|
|
We recently learned that the second eurozone recession has ended. The second quarter of 2013 saw overall EU GDP growth turn positive. The latest unemployment figures confirm that joblessness has stopped rising in some countries — including Spain, Portugal and Ireland. But caution is needed. The recent improvements are minor, and the situation is still very shaky.
What is most alarming, behind the figures, is the widening gap between North and South, centre and periphery. Moreover, favourable external conditions for European consolidation may end soon, as the US Federal Reserve is edging closer to monetary tightening, and an emerging economy financial market correction looms.
For me, the conclusion from this picture is that the strategy of muddling through the eurozone crisis has run its course. It is not enough to speak about various elements of a systemic solution to the eurozone crisis. The systemic solution must urgently begin to be implemented in practice. This means that EMU 2.0 must replace the flawed Maastricht model that had originally been designed by central bankers.
The reconstruction of the monetary union means strengthening governance but also solidarity, developing regulation but also a fiscal capacity. Any system can only be as strong as its weakest link. That is why the reconstruction of the Greek economy is a fundamental question today. Since the Greek Economic Adjustment Programme was launched in 2010, a large number of ambitious — but socially very difficult — measures have been implemented. These have included cuts in the public-sector wage bill and pensions, indirect-tax increases and far-reaching pension and labour-market reforms, including a thorough redesigning of the wage-setting system and the adoption of measures to fight undeclared work. After more than three years of adjustment, the Greek economy continues to contract, and unemployment and the number of households reporting financial distress are at a record high.
We all know that the Greek financial and social situation is the most extreme within the EU, but Greece is not alone with these daunting problems. A sustainable recovery can only come if the strategy includes major steps towards a new model of the monetary union. The reconstruction of the EMU is on the table of practically everybody today. It has been widely recognised that the status quo cannot last. The only options are reconstruction or deconstruction.
The Banking Union is almost a consensual element of the new EMU 2.0. The design of its three elements is relatively advanced. When it comes to the Fiscal Union, the key elements have been identified, providing options to deal with past as well as future debts. With all due respect to central bank independence, it is also commonplace now that a currency cannot function without a lender of last resort, and in the last two years the ECB has made some important steps towards that function.
These elements by far do not exhaust all the possible considerations for a stronger monetary union, particularly if we also think about further strengthened economic governance, revenue policy, and the external representation of the single currency. Very importantly, however, in June 2013 the heads of State and Government stated quite clearly that the social dimension of Economic and Monetary Union should be strengthened, and the necessary steps discussed in the coming period.
This is a make-or-break period for European reconstruction. It is about the reform of the EMU and also about the future of Social Europe.