Can Europe turn the crisis into an opportunity? |

Can Europe turn the crisis into an opportunity?

Petr-Blizkovsky-w170On October 27 2011, the Lee Kuan Yew School of Public Policy hosted a public lecture entitled “Can Europe Turn the Economic Crisis into an Opportunity?” by Petr Blizkovsky, Director of Economic and Regional Affairs at the European Union. A visiting fellow of the school, Blizkovsky, gave his talk a few hours after the euro zone debt summit in Brussels.

The EU, Blizkovsky explained, “is very complex”. With one legal framework guiding over 17 countries, there is more focus on stability rather than national sovereignty. Called the Framework Stability and Growth Pact, it originates from the 1992 Treaty of Maastricht and has three benchmark criteria for EU member states. First, every country’s budget should be in balance or surplus. Secondly, they should avoid excessive deficit i.e. 3 per cent or more of their GDP. Thirdly, a maximum of 60 per cent government debt of the GDP should be non-operational. 

The challenge for the EU lies in its implementation of such rules and criteria. This is because EU law takes primacy over national law, the first of its kind. Though monetary policy is strongly implemented, there is at times insufficient public policy coordination as member states are fearful of losing their sovereignty. Blizkovsky argues this fear is unwarranted since each state only passes sovereignty to the EU and is completely free to exit the pact. All said, there remains a noteworthy amount of political interference within the EU system. 

Countries that breach the benchmark criteria are brought before a commission and imposed with a sanction that requires a two-thirds majority vote, which almost never happens. As such, the economic crisis, which significantly affected Greece, France and Ireland, has resulted in an overhaul of the EU system, something Blizkovsky views positively. For him, the current economic crisis is “partly economic, partly political” and the EU must strike a balance between the two.

Yet, compared to other countries also affected by the crisis, namely Japan and the United States, the EU fares better. In 2011, the entire euro zone had a 4 per cent budget deficit, with Greece, France and Ireland breaching the first benchmark criteria. Ireland performed worst with a 29 per cent budget deficit after it bailed out its national bank this year. Compared to public debt, which Blizkovsky maintains is a “bigger problem since deficits can be easily corrected”, the EU functions better at 80 per cent public debt while Japan is the biggest offender at almost 200 per cent beyond exceeding GDP. Nevertheless, it is obvious that key players in the EU are breaching the rules and Blizkovsky says the only solution is “less political control and more sanctions”.

According to Blizkovsky, the EU is undergoing an overhaul of its operating system. The first problem to be addressed is political control. A new national framework will allow each member state to adjust the Stability and Growth Pact for adoption into their national legislation. This means each country can tweak the pact according to its needs but it does not mean they can change the pact entirely. Blizkovsky said that “out of all the main issues, this is the strongest one”. By strengthening the Stability and Growth Pact, it becomes more operational.

The EU will also change its sanction voting system. Unlike previously, where a two-thirds majority was needed to impose sanctions now a two-thirds majority would be needed to stop sanctions or else they will be automatically imposed. This changes the perspective of many nations that were afraid to take more decisive action. In order to prevent nations from undergoing this Commission-sanctioned process, the EU will implement a European Semester that is unique to the EU. This programme will review national budgets of member states and provide an analysis to help countries to make decisions based on needs and wants. While countries might raise the issue of sovereignty, Blizkovsky explains this pre-emptively acts “ like a peer review” to prevent countries from breaching the benchmark criteria. The EU has also formed a European Banking Authority (EBA) to supervise the banking systems of EU member states, and this will not undercut sovereignty, Blizkovsky says.

There are other ways the EU is strengthening itself, said Blizkovsky. With the Franco-German initiated Euro Plus Pact, countries will voluntarily agree to strengthen macroeconomic policies while the European Financial Stability Facility as an inter-governmental organisation will offer advice on crisis management.

As the overall tone of Blizkovsky’s talk was positive, Prof. Jeffrey Straussman enquired about the uncertainty of the EU’s future. Blizkovsky said that by preparing for the future, one reduced risks. When asked about Europe’s falling competitiveness, Blizkovsky said the EU’s focus was on stability, not competitiveness. For him, the crisis signalled the need for the euro zone to work together to implement stronger economic policy and deeper political integration, and it will become stronger as a result of this.

 

By Asha Rampersad, a Master in Public Policy student at the LKY School.

 
Synopsis:

The European Union is at a crossroads. It is being challenged with one of the hardest crises ever. The crisis has an economic background. The global economic crisis triggered a public finance crisis in some of the EU's peripheral countries. The Economic and Monetary Union of the EU is being remodelled. The public deficit and debt rules are being strengthened.
But this crisis also has a political dimension. The strengthening of economic governance and stepping up of economic policy coordination are at stake. With all this, can the European Union come out of the crisis stronger? Yes, we can.

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Speaker(s):

Dr. Petr Blizkovsky, Visiting EU Fellow, Lee Kuan Yew School of Public Policy

Date:
Thursday, 27 October 2011
Time:
5.15 p.m. - 6.30 p.m.
Venue:

Seminar Room 3-5
Level 3, Manasseh Meyer
Lee Kuan Yew School of Public Policy
469C Bukit Timah Road
Singapore 259772

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