfactory by the

2009) and the necessity of International Monetary

Icelanders, this will further contribute to a nega-

Fund intervention, precipitated an early election

tive referendum outcome.

in April 2009, in the aftermath of which the new

coalition government decided to apply for full EU

Likewise, one of the main incentives for apply-

membership in July 2009.

ing for EU membership was the promise of early

euro adoption, regarded as a safeguard against

It is generally assumed that the accession of

a repetition of the financial meltdown. With the

Iceland will be a relatively easy exercise, as the

huge budget deficit and external debt, however,

country already fulfils most of the criteria. It is an

it might be very difficult for Iceland to meet the

established democracy (unlike other candidate

Maastricht criteria in the near future. Moreover,

countries) and despite the economic turmoil of

the current crisis in the euro zone, the discus-

the past two years and the sharp drop in GDP it

sion on stricter measures against Member States

is still wealthy and through its membership of the

breaching budgetary discipline and the commis-

EEA has already adopted around two thirds of the

sion proposals for an ex-ante review of national

EU acquis. Moreover, Iceland is a member of the

budgets will be factors that the Icelandic govern-

Schengen Area and the European public opinion

ment and people might find difficult to accept. It

is relatively favourable towards it joining the EU.

remains to be seen whether the current proposals

65 The referendum was held because President Grimsson refused to sign the requisite law and called a referendum on the issue. Only 1.5% voted in the referendum in favour of the deal.

60 CAN EUROPE RISE TO THE CHALLENGE?

will be accepted at all, as many EU Member States

However, thinking of possible long-term

are already in flagrant breach of the Stability and

impacts of the economic crisis, the current budg-

Growth Pact rules and might thus not be ready to

etary crises in the EU could indeed prove lethal for

impose stricter sanctions on themselves. In any

enlargement. What is at stake is very much one of

case, it will be much harder to accept countries

the very basic principles of European integration

with serious budgetary difficulties and Iceland

– solidarity. The lessons learnt from the massive

might remain in that category for some time

rescue packages (committed from national budg-

to come. All this suggests that the accession of

ets) to save the sinking economies of Greece and

Iceland, albeit seemingly only a technical exer-

other European countries possibly facing similar

cise, might not materialise so easily, if at all.

problems will make it very difficult to increase the

EU budget to finance the gradual convergence

Budgetary impacts – negligible at the

of acceding countries. Looking at the countries

moment, crucial in the long run

in the EU waiting room, they will all need, and

indeed expect, big transfers from the EU budget

The reason why the economic crisis has had

as they are all relatively poor compared to the rest

a relatively marginal effect on enlargement policy

of the EU. In the case of the Western Balkan coun-

is that the financing of the EU enlargement proc-

tries, their relatively small size will mean that their

ess has little impact on the EU budget and no

impact on potential future EU budgets will not be

direct consequence for national budgets, many of

so dramatic. However, a big question mark hangs

which are seriously affected by the crisis. Most of

over the costs of future Turkish EU accession.

the pre-enlargement costs are financed through

In the past, Turkey has been growing at a much

the so-called Instruments of Pre-Accession (IPA),

faster pace than the EU (and especially the euro

which account for some €12.9 billion for the current

zone). As its accession timeline is rather unclear,

financial perspective (2007-2013), around 1.3% of

it is quite possible that the potential transfers to

the EU budget annually. The eventual impact on

Turkey (e. g. within the framework of regional

the EU budget when the candidate countries join is

policy) will not be as high as currently feared by

difficult to predict at this moment. Currently, only

many Member States as it will be rapidly converg-

two countries enjoy a realistic chance of joining

ing with the European economy. A lot will depend

in this financial perspective (2007-2013), namely

on the structure and size of the EU budget by the

Croatia and Iceland. In both cases, neither a major

time Turkey is ready to join but heated debate can

reshuffle in budgetary transfers nor any substan-

be expected in this respect.

tial rise in the EU budget is likely to be precipitated

by their accession. Both countries represent rela-

In the context of the economic crisis it is

tively small economies compared to the rest of

becoming evident that the support of Germany

the EU. Iceland, despite the recent economic tur-

for the enlargement process will be more crucial

moil, will probably be a net contributor to the EU

than ever before. This was already the case for the

budget. Croatia, although currently economically

2004 expansion, when Germany was the engine

in a fitter position than some EU members, is likely

driving the process. Now, the voice of Germany

to become a net recipient that might eventually

as the biggest economy and the biggest paymas-

deprive the biggest current net recipients (namely

ter to the EU budget is becoming even louder.

Poland and Romania) of some of their regional

Public opinion in Germany at the moment is

funds. Due to the current stalemate in accession

outraged that Germans are paying so much for

negotiations, it is becoming increasingly likely that

other countries’ problems. This sentiment is

the deal on the next financial perspective will be

also likely to spill over into enlargement and will

hammered out without these countries being on

make it very hard for any German government

board. This is another reason why possible con-

to maintain the same level of support for further

cerns vis-à-vis the EU budget will not significantly

expansion of the Union.

influence current EU enlargement dynamics.

9. DAvID KRáL The Impact of the Economic Crisis on EU Enlargement and Eastern Partnership 61

Loss of political momentum as an out-

need to rethink some of the ground rules of the

come of economic problems?

founding treaties regarding economic and mon-

etary policies. Potentially, other big issues will be

Despite all the possible economic repercus-

on the table, such as the system of EU economic

sions described above, the problem with future

governance, as well as the size and the struc-

enlargement of the EU is largely – and perhaps

ture of the EU budget. Clearly, there is a risk that

mainly – political. The key problem is the lack of

Europe will again become more inward looking

political backing for further enlargement on the

and the necessary momentum for the enlarge-

part of both EU leadership and public opinion.

ment process, expected to follow the adoption

Enlargement has lost much of the symbolism

of the Lisbon treaty, will be lost. Unlike the past

associated with the last wave, when it was viewed

decade, enlargement is not at the top of the EU

as the reunification of Europe, so long artificially

agenda and in the current context it is hard to

divided by the Iron Curtain. This symbolism still

imagine it will be there any time soon.

somehow prevails in relation to the Western

Balkans. The determination of the EU to bring

Sceptical public opinion across the EU is

them in – there is a relative political consensus on

another major obstacle. Although it is not an

this – is viewed as part of Europe’s responsibility

entirely new phenomenon (there was opposition,

for a region that suffered immensely from armed

particularly in some countries, to previous expan-

conflict in the former Yugoslavia in 1990s, while

sion), it has recently been growing considerably.

the rest of the continent was enjoying closer inte-

The worrying trend is that even in the countries

gration and embarking on eastward expansion.

where there was relatively strong support for

There is, however, not such symbolism vis-à-vis

enlargement (like latecomers to the EU such as

Turkey. The EU, despite all the political decisions

the Czech Republic) support is now more luke-

and promises made, is trapped in endless debates

warm. The economic crisis is likely to strengthen

as to whether the offer of full membership to

the opposition to enlargement even further. With

Turkey was the right step and whether Turkey has

the bleak prospects for economic recovery, high

sufficient European credentials to be able to meet

unemployment, falling social standards and the

the EU’s conditions.

basic questions of certain countries assuming

responsibility for the problems of others, it will

Much of the current doubts should have been

be increasingly difficult to argue that countries,

removed by the entry into force of the Lisbon

which are in general poorer and not-so-well gov-

treaty. Much lack of enthusiasm for enlargement

erned, should be entitled to join in.

was due to the inability of the EU to function effi-

ciently without the necessary institutional and

This process has also had consequences in

decision-making adjustments. It was assumed

the candidate countries. The political elites, as

that once the EU had sorted out its internal busi-

well as the public, are aware that enlargement

ness, it would be able to focus more on its external

is no longer a grand project for the EU. This is

functions, including a new boost to the enlarge-

reflected in declining support in some candidate

ment process. The Lisbon treaty has come into

countries, namely Turkey66 and Croatia,67 for EU

force but there seems to have been little change

membership. Current internal squabbles and

in attitude. The crisis in the euro zone potentially

controversies in the EU as to how to tackle the

endangers credibility of the single currency, as

economic and sovereign debt crises also make it

well as the much-expected economic recovery

a less attractive club to join. Messages from some

across the EU. Germany is already calling for the

EU leaders, namely Angela Merkel and Nicolas

66 Comparing the Eurobarometer 72 autumn 2009 to the Eurobarometer 62 autumn 2004, the support for EU

membership in Turkey fell from 80% in 2004 to 45% in autumn 2009.

67 According to Eurobarometer 72 autumn 2009, only 24% of Croats believe that EU membership would be a good thing, while 37% believe it is bad, and 35% believe it would be neither good nor bad.

62 CAN EUROPE RISE TO THE CHALLENGE?

Sarkozy, contesting Turkish accession have led to

Eastern Partnership – an offer

declining enthusiasm among the Turkish leader-

not attractive enough?

ship to pursue the process with the same vigour.

They have also begun to explore alternatives to EU

As already mentioned, the EU is not ready

accession, although this has never been explicitly

to promise membership to anyone beyond the

admitted by the Turkish government. In contrast,

Western Balkan countries and Turkey at the

for many countries, particularly in the Western

moment. However, it is in the EU’s strategic inter-

Balkans, EU membership still represents a bea-

est to make sure that countries in its eastern

con of hope and a stable anchor in the swiftly

(as well as southern) neighbourhood gravitate

changing international environment, providing

towards its model of political and economic gov-

the only way forward to ensure future stability

ernance. To this end the Union proposed a model

and prosperity.

of mutual relations with the eastern European

countries, known as the Eastern Partnership,

There is another element that underlines the

which includes approximation and integration in

enduring stalemate in the enlargement process. It

areas such as the economy (comprehensive free

is not economic in nature and has become evident

trade agreements), democracy and governance,

particularly in the last few years. The problem is

energy security and people-to-people contacts.

that many EU members are using the accession

The idea is very much that the process will work

framework as leverage for settling bilateral issues

like enlargement – i. e. offering the countries some

with candidate countries. Slovenia has been

incentives (such as integration with the EU market

blocking the opening of new negotiating chapters

or a visa-free regime) in return for the adoption of

with Croatia because of a dispute over maritime

EU regulatory standards. The strongest incentive

and land borders. Cyprus has been blocking

in the enlargement process – the promise of even-

negotiations of internal market chapters because

tual membership – is not, however, included in

of Turkey’s failure to open its ports to Cypriot ves-

this policy.

sels and airplanes. Similarly, France has been

blocking five key negotiating chapters (infor-

This causes many experts to ask whether the

mally) because they allegedly imply full Turkish

incentives put on the table by the Union are suf-

membership of the EU. Greece has blocked any

ficient to achieve what it wants. Integration with

prospect of opening accession negotiations with

the European market will require major economic

Macedonia because of the dispute over its name.

reforms and legislative adjustments, not to mention

While it has always been the case that Member

structural ones, which also often bear substantial

States had bilateral disputes and issues with can-

financial costs. Similarly, in the energy domain,

didate countries, the overall accession process has

approximation to EU regulatory standards will

never before been used to the extent we have seen

require massive investments in energy infrastruc-

recently. Not only does this contribute to a bleak

ture. Countries in the region, particularly Ukraine,

outlook for further successful enlargement, it also

have also been severely affected by the economic

undermines the very process, as it has become

crisis.68 It will be very difficult for these countries to

obvious that it is not exclusively about the fulfil-

cover the costs related to EU approximation in the

ment of the membership criteria.

context of collapsing budgets, when, for instance

Ukraine is almost running out of cash to pay

pensions and public servants’ salaries.69 Eastern

neighbours expect the EU to help them bear these

68 In 2009, the Ukrainian economy shrank by 15% (see the Economist: http://www.economist.com/world/europe/

displaystory.cfm?story_id=15719286) and the budget deficit stands at around 12%.

69 The International Monetary Fund suspended its loan to Ukraine at the end of 2009 as public spending soared when the Ukrainian government failed to adopt restrictive measures to meet IMF demands.

For more see http://www.economist.com/world/europe/displaystory.cfm?story_id=E1_TVPPDQRJ

9. DAvID KRáL The Impact of the Economic Crisis on EU Enlargement and Eastern Partnership 63

costs by providing funds, currently included in

not conceived as an anti-Russian project, it is

the so-called European Neighbourhood Policy

often viewed so from Moscow and Russia is try-

Instrument (ENPI). However, the finance com-

ing to counterbalance EU activities. Often it can

mitted until 2013 amounts to some €600 million

provide stronger incentives than the EU, as the

for Eastern European countries. For countries like

recent deal with Ukraine over the extension of

Ukraine this represents a very small investment for

the Russian Black Sea fleet base in Sevastopol in

the amount of work that the EU requires. Moreover,

return for cheap gas has illustrated. Thus, the EU

there is competition as to how much money will

will have to think carefully about how to make the

go to eastern and how much to southern neigh-

Eastern Partnership project attractive for Eastern

bours. This will surely become part of the internal

European countries but at the same time not

EU debate when negotiations on the next financial

damaging its strategic ties with Russia.

perspective (2014-2020) start. But whatever the

proportion between the two finally turns out to be,

What the EU could and should do

it is quite unlikely that for the present the EU will

be willing to assign substantially more funds to the

There is no doubt that in order to enable

neighbourhood policy. Although one can argue

enlargement to carry on successfully a lot needs

that the EU’s offer is more comprehensive than just

to be done both on the part of the EU as well as

providing funding, the governments of applicant

the candidate countries. We will examine possible

countries, facing serious economic turmoil, can-

ways for the EU to achieve its part of the equation.

not think too much beyond this at the moment.

Broadly speaking, enlargement is again

On the other hand, the EU is not ready to

becoming a matter of strategic choice for the EU.

move forward swiftly with issues such as lifting

It might try to keep up the momentum, in which

the visa requirement for the citizens of neighbour-

case it has to take a much more pro-active role

ing countries. EU-citizens are largely concerned

to show that it is still a part of its broad agenda.

about the possible influx of illegal migrants from

If it keeps sending mixed messages to the can-

eastern Europe, aggravated by the current high

didate countries, this will result in the loss of its

unemployment rates in the EU. Although there

soft power in the neighbourhood and, in cases

might not be a discernible justification for post-

like Turkey, might even lead to the consideration

poning the visa liberalisation process (which still

of alternatives. If the EU goes for the first option,

requires many adjustment on the part of eastern

it will have implications for all EU institutions.

neighbours, such as improving border controls

The commission has to use its mandate to show

and passport safety), politically the Member

leadership in the same way it did in the late 1990s

States are not willing to get this process moving

and early 2000s. The Member States need to stop

too swiftly. This removes another powerful incen-

abusing the accession talks for the settlement of

tive for eastern European countries to see the

bilateral disputes with the candidate countries –

Eastern Partnership as an attractive project.

these need to be strictly decoupled. The European

Parliament, as the only directly elected body, along

Moreover, the countries in the eastern neigh-

with the European Commission and the Member

bourhood, unlike the southern neighbours, have

States, should engage much more closely with EU

another powerful model towards which they

citizens in discussing the pitfalls and opportuni-

can gravitate – Russia. At the moment, the EU’s

ties of further enlargement, as undoubtedly one

influence compared to Russia is limited by many

of the reasons for the current scepticism is the

factors – historical, cultural, and linguistic. Russia

lack of constructive public debate in the Member

is consistently building up its soft power in the

States. The debate should also try to underline

region through economic ties and media and,

that enlargement is a long-term, strategic con-

as the example of the Russian-Georgian conflict

cept, which cannot necessarily be measured in

suggests, is ready to employ even hard power.

terms of short-term balance sheets.

Although the Eastern Partnership is definitely

64 CAN EUROPE RISE TO THE CHALLENGE?

If the EU is sincere about continuing the

will open even further. Although the EU might

enlargement process, it should strive to have the

not know the answer to this dilemma today, it will

assessment of the candidate countries done by

need to acknowledge it exists.

the commission as soon as possible (this is cur-

rently being blocked by some Member States) and

Things get even more complicated when one

strive for an early launch of negotiations. Lessons

looks at the European Neighbourhood Policy and

could also be drawn from the 2004 enlarge-

particularly the Eastern Partnership. As men-

ment. Obviously, the countries will not be ready

tioned before, the EU is neither ready to provide

the moment they start the talks but most of the

an explicit promise of membership to eastern

work can be done while negotiating, because the

European countries nor to commit substantially

‘homework’ for the candidate countries will be

more funds to help those countries functionally

defined much more precisely. Moreover, having

integrate into the EU. The basic problem lies in

parallel negotiations with a number of countries

the fact that the European Union, convinced of

will create a healthy competitive pressure – the

the attractiveness of its own model, does not take

famous ‘regatta principle’,70 which worked in 2004

into account the different political, economic

is currently badly missed. This is also one of the

and social contexts of current eastern neighbours

reasons why progress in the candidate countries

compared to central European enlargement or

is so slow.

even the Western Balkans. With limited finan-

cial commitments and a lack of political will to

A very important part of the question will also

proceed quickly with integrating the countries

be how much the EU is willing to pay for future

into the EU market, the Union has to think care-

enlargement? In principle, the EU should not ask

fully about its strategy and steps. One possible

whether it will take in the countries of Western

approach would be a strong engagement with and

Balkans, as they undoubtedly are legally entitled

support for civil society in eastern Europe. Many

to join (Article 49) or even Turkey, which has

of these countries (particularly Ukraine) have

already been repeatedly recognised as eligible for

vivid, pro European nongovernmental organisa-

membership, but solely how much of a cost it can

tions that can work as an engine of approximation

carry. In the context of the recent economic melt-

with the EU and create bottom-up pressure on

down and uncertain prospects of recovery, it is

their respective governments to carry on with the

legitimate to expect that the European Union will

European agenda. The EU is better suited to sup-

not be as generous to future members as in the

port civil society than Russia and this might give

past. But a more open and sincere debate in this

the Union a certain comparative advantage but

respect is certainly needed, as both parties will

it needs to commit more funds to civil society as

need to know what is on the table. The problem

part of ENPI. This would not necessarily be diffi-

with this is multilayered: the accession timeline

cult, as the sums involved would still be relatively

is absolutely unclear due to the stagnation of the

modest compared to the technical assistance

enlargement process; the debates on the future

provided to the governments. It also needs to

structure and size of the EU budget beyond 2013

make local NGO access to these funds as easy

have yet to start and the eventual impact of the

and flexible as possible. As for the incentives the

financial and economic crisis, which will cer-

EU is providing within the framework of Eastern

tainly influence these debates is still unclear (with

Partnership, it is necessary that there are some

the sovereign debt crisis still underway). It is quite

tangible interim results before the long-term goal

possible that the gap between the desired policy

of creating the neighbourhood economic com-

outcome, (integrating the candidate countries)

munity is achieved. For instance, although the EU

and the lack of financial means to achieve this,

is not ready to lift visa requirements immediately,

70 The principle (advocated by some Member States at the December 1997 Luxembourg European Council) whereby accession negotiations with all applicants would begin at the same time.

9. DAvID KRáL The Impact of the Economic Crisis on EU Enlargement and Eastern Partnership 65

it can make it easier for young people and students

mously to create a positive image among the young

to visit and work in the EU during the summer and

generation of Ukrainians, Moldovans or Georgians.

learn about the culture and language. Similar pro-

This in turn could help create a new pro-European

grammes such as ‘Work and Travel’ are successful in

generation capable of pushing for better alignment

the USA, Canada and Australia. This will help enor-

with the EU.

David Král graduated from the Law Faculty at Charles University in Prague. He

has served as the director of EUROPEUM Institute for European Policy since 2000

and lectured at the Metropolitan University in Prague and at the Charles University

– Faculty of Social Sciences. During the work of the Convention on the Future of

Europe and the Intergovernmental Conference 2003/2004 he was a member of

the advisory groups for the Minister of Foreign Affairs and the Prime Minister

and a member of the advisory group on foreign relations to the Vice-Premier for

EU affairs before and during the Czech EU presidency in 2009. He serves on the

Board of PASOS (Policy Association for an Open Society) which brings together think-tanks and policy institutes from central and eastern Europe and newly independent states. His main areas of expertise in EUROPEUM include EU constitutional and institutional issues, EU enlargement, EU external relations, Common Foreign and Security Policy and transatlantic relations.

66 CAN EUROPE RISE TO THE CHALLENGE?

10. KARIN ULMER

How the Global Economic Crisis has Impacted on

EU Trade and Development Policy71

Money, money, money, it’s a rich

ing world. These agreements, and the thinking

(but confused) man’s world

behind them, illustrate the incoherence and

contradictions at the core of EU trade and devel-

“What Europe does is no longer important”,

opment policy.

Prem Shankar Jha, an Indian economist and

philosopher told ZEIT magazine earlier this year

The most recent and articulate critique of EU

(Blume, 2010). Even if Europe wanted to impose

trade policies in the developing world was set out

climate change legislation on the whole world,

by the UN Commission of Experts on the Financial

he said, India and China would do what they

and Monetary System, led by the US Nobel Prize-

thought necessary (or possible) with or without

winning economist Joseph Stiglitz. One of its most

anyone else’s say-so. It is now clear that the major

significant findings is that developing countries

player in combating climate change is not the EU,

bound by bilateral trade arrangements, not just

whose lack of collective political will, long a prob-

with the EU, risk finding it more, not less, difficult

lem, has been exposed for all to see by the euro

to respond to crisis.

crisis. ‘Chindia’, as the economic shorthand goes,

matters more, and increasingly so do emerging

Stiglitz tackles the root of the hitherto accepted

powers like Brazil.

Washington Consensus72 about the best way of

doing things – which is, in essence, free trade, and

None of this is entirely new. Even before the

as much as possible of it. “Imposed conditional-

global economic crisis of 2009-10, the assump-

ity, in particular macroeconomic conditionality

tions underlying the EU's way of doing things were

means significant loss of economic sovereignty

starting to look questionable. But the EU seemed

and needs to be lifted,”73 the Stiglitz Commission

as complacent as ever about the well being of the

argues. In other words, if there is a way out of the

global economic system and immune to doubts

economic maelstrom, it is not the one currently

about its role in the world. Nowhere was this more

being pursued.

evident than in EU trade and development poli-

cies, for long a matter for self-congratulation (the

A sine qua non of changing the EU's approach

EU is the largest aid donor in the world) even as

is a more candid approach to what has gone

recipient countries expressed dismay and made

wrong in the EU itself. Europe has stopped soar-

deals with China in sub-Saharan Africa.

ing economically skywards; it is the victim of the

same processes as everyone else. In the absence

The main friction, as I will argue in more

of a fiscal union and inadequate political will,

detail below, relates to the EU's strategy of bilat-

the EU currently resembles a beached whale. It

eral Economic Partnerships Agreements, or EPAs,

hoped for the best and avoided painful decisions.

which are central to EU policy in the develop-

Faulty or downright fraudulent economic data,

71 The views expressed in this article are those of the author and do not necessarily represent the views of APRODEV

(see footnote 77 and biography).

72 Describes a set of specific economic policy prescriptions that constitutes the standard reform package of Washington based institutions such as the International Monetary Fond and the World Bank. The term became a synonym for neo-liberal policies in support of an expanding role of free markets and constraints on states with its mantra of

‘stabilise, privatise and liberalise’.

73 Draft report of the Stiglitz Commission, UNCTAD, 12 March 2009, Geneva. (Italics in text by the author).

10. KARIN ULMER How the Global Economic Crisis has Impacted on EU Trade and Development Policy 67

for example, were apparently not too important

disguised form, bad loans to the rest of the world

between European friends. And there was, and

− quickly provoking a disaster akin to an oil spill.

is, no fallback strategy nor obvious exit from the

It turned out there were no rules of the game to

monetary union.

deal with this kind of problem.

The EU’s lack of effective monetary policy

The immediate effect of all this for aid and

stands in stark contrast to the EU's considerable

development has been obvious, though hardly

unity in trade policy. But that unity is achieved

headline news: a shortfall in financing,74 expan-

at the cost of those supposedly being helped in

sion of lending and new debt problems and aid

the developing world. The community method of

becoming increasingly politicised and condi-

creeping, inflexible central control as the way of

tional. Aid dependency, the problem that all

doing trade with poor countries is now well estab-

actors some time ago learned had to be reduced

lished; the curious thing is how far, in practice, it

and avoided in the future, is now likely to be per-

is on a collision course with diverse or resisting

petuated. So far there is little evidence of the EU,

economic realities.

or donor countries, looking hard at better ways of

doing things.

The end effect is a muddle, which does the EU

little credit: what the EU gives with one hand, in

Is aid for trade not, after all, the best

aid, is taken by another with trade. This incoher-

development vehicle?

ence is nowhere more glaring than in the contrast

between stated EU objectives of poverty reduction

The OECD's Paris Declaration on Aid Effec-

and the trade policies outlined in Global Europe.

tiveness (March 2005) subjects aid recipients to

a discipline of collective control by the donors

Getting the sums wrong

right down to the village level (Mkapa, in Tandon:

2008). Aid for trade is tied to domestic economic

The WTO's Doha Development Round was

and policy reforms, which in turn are locked into

based on the proposition that trade was the

the dogma of ‘free trade’.

equation of subsidies and tariffs. But ever larger

subsidies and more recently the huge market dis-

It is and always has been routinely assumed

tortions created by bailing out companies and

that development will be achieved with aid and

banks in developed countries have undermined

financial transfers of one kind or another and

global competition. And with it has gone the will-

that the most relevant relations with developing

ingness or ability to take economic risks.

countries are trade agreements, on the basis that

development is growth plus wealth accumulation.

As is now familiar, incentives for partners and

employees in the financial sector have been gro-

Such growth is to be achieved by the elimi-

tesque and occasionally verged on the criminal.

nation of tariffs and subsidies, as much foreign

To many at the bottom of the pyramid, it looked

direct investment and economic reform as possi-

suspiciously like a monopolistic power shuffling

ble, with the hoped-for result of a European-style

money to itself at the top. The problem is that

business environment. The evident wealth accu-

the whole system of corporate governance was

mulation in the private sector and ever wider gap

allowed free rein for far too long.

between the very rich and the rest is assumed to

be only temporary, the wealth destined to ‘filter

The world's economic system was torpedoed

through’ or ‘trickle down’ to the poor thanks to

by Wall Street and other markets exporting, in

market forces.

74 Of the $1.1 trillion in emergency funding that world leaders committed at the G20 summit in London in April 2009, only $240 billion is expected to go to developing countries and $50 billion to low income countries (Halifax Initiative, 2010).

68 CAN EUROPE RISE TO THE CHALLENGE?

There is also, in effect, an essential dishonesty

Development Agenda, argued earlier this year:

about ‘free trade’ being foisted on poorer coun-

“It is economic policy that has to shape and design

tries. In reality, it is nothing of the kind (APRODEV,

the trade policy, not the other way round. What is

2008). The absence of the ‘level playing field’ held

needed is to reverse the relationship between trade

dear by European economists is becoming ever

and economic policy, which has not been the case

more obvious. As for the benign trickle-down of

for many ACP countries till today.” 76

wealth, the mechanism is at best faulty and very

slow. If anything, the rich get richer and the poor,

Growth and poverty reduction do not depend

and indeed-middle class, get poorer – whether in

on more or less arbitrary exemptions from trade

the US, China or India.

rules, or increased flexibilities or preferences here

and there. First and foremost the way towards

The economic, power and knowledge rela-

poverty reduction is in the domain of domestic

tionship between the western powers and the

socio-economic policy.

south is utterly asymmetrical. Aid for trade and

technical assistance is conditional on tax reforms,

Significantly, the World Bank (Hoekman,

harmonisation of import and export regimes,

2010) confirms this view and argues that trade

product standardisation, and so on; all of this is

policy is not the most efficient development tool

geared to fit a global trading system built by and

and that the logic of comparative advantages

for the world's strongest economies.

only applies to robust, larger economies. Small

and vulnerable countries are simply not com-

Reversing the relation between trade and petitive nor of interest abroad. If that reasoning economic policy

is accepted then larger economies need to shift

their attention from wanting to do some good to

Attention to incoherence in trade and devel-

at least avoiding inflicting harm on vulnerable

opment policy has up till now focussed principally

economies.

on export subsidies for agricultural products.

This is to identify only one policy instrument.

This approach is much in line with

Numerous other policy tools and import restric-

APRODEV’s77 experience, and underlies our

tions prevent fairness in trade.75

suggestion (APRODEV, 2005) that development

benchmarks be included in the EU-ACP trade

Nowhere is this more evident than in the EU’s

negotiations, a proposal unfortunately rejected

central development strategy, the negotiation of

by the European Commission's trade negotiators

Economic Partnership Agreements (EPA) trade

and its development services.

deals with African, Caribbean and Pacific (ACP)

countries.

Straight forward but pointing in the

wrong direction?

In effect this amounts to allowing the tail of

trade policy to wag the political/economic dog.

No one could fault the consistency of EU trade

Ambassador Shree Baboo Chekitan Servansing,

policy with its global ambitions as set out in the

Mauritius’ Chief Negotiator for the WTO Doha

2010 work programme presented by EU Trade

75 For example, the Product Support Estimate as calculated by the OECD describes the value policy tools and state interventions in the market that range from safeguards, import tariffs, quality and food safety standards as well as technical barriers to trade, etc. to restrict imports of agricultural goods. Its total value is calculated by the OECD as 103 billion euro in 2008 and can represent for example up to 46% of the poultry industry profits coming from policy measures implemented by government.

76 Presentation at the Trade and Development Conference, Brussels, 16 March 2010.

77 APRODEV was founded in 1990 in order to strengthen the cooperation between the European development organisations, which work closely together with the World Council of Churches (WCC). At present, 17 development and humanitarian aid organisations cooperate through APRODEV.

10. KARIN ULMER How the Global Economic Crisis has Impacted on EU Trade and Development Policy 69

Commissioner Karel de Gucht to the European

system with policy, which is de facto the oppo-

Parliament.78 The EU is committed to securing

site – a sprawling proliferation of bilateral and

dynamic new markets with large numbers of mid-

regional FTAs.

dle-class consumers; it must access key resources

for Europe's highly integrated economy, which

Moreover, to ensure effective implementa-

depends on imports and exports alike for its value

tion of negotiated market access of these bilateral

creation and high-tech industry.

agreements, Market Access Advisory Teams have

been set up in the 30 most significant markets to

Europe also aims to remain the top destina-

monitor and, where possible, remove barriers to

tion for Foreign Direct Investment − and ensure

trade inside the borders of the relevant countries.

high-level security for investors. Every Free Trade

Businesses are working in close cooperation with

Agreement (FTA) must, in acronym-speak, be

EU delegations in these teams, have direct access

‘WTO-plus’ and aim to include services, invest-

to policy makers and are invited to play a role in

ment treaties, public procurement and enforced

designing and control of regulatory enforcement.

intellectual property rights.

In line with the EU Raw Material Strategy, the

There is, in short, no question about the con-

European Commission has pushed for amend-

sistency of EU trade policy, only about whether it

ments to Economic Partnership Agreements

accords with stated development objectives.

prohibiting new or increased export taxes. Such

provisions clearly violate a country’s sovereign

How the EU forces open

right to manage its own natural resources. 80

the doors of trade

What is more, the external mandate of the

The EU gives top priority to bilateral or

European Investment Bank includes reference to

regional trade agreements with emerging mar-

securing markets and access to raw materials for

kets. Currently, the EU has signed FTAs with

European companies: restricted access to these

South Korea, presented as the most ambitious

has caused major problems to some EU indus-

trade agreement and thus the model, with Mexico,

tries. The aim is that unless justified for security or

South Africa, Cariforum79 and Central America.

environmental reasons, restrictions on access to

Negotiations with Mercosur were re-launched in

resources should be removed. The relevant point

May 2010. Following stalemate in regional trade

here is that export taxes in some cases account

negotiations with Asian and South-East Asian

for as much or more than 20% of government

Nations (ASEAN), the European Commission

revenue. The EIB is in effect sanctioning, or even

has opened bilateral negotiations with Singapore

encouraging business actors to deprive people

and Vietnam. More negotiations are ongoing with

of their own means of substance which, properly

India, Japan, Canada, China and Russia as well as

managed, could become key domestic value-

Association Agreements in the framework of the

added products.

Eastern Partnership. Interim and comprehensive

Economic Partnership Agreements are still in

Increasingly, scarcity of natural resources is

negotiation with African and Pacific countries. It

leading to targeted long-term investment, land

is difficult to square the EU's public and suppos-

speculation and acquisition and profit-seeking

edly urgent commitment to the multilateral trade

from future carbon trading. The impact is twofold

78 Presentation to the International Committee of Trade of the European Parliament, 5 May 2010.

79 The Cariforum was created in 1992 and counts the Caribbean countries of the Caricom as well as the Dominican Republic and Cuba as members. It is a signatory to the EPAs.

80 The International Covenant on Civil and Political rights, Part 1, article 1 and article 2.ic, Article 2 provides that

“All peoples may, for their own ends, freely dispose of their natural wealth and resources without prejudice to any obligations arising out of international economic co-operation, based upon the principle of mutual benefit, and international law. In no case may a people be deprived of its own means of subsistence.”

70 CAN EUROPE RISE TO THE CHALLENGE?

and wholly unpredictable: increased pressure on

sion of the Association Agreement is, in reality,

scarce natural resources through climate change,

a step backwards on matters of democracy and

food and financial crises, while investment is

human rights.

(mis)directed into land acquisition.81

Back in 2002, when the first series of EC

The business lobby is in full agreement with

negotiating directives for bilateral free trade or

the explicit objective of DG Trade, the enforce-

association agreements were adopted, there were

ment of Intellectual Property Right provisions

already obvious injustices, which were simply

and tougher control from now on. This is in the

ignored. The Raw Material Strategy, for instance,

face of strong evidence (DCA, 2009) that better

denies third countries sovereign rights over their

IPR, far from producing more innovation at local

natural resources even though this is enshrined in

level, will choke it off.

numerous UN resolutions. Commercial interests

are hidden under the guise of a ‘green economy’,

A current public investigation at DG

unnecessary barriers being put in the way of

Competition provides evidence of the pharma-

necessary technology transfer to ease climate

ceutical industry using group patents to prevent

change. Central American or Asian governments

other successful patents applications. Exclusive

may be sovereign enough to sign human rights or

rights on knowledge and stricter IPR are coun-

social clauses as part of the conditions to access

terproductive and do not square with improving

EU markets, knowing that in case of conflict or

technology transfer and closing the technology

human rights violation they will ‘get away with

gap, including on renewable energy.

it’ – not least because of the signals from Brussels

that they do not really matter. Africa, by contrast,

Human rights slip off the edge

is held hostage by the EU's threat to withdraw

of the table

preferential market access and denounce its con-

stitutive relationship with Africa.

One consequence of the proliferation of free

trade agreements is the weakening of human

Economic Partnership Agreements –

rights standards. The Generalised System of

a litmus test?

Trade Preferences (GSP+) makes trade prefer-

ences conditional on the ratification and effective

The economic prescriptions integral to the

implementation of 27 human rights conventions.

partnership agreements are the creation of an

But the Association Agreement with Central

“effective, predictable and transparent regulatory”

America, concluded in Madrid in May 2010,

framework for trade and investment” (EC, 2009).

will contain fewer human rights provisions than

GSP+, with no mechanisms at all to guarantee

The small print does not support this. What

the implementation of the agreed human rights,

has actually developed is fragile and vulnerable

environmental and labour standards.

to the present turbulence. While EU Member

States like Germany unilaterally introduced tough

This signals a shift to trade deals and eco-

measures to prohibit harmful cross-border trans-

nomic regulatory reforms over human rights and

actions, the financial service industry was given

democracy – both key development issues in

the green light by the liberalisation commitments

Central America. The ‘upgraded’ relationship of

in the Economic Partnership Agreements signed

EU and Central America expressed in the conclu-

in 2008. The effect was to limit seriously the

81 The EU has become the world's largest net importer of agricultural produce and therefore the largest user of agricultural land that is not its own. In 2008, the EU 27 exported $127.6 billion of agricultural commodities, but imported produce valued at US$ 173.1 – a net import of $45.5 billion (OPERA, 2010). In 2008, 50% of harvested cereals were used for animal feed. Speculative investment in cereals went up from $5 billion in 2000 to $175 billion in 2007.

10. KARIN ULMER How the Global Economic Crisis has Impacted on EU Trade and Development Policy 71

Cariforum's82 capacity to regulate and deal with

Market, is presenting a proposal on how to pro-

the present crisis.

hibit dubious derivatives that risk destabilising

the Euro. That kind of rigour needs to be brought

Despite the advice that ‘too big to fail is too big

to bear on the EU's trade and development model.

to exist’, EPA Article 67 and 76 make it difficult to

Barely a year after their inception, the EPAs, with

limit the size of financial institutions if liberalised

their wide-eyed commitment to liberalisation

under an EPA. The same articles prevent firewalls

and deregulation, look painfully unrealistic and

separating deposits and secure assets from risky

out of step with the times.

investment banking. Even requiring banks to

have sufficient capital reserves of their own (or set

Closing the policy space

up a subsidiary to do this) seems to be prohibited

under Art 67.2 (e), see footnote 80.

EPA negotiations continue to be highly for-

malistic, involving a strict sequence of issues to

The EU business lobby can congratulate

be considered. Negotiations are tough, with little

itself on how far it has penetrated the EPAs. For

or no movement on the European Commission’s

instance, the Cariforum contains an explicit pro-

side. Brussels insists on the inclusion of the Most

vision to allow EU financial service suppliers to

Favoured Nation clause,83 export taxes, standstill

supply new services if the Cariforum countries

clauses84 and rendezvous clauses for services and

own financial institutions are allowed to do so.

investment negotiations.85 It rejects any mean-

This means that any Cariforum country that

ingful concessions on community levy, on rules

allows domestic hedge funds is actually obliged

of origin, safeguards and development pack-

to permit EU hedge funds to operate as well, even

ages. Most of these provisions are intended to

though these are much larger and pose a risk to

curb existing policy space or impose additional

the domestic economy.

liberalisation commitments and the approach

is ‘either-or’, lending an entirely artificial (and

What is more, the wording looks deliber-

frankly manipulative) urgency to getting agree-

ately vague. ‘Financial services’ are defined very

ment.

broadly to include derivatives and other risky

(and now notorious) new financial instruments.

Many ACP countries insist that any initialled

It is recognised that in times of financial crisis,

or signed interim EPA cannot be notified, rati-

capital control can be useful to prevent bubbles.

fied or implemented unless contentious issues

But the Cariforum EPA is drawn up in such a way

are resolved. For example, the Namibian Minister

as not to permit effective use of capital controls.

of Trade Development, Hon. Hage Geingob, in

(Smith, 2010).

his Ministerial Statement on 19 May 2010 made

plain that a bad agreement is no option; and that

At the time of writing, EU Finance Ministers

no friendly government could impose such an

are considering the whole range of policy meas-

impossible choice: between EU market access

ures to re-regulate global finance and increase

or regional integration under SACU − the South

restrictions for cross-border FDI, hedge funds,

African Customs Union (Geingob, 2010). This

compulsory capital reserves in the banking sec-

is one of many examples of the way aid is being

tor and taxes on financial transactions. Michel

politicised, with EC trade negotiators spread-

Barnier, European Commissioner for the Internal

ing blame, splitting and diverting, bullying and

82 Caribbean countries signatory to the EPA.

83 Clause obliges the Caribbean countries to give the other party (EU) the same treatment it gives to any other major trading partner (for example, the US, Japan, Brazil, China or India).

84 Clause requiring to freeze import tariffs at their current applied level.

85 Clause on the continuation of the negotiations on services and investment; however, this does not pre-judge the outcome of the negotiations.

72 CAN EUROPE RISE TO THE CHALLENGE?

patronising (ICCO, 2008) in a way, which speaks

2010, the European Commission concluded the

volumes about the level of aid dependency in

negotiations of a FTA with Peru and Colombia

ACP countries.

which would yield bananas at 75 Euro per tonne,

lower than the 114 Euro on offer in the WTO

Extractive production models inherited from

banana deal.86 The effect is likely to be not the

the colonial past have led to a non-diversified

eradication of poverty but of the entire banana

economy dependent on commodity exports to

sector in the Windward Islands.

EU markets. Increasingly, financial resources

from the European Development Fund and the

One would hope that there is a genuine recog-

European Investment Bank, and resources under

nition in Brussels trade politics of the character of

aid for trade or bilateral aid, are earmarked for

the political crisis it now confronts with the ACP.

EPA-related adjustment measures. To rub salt

There is little evidence of this yet. Rather the oppo-

in the wound, ACP countries are at best likely

site: a ‘march of the elephants’ (FES 2009) has

to recover 30% or less of lost tariff revenue from

begun involving aggressive/defensive regional

other taxation sources, following EPA liberalisa-

blocks cutting their own path irrespective of their

tion commitments (IMF Working Paper, 2005).

impact on the wider environment.

Poking a twig through the spokes

Where to go from here?

The South Centre (2008) warns of the dangers of

It may be that we have to review the whole way

a ‘hub and spokes’ arrangement: developing coun-

in which we approach the question of how to build

tries as spokes essentially become the providers of

common ground and how to value our relationship

input raw materials to European industry, whilst

as wealthy countries with poorer neighbours, and

the bulk of the transformation in production takes

recognise that systems – social institutions, mar-

place in the developed country. The alternative of

kets and economic actors – are organic, in some

expanding intra-African trade could yield significant

sense living things (Laske, 2010).

benefits to African countries in terms of diversifica-

tion and value addition (UNCTAD, 2009).

But for the time being EU trade policies and

negotiations still involve a generally mechani-

Similarly, the International Agricultural Assess-

cal, formalistic approach which threats rather

ment for Knowledge, Science and Technology for

then builds on the existing relationship. Change

Development, IAASTD, highlights the need to build

is seen as something that can be engineered,

local markets and regional food systems. Its 2008

controlled and managed. This makes it easy to

report draws attention to the risks of global markets

introduce and justify donor-driven policy reforms

and free trade policies, especially in the matter of

or a set of specific trade rules. An integrated dia-

long-term food security. Regulatory reforms are less

lectical approach would pay more attention to

important than re-establishing an atmosphere of

the key role of social process and of individuals

trust between the EU and ACP countries.

in effecting change (Ulmer, 2010). Certainly, we

need to get better and bolder at framing the rel-

Just how sour things have become was illus-

evant questions, and avoiding the kind of hollow

trated by the acrimony surrounding the EU

public relations efforts of the current European

negotiation of the WTO banana deal in 2009. This

Commission website campaign.87

eroded ACP banana preferences even further and

came just the day after the Cariforum states had

A closer look at diverse economic realities

signed their EPA. There was no prior consultation

challenges the universe of armchair economists

with Caribbean banana producers. Moreover, in

in Europe's capital. To take pluralism seriously

86 The EU finally signed an agreement on trade liberalisation with Peru and Columbia on 19 May 2010.

87 http://trade.ec.europa.eu/doclib/stories

10. KARIN ULMER How the Global Economic Crisis has Impacted on EU Trade and Development Policy 73

is to depart from a one-sided market-oriented

There are other straws in the wind, which

liberal ideology based on unrelated free individ-

suggest a shift in attitudes. Elenor Oestrum of

ual operation in an abstract perfect free market

Indiana University, who last year became the

(Raveaud, 2009). The preferences of a free indi-

first woman to receive the Nobel Laureate in Eco-

vidual consumer in sub-Saharan Africa are not

nomics, was honoured for her work on science

as a rule a matter of taste but of unavoidable con-

of cooperation – not competition. Her Govern-

straints, choosing between bad and worse, and a

ing the Commons: the Evolution of Institutions

background of grinding poverty.

for Collective Action examines the conditions

in which communities organise themselves to

“The three main assumptions of the devel-

solve common problems.

opment industry need to be re-examined: that

development can be engineered by aid, that such aid

The Business Alliance for Local Living

is actually used for development, and that outside

Economies has shown that independent, locally

practitioners can implement development policies

owned businesses can go beyond traditional

that work. … All three are debatable”, says Patrick

measures of success, leveraging the power of local

Chabal (2008), professor at King‘s College in London,

networks to build a web of local economies that

keen to improve capacity to revisit and communicate

are community-based and green.

assumptions on which policies are made.

Other ideas suggest that a fair and green

NGOs often have a strong affinity with the

economy, one that is not ‘too big to fail’ and

south, but may have an imperfect understanding

does not burden the environment, really is fea-

of the structural problems of the aid architecture

sible, reconnecting capital with the community

that is part of a broader historical and political

and promoting self-correcting local economies

process and may fail to question its basic con-

(Korten, 2010).

sensus. It is also clear that recipient governments,

especially in Africa, often lack coherent economic

The present writer hopes that the global crisis

and development policies. Where this is so, they

will challenge our thinking and in turn inspire a

are left with few alternatives to externally designed

more human and imaginative approach for how

and imposed aid and trade recipes.

we ‘do economics’. A new mode of operating must

include models that look at the role of care and

Only those who think differently can run

generosity in the functioning of the economy and

a different economy

the necessity of diminishing growth in order to

preserve the planet.

Many now question whether economic sur-

vival inevitably depends on expanding production

In its pursuit not of happiness but of an impossi-

indefinitely. But what does a balanced economic

ble or lost race for regional competitiveness, Europe

and ecological system look like? Can there be an

loses time to prepare itself for the new mindset of

equilibrium? Some initiatives point in promising

‘co-petition’ − the transit from competition to coop-

directions.

eration for global fairness and a balanced ecology.

“In a living system that has attained maturity, each

It may mark an advance that there is now a

part, entity or person pursues her/his personal

general understanding that it is perfectly possible

interest in a way that does not compromise the well-

for something that is good for GDP to be bad for

being of the whole. Thus, it is based on the principle

society and that the happiest societies are not the

of collaboration that does not disturb the interests

richest ones. It follows that if boosting GDP remains

of its parts nor the equilibrium of the network as a

our only measure of success, we could easily end

whole.” (Luyckx, 2010).88

up doing more harm than good (Damas, 2009).

88 Idem, Luyckx (2010: 77), unauthorised translation by the author.

74 CAN EUROPE RISE TO THE CHALLENGE?

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Karin Ulmer studied comparative European and applied social studies in Freiburg,

Berlin, Algiers, Maastricht and London. Currently she works as policy advisor

to APRODEV, a Brussels-based association of European development NGOs.

She specialises in trade, food security and gender issues. Karin Ulmer previously

worked with European NGOs including WIDE, EURODAD and EFIL. She also runs

European Voluntary Service programmes and inter-cultural training and has been

involved in the Euro-Arab-Dialogue under the auspices of the Council of Europe.

CAN EUROPE RISE

TO THE CHALLENGE?

EU POLICY RESPONSES TO THE

GLOBAL CRISIS

CAN EUROPE RISE TO THE CHALLENGE?

The financial and economic crisis has revealed what is

A little more than ten years after its introduction, European

wrong with globalisation: lack of global regulation, the

monetary union sees its very existence threatened. A breakup

extreme imbalance between the world’s economies and the

of the euro zone could bring Europe to a political standstill.

unequal distribution of benefit and risk. Countries that, in

To avoid such a doomsday scenario, European leaders need to

recent years, have managed to lift themselves into a state of

take action and set up a proper European economic govern-

modest affluence are in danger of being cast back into their

ance. To do this, they will need to accept both more economic

previous survival mode. A return to economic nationalism, or

integration implying loss of some national sovereignty and

more popularly protectionism, would only make things even

more solidarity involving more transfers between states. This

worse. De-globalisation is no utopia but rather a spectre of

step is a long way from becoming reality for governments

doom. Not just because it will mean a loss of wealth around

anxious to defend their prerogatives and respective national

the globe but also because economic fragmentation can

interests. The long-term durability of the euro zone, however,

foment political nationalism − remember the 1930s.

depends on bringing Europe up to date.

The crisis has cruelly exposed the shortcomings of the European

In their time, De Gaulle and Adenauer, Kohl and Mitterrand

Union. We have a single market and a single currency but

knew how to make the sort of historical compromise that

no European coordination of economic and financial policy.

helped advance the construction of Europe. If Merkel and

European economies, however, are, for better or for worse,

Sarkozy will not find the political courage to support a new

interdependent. Standing by countries up to their neck in debt

equilibrium, they will have to assume the risk that monetary

is not altruistic but a rational act.

union could fall apart and as a consequence set Europe back

more than 50 years.

Heinrich-Böll-Stiftung

European Union, Brussels

15 Rue d’Arlon – B-1050 Brussels – Belgium

T +32 2 743 41 00 F +32 2 743 41 09 E brussels@boell.eu W www.boell.eu