European Innovation

It has escaped me, frankly, why Angela Merkel has been portrayed as a bad European as of late. Perhaps because she didn’t immediately cave in to calls for a Greek bail-out? Or is it because she didn’t want to follow Europe’s lagging economies by replicating their model of exporting less (because of lack of demand for their products), consuming more, and raising wages irrespective of productivity increases?

I have often wondered what this day would be like, the spring European Council 2010, when leaders would kick-start the EU’s next 10-year strategy. My feeling today is a strange mixture of cautious optimism and mild disappointment. The optimism is driven by what happened last night at the European Council. Despite all their differences, the Eurozone leaders decided on a set of conditions that are uncomfortable enough to prod countries into finally doing the structural reforms that they’ve only been talking about in past years. Who will want to invite the IMF into their countries, risking the loss of economic sovereignty and making themselves subject to diligent surveillance and public humiliation? Finally, the Stability and Growth Pact has some teeth again. And for all those that criticize the Germans for being so tough and fiscally responsible, think back only five years ago when at this very spring European Council the Germans led an effort – under then-Chancellor Gerhard Schröder – to make the Stability and Growth Pact more “flexible”. Only five years ago Germany was widely considered the sick man of Europe, faced with over five million unemployed, anaemic growth and loss of competitiveness. Anyone who criticises Germany now should look back to 2005 when it was downright embarrassing to be German. And needless to say that the additional “flexibility” in the Stability and Growth Pact led to so many of the fiscal problems that we see today. For all those countries that didn’t use the growth they experienced in the last decade – including Greece and Spain – one can really have only one message: you can’t reform during the good times. Guess what? You’ll have to reform during the bad times. My prediction is: the deal the EU leaders brokered last night on the conditions of a bailout for Greece will do more to drive forward structural reform that than the official European process designed for modernising our economy, the Europe 2020 strategy.

Which brings me to my second point, namely my disappointment. It increasingly seems that our leaders are driven by events, rather than driving events themselves. What I mean is that this is already the second summit that they were supposed to talk about Europe 2020 but were this agenda topic has been sidelines by short-term crisis management to tackle the Greek crisis. With EU leaders coming together twice in less than six weeks, not to lay the foundation for the next decade, a solid blueprint for future economic growth and job creation, but rather to tackle the problems of a country staring at the fiscal abyss, tells us everything we need to know. We have reached a point where our problems are so overwhelming and our political room to maneuver to small, that virtually no one has time any more to reflect on what kind of economy we want to build and leave behind for our children and future generations. Issues that are of fundamental importance, such as education, innovation and fighting climate change, get drowned out in the almost hysterical quest for short-term remedies to cover up underlying problems. We no longer go after the disease but rather try to take a short-term medicine to kill the pain or cover up the symptoms.

Europe 2020 was supposed to address many of the these issues but apart from being drowned out amidst the crisis management for Greece, it is also subject to widespread (and frankly surprising) criticism from European leaders. Most of the targets are now disputed by one member state of the other. The 3%R&D target is questioned by finance ministers, who are looking for possible cuts in their national budgets. The 40% target on tertiary graduates is disputed by Germany, where the federal government has given up jurisdiction for education to its regions. The shifting of financial resources within the structural and cohesion funds is countered by Poland and Italy which do not want to see the emphasis on big infrastructure projects replaced by more investment in skills, innovation and entrepreneurship. And any effort to link the EU budget to its purported political priorities of generating “smart, sustainable and inclusive growth” will fall foul of France, which insists that the lion’s share will continue to go to agricultural subsidies.

For all the talk about “economic government” or “governance”, Euroskeptics in the UK or elsewhere need not worry for our leaders are as far from reaching consensus as they could possibly be. The only thing that unites Europe right now is a widespread feeling of urgency in the face of the global economic crisis, of wanting to fight increasing international marginalisation (as experienced at the Copenhagen climate talks and the cancellation of the EU-US summit by President Obama) and of knowing that what is at stake is nothing less than the European way of life (in the words of European Council President Herman van Rompuy). But what divides us are fundamentally different ideas over economic management and priorities and future challenges and the adequate responses. The next three months will be crucial because the June European Council will have to produce a powerful, visionary and compelling blueprint for the future. With the Greek crisis ostensibly dealt with, our leaders have no more excuses to favour the short-term over the long-term; to engage in immediate crisis management rather than laying the foundations for future prosperity; for constantly reneging from their responsibilities for future generations rather than satisfying the demands of today’s vested interests. The moment of truth has come. And it will decide not only the fate of the Euro but the fate of Europe.

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