From the Winter 2014/2015 issue “Europe Under Fire“
What does your country need to remain viable?
Europe is in the throes of a crisis of identity—perhaps the most profound since the creation of the European Union—and one that springs from deep economic distress in many of its member states and political division both within and without. We asked a pan-European panel of experts how this crisis is affecting their corners of the continent and what their respective countries need to remain viable.
Patrick Artus : “France: Facing Zero Growth “
France has been facing zero growth over the last two quarters, and the nature of its economic problems are increasingly apparent. It suffers from a fairly widespread supply-side problem—industrial profit margins that have been declining since the early 2000s, today reaching a level that makes it all but impossible, in many cases, for selling prices to exceed production costs. This has prevented sufficient investments and modernization of capital. Numerous regulations and tax measures explain the substantial decline in residential construction. Also, the excessive cost of unskilled labor, due to a high minimum wage, has destroyed many unskilled jobs.
To solve these supply-side problems, the required economic policies are quite clear: cut government spending and reduce corporate taxes, thereby allowing production efficiency to increase. Additionally, the government must curb pay raises in companies, especially state-owned corporations where they have continually increased faster than productivity; deregulate the construction sector; and consider other methods than maintaining a high minimum wage to combat poverty.
In this sense, the problem is not the intellectual analysis of the solutions, but the political and social acceptability of these necessary policies. Explaining, persuasively, the need for such policies and leading the reforms against a strong opposition are not easy, especially for a government whose popularity has fallen to the lowest level in the history of the Fifth Republic. The French government must face the trade unions, political parties, and a public opinion influenced by Keynesian culture, which rejects government spending cuts, wage moderation, and raises in corporate profitability. Yet, understanding the necessity of these reforms is a crucial requirement for these policies to succeed.
Patrick Artus is a French economist, director of research at Natixis, and member of the think tank Le Cercle des Economistes.
Yanis Varoufakis: “Greece: Complex Equation”
Figuring out how the Greek government can become viable is like solving a complex system of equations with at least five unknowns: debt, banking losses, investment, welfare, and institutional efficiency.
In a social economy where state, taxpayers, banks, and the private sector all owe (to one another) sums that none can pay, the state’s viability thus depends on the rest. At the same time, the viability of taxpayers, businesses, and banks depends on public debt, which in turn depends on the banks shedding their immense non-performing loans, which relies on a pick-up in investment that will never happen while the state is insolvent, its people bereft of purchasing power. And the game of musical chairs continues.
Can this system of equations, or indeed disasters, be solved? Can public debt, banking losses, and under-investment be tamed to allow for a modicum of well-being to return to the Greek people in a way that makes the country governable and enables crucial efficiency-enhancing reforms?
Yes, it can. But there is a prerequisite for this solution to be achievable within the eurozone: an investment-led European New Deal that bypasses the Greek state, “Europeanizes” the Greek banks, manages essential elements of the public debt, and thus allows the government to introduce gains in efficiency that will make it truly viable in the long run.
Yanis Varoufakis is the Greek minister of finance. He is a former professor of economic theory at the University of Athens and at the Lyndon B. Johnson School of Public Affairs at the University of Texas, Austin.
Ivan Štefanec: “Slovakia: Finding Its Place”
After several decades of totalitarian reign, the Slovak Republic has found its place in a democratic and unified Europe. However, this does not mean that all problems have been solved. The impact of the economic crisis on European Union members, including Slovakia, has brought a host of challenges.
Paramount is a new economic apparatus. It should be designed in a way it can resist both economic and social disorder, and warrant the EU to remain a competitive global player. Each responsible government should approach this challenge through broad support of small and medium-sized enterprises (SMEs), which represent the fundamental pillars of each economy and a stabilizing factor in society. Unfortunately, governments, including the Slovak, often prefer state subsidies and tax reliefs for large companies and corporations over financial support to SMEs. In Slovakia, such behavior leads to political corruption and deforms the free market. The key for Slovak and European resiliency is better education and less bureaucracy surrounding SMEs.
Other challenges include a worsening security situation and the emergence of states with undemocratic regimes. Small countries like Slovakia are only able to live freely, with economic prosperity, when their neighbors are committed to the same political principles. That is why European cooperation and further strengthening of transatlantic economic and political cooperation are necessary.
Ivan Štefanec is a Slovakian European Parliament Deputy. He is a member of the European People’s Party (Christian Democrats).
David Rinaldi: “Italy: Cultural Revolution”
Italian stagnation is worrisome. Socioeconomic conditions are hardly sustainable, and the political opportunity to implement reforms in the immediate aftermath of the crisis has been wasted.
Now, Prime Minister Renzi has taken full responsibility for long-awaited reforms and is expected to reform the electoral system, the labor market, even the bicameral legislative system. Implementing such radical reforms would certainly make this government more viable. But Italy needs much more than that.
The greatest service Renzi can carry out in the interest of Italians is boosting an entire ‘cultural’ revolution. Italy must modernize, and that requires a mentality change as much as it requires a technological change. Italy desperately needs to complete the revolution in information and communications. Modernization should sweep both the public administration and private sector, particularly those thousands of SMEs, which form the core of the system of Italian production.
Meanwhile across Europe, the playing field for domestic policy has extended far beyond national borders. About 60 percent of Italian domestic policies are debated at the European level, and it is to Europe that the Italian government must look to reverse its downturn. A common European patent system or the introduction of policies supporting internal demand in the north of Europe would highly benefit Italian innovation and exports. There is ample margin for action, but there should be no illusions that Italy will get back on track overnight. Labor and political reforms are no panacea, but are a necessary condition for the Italian government to remain viable. However, to recover fully, Italy will probably have to wait for the end of a slow cultural revolution, which is a less tangible but more relevant legacy Renzi can leave.
David Rinaldi is an academic assistant at the College of Europe, Economics Department, where he supports the activities of the European Economic Integration and Business program.
Lotta Olsson: “Sweden: Realigning Values”
Sweden needs to realign with its core beliefs—a nation built on humanity, solidarity, and environmental awareness. Sweden has survived the recession, and with much greater success than most other countries. The country stands out when it comes to aid, health, economy, and equality. But lately some cracks have become noticeable in the Nordic welfare state, which have led to a recent shift in power from an eight-year-long right-wing alliance to a fragile minority government with the Social Democrats now taking over (in a coalition with Miljöpartiet, the Green Party). Investing in the school system with skilled and specialized teachers is now a major priority since Sweden has seen a dramatic drop in ranking in the Program for International Student Assessment.
The success in the recent elections of xenophobic party Sverigedemokraterna, the Swedish Democrats, puts it in a position of playing a key role in a precarious balance of power. Youth unemployment is high. At the same time, increased consumption has placed Sweden on a top-10 list of worst countries when it comes to the ecological footprint. Sweden is the primary destination within the EU for people fleeing from Syria and other ongoing conflicts. It needs to seek unity with other states to tackle this crisis and cooperate in peacekeeping as well as in other areas like climate change and trade. To stay viable, the new Swedish government must continue to nourish the creative climate that has given Sweden a trademark in the world. An economically secure and daring climate has given birth to modern digital innovations and design through such companies as IKEA, H&M, Spotify, Skype, and Mojang/Minecraft.
Lotta Olsson is a member of the Swedish Union of Journalists who has written for Dagens Nyheter, Veckans Affärer, Svenska Dagbladet, and Aftonbladet.
Milena Hristova: “Bulgaria: Caught in Crossfire”
Which flag should Bulgaria raise, which bloc should it follow—the European Union or Russia? This is the question Bulgaria faced with painful acuteness as it was caught in the political crossfire of the most perilous crisis in East-West relations since the end of the Cold War. The political leadership of the poorest EU member state, which was once the most loyal satellite of the Soviet Union, now finds itself trapped between Moscow and Brussels. The left-leaning parties seek to turn Bulgaria into a backdoor for Russian interests—a Trojan horse in the EU. The right- leaning parties lay all the blame on Putin’s servants in Bulgaria.
The new wave of political instability repels foreign investors and dashes Bulgarians’ hopes that their leaders will be able to solve the most acute problems plaguing the country—corruption, rising prices, and unemployment. Can a stable and viable government be built on such weak foundations? That may prove to be a most difficult task to achieve in the next few years.
Bulgaria needs broad support from the European Parliament abroad and its public at home for the most painful social and financial issues, such as cracking down on oligarchic and mafia-like structures, taking a tough stance against corruption, including charging senior politicians and others with graft, and promoting the country’s inherent advantages, including a low-cost labor pool and valuable natural resources. Most importantly, Bulgaria still needs to clearly define its identity on a global scale.
There is some good news, though. First, the failure of the political elite to put the house in order has shaken Bulgarians out of their inertia and reform-fatigue. Second, omertà, the code of silence, has been broken. Both are essential for any government and society to stay viable.
Milena Hristova is a Bulgarian journalist and former editor-in-chief of Sofia News Agency.
Karel Janeček: “Czech Republic: Democracy 2.1″
The Czech Republic has experienced 25 years of democracy, yet the discontent of its people is increasing, given the political representation system of the country. We are witnessing a dangerous accumulation of power, and our society is being eaten by the seemingly unstoppable worm of corruption. The remedy lies within us, the people. Czech politics and the government need new leaders with the public interest at heart.
The principal question is how to choose them. A major weakness of both majoritarian and proportional political systems is that in the former a large proportion of voters are all too often “represented” by individuals with whom they strongly disagree, while in the latter, voters are not represented by specific individuals who they can hold accountable. By allotting two seats to each district, and giving voters greater flexibility through multiple votes, Democracy 2.1, an innovative way of voting that my team is developing with Czech and international partners, increases enormously the likelihood of voters casting votes for their eventual representative. Moreover, the winners are incentivized to compete with one another to provide the highest quality of constituent service.
Such a system further strengthens parties who appeal to a wide range of voters and allows engaged voters to have a greater impact. The overall effect is a stronger dialogue between citizens and their leaders, and a government better able to take action according to the people’s will. To save democracy, we need to take it a giant step forward.
Karel Janeček, a Czech anti-corruption activist and mathematician, is the founder of Democracy 2.1, a system emsuring more choices for voters favoring consensus over extremism and making leaders accountable.
Gustau Alegret “Spain: Cry Of The Catalans”
Spain is in the midst of a huge crisis and has serious concerns regarding the quality of its democracy and transparency of its institutions. Last June, King Juan Carlos abdicated the throne in favor of his son, Felipe, in the wake of several scandals within the Royal Household. The People’s Party (PP)—currently in power in Madrid with absolute majority in Parliament—is under investigation for having a slush fund that took donations from construction magnates and redistributed them in cash payments to party leaders, including the nation’s president, Mariano Rajoy. Moreover, the current chief of the Constitutional Court took the oath while serving as a member of the conservative PP, calling into question the judicial integrity of the tribunal.
Given the situation, and with the unemployment rate soaring past 25 percent (50 percent for youths), one of the highest in Europe, Spaniards have taken to the streets demanding reforms. Thousands of Catalans have demonstrated, asking for a referendum to decide their own future, outside of Spain but inside the European Union. In spite of this, the Spanish government is not listening to the people and is denying Catalan citizens the privilege of voicing their opinion, citing the constitution as a pretext for political purposes when, in fact, there are already legal ways to allow Catalans to vote. Deep reforms to the Spanish political system are needed. Protection and respect for an independent judiciary should be assured, and the people should be granted ways to be heard, as the governments are also accountable to the minority. When these basic principles are not respected, the legitimacy of a government and the quality of its democracy are called into question.
Gustau Alegret is a Catalan journalist reporting from Washington for Radio Catalonia’s RAC.
[Compiled by Sophie des Beauvais and Cristobal Vasquez]
[Photo courtesy of Justus Bluemer]