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Germany needs to expand its proposal for a fiscal pact into a plan that offers incentives and support to countries that translate words into action. Germany cannot and should not save countries if they do not act to save themselves, but it can assist reformers to sustain political support. Rather than be dragged grudgingly to help bit-by-bit at the last moment, Germany and its European partners should put incentives on the table now. What might a revival plan look like?
Mario Draghi, ECB president, knows the central bank cannot bail out countries that have lost control of their finances. But he can assist reforming countries and their banks through the transition. Germany seems to be accepting this support already by stating that politicians should not criticise the ECB. Central bank assistance is also likely to lead to a depreciation of the euro, which could help stressed countries.
The European Commission, backed by the European Investment Bank, should deploy underutilised funds to match investments to countries’ structural reforms. European businesses could then support this through private investment. These steps would enable reformers to show how structural changes produce jobs and financing.
A revival plan would also embrace the fact that a fiscal union needs greater mobility of workers. Labour policies have been orientated towards old protections, not matching abilities and needs across the EU. Focusing the Commission on this new mission would ease unemployment, increase remittances and build a real economic union.
Germany also needs a vision that extends beyond the eurozone. It should prepare a path for Poland to join the euro, keep the UK as an active participant, avoid disputes over secondary issues and prevent a credit crisis in south-east Europe.
There is no simple solution to the eurozone crisis. But muddling through, without clear directions and incentives, is fraught with mounting dangers. Germany must now point the way. A clear revival plan would help. But the path and incentives need to match Europe’s capabilities, not just Germany’s. That is European leadership.
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