Convergence must return onto the EU agenda
Commentary
Paweł Świeboda
As the new European Commission settles in, its most important task should be to restart the convergence process in the European Union. Economically, convergence had stopped both with respect to the South and, somewhat less so, the East as well. Instead, there are massive pressures of fragmentation, from the banking sector to the free movement of labour. There is fragmentation between the EU and its citizens, economic fragmentation between Europe’s economies, fragmentation between states and national societies and, finally, social and political fragmentation within member states1.
In addressing this challenge, the Commission can draw upon the growing sense of interdependence between the member states’ economic prospects. This has not been obvious throughout the crisis. At its height, Germany seemed to believe that it can sufficiently rely on external demand, irrespectively of its neighbours’ fortunes. Now the realisation is much bigger that the method, which makes the South go through a painful adjustment and internal devaluation, while Germany and the North continue as the engine of growth, has reached its limits. Even in Northern Europe, “the recovery has been much slower and less powerful than after previous downturns”, leading analysts to dwell on the likelihood of the “new normal” of lower growth2. After his team’s 1990 World Cup loss, Gary Lineker famously said that “football is a simple game: 22 men chase a ball for 90 minutes and at the end, the Germans always win”. He would not say the same about EU politics today.
In economic policy, the EU has been a prisoner of dogmas. Fiscal stability has been sanctified by some, flexibility by others. Some have seen competitiveness as the panacea, others have pointed out that creating conditions for growth will not suffice when demand is supressed. The single most important reason why the EU is lagging behind the US, apart from systemic incompleteness and the risks it entails, is the productivity gap. It applies to everyone, to Germany as well as France. There is a vicious cycle of low productivity, low investment and competing too much on prices in France and low investment, low productivity and competing too much on wages in Germany. In the past, these issues had been resolved through contractual arrangements within and between the member states. When it comes to the trade-off between fiscal consolidation and reforms, the contract is being changed by default, which creates higher risks.
Europe’s new convergence agenda must have five dimensions. Firstly, it has to be about redressing Europe’s systemic and institutional incompleteness. Secondly, it must put an end to the “Forest Gump economic policy” in which supply-side and demand-side measures are taken up interchangeably without linking the two. Thirdly, the agenda should be about ensuring a level-playing field and more entrepreneurial culture. This means a robust competition policy and removing vested interests but also ensuring open and inclusive markets. It also means access to the same financial instruments for everyone. Fourthly, it should be geared towards addressing societal challenges. Finally, the convergence agenda should be about recapturing the benefits of scale. In the field of energy itself, massive savings can be made annually through market integration. Completion of TTIP can also unlock huge new markets and overcome rigidities within the system through greater competition.
Equally important as the economic convergence is the political one understood as expansion of the centre ground. The moment is transformational. Citizens who have lost out from globalisation, technological change and other structural changes increasingly feel that there is no space for them in the traditional parties and they opt to join instead one of the extremes. The growing divide within societies may not be unique to Europe but is certainly challenging to the European way of life, in which societal cohesion has been cherished. Convergence therefore is about making the centre ground relevant for people and their concerns, rather than sticking to the old battle lines between the left and the right. Crucial as it is to restoring the legitimacy of the European Union in the face of massive pressures of fragmentation, it should be central to the new Commission’s agenda.
1See the documents of the „New Pact for Europe“ Reflection Group: www.newpactforeurope.eu
2State of the Region Report 2014, Baltic Development Forum, 2014.
