Business as usual will not save Europe

It is becoming increasingly clear that if Europe is to overcome its crisis, business as usual will not suffice. We need a Europe that is more concrete, less rhetorical, and better suited to the current global economy. We need to focus not only on the European Union’s specific policies, but also on how to change its “politics” – a change that must place economic growth at the top of the agenda.

Europe does not need a debate between austerity and growth; it needs to be pragmatic. A good example of this was the most recent European Council, which addressed two of Europe’s most pressing problems: malfunctioning labor markets, reflected in record-high youth unemployment, and malfunctioning credit markets, in which access to financing is difficult and lending rates vary considerably among different parts of the single market.

The outcome of the Council’s June meeting was encouraging, and we must continue on that path in the coming months to make progress on two equally important issues: how to foster innovation and the digital economy, and how to ensure Europe’s manufacturing competitiveness.

We need to assess what can be achieved at the national level and what EU institutions should do. Fiscal consolidation and national reforms are essential and should continue. But we can better achieve our objectives under an EU framework that supports, rather than impedes, national action to boost growth and employment. The European Commission’s recent decision to grant member states some flexibility for productive public investment linked to EU structural funds is a welcome step in this direction.

The second issue is the need to take further steps toward closer integration within the eurozone. A banking union is an important start, which should prevent financial markets from fragmenting along national lines and reduce private-sector borrowing costs. Lending rates are still too high for small and medium-size enterprises and too dependent on where in the EU a company is located.

We have achieved important results on the way to a banking union, notably on supervision. Now we need to work on the second pillar, resolution of the banking crisis. The proposal presented by Michel Barnier, European Commissioner for Internal Market and Services, is bold, but Europe does indeed need a strong, efficient resolution mechanism that ensures timely action to address banking crises.

We also need to consider how to enhance coordination of economic policies to promote productivity convergence. We already have a good mechanism for multilateral surveillance in place, but we should aim to focus it on the areas that really matter for economic union.

This must go hand in hand with a discussion of how the EU can provide incentives to member states that are committed to difficult structural reforms at a time of retrenchment, which could lead to talks about possible forms of fiscal coordination. Though it is premature to enter into such discussions now, the issue should not be taken off the table.

All of these changes concern the eurozone’s members first, of course, but they are clearly relevant for the wider EU. At the same time, setting eurozone members apart from the wider EU would be inadvisable. Ensuring a stable and effective eurozone is essential to the smooth operation of the entire single market. And, without an efficient EU, the eurozone could not prosper. We have only one Europe, and we all need to work together to reform it and drive it forward.

Indeed, with its 500 million consumers, the EU single market remains the largest destination for goods and services worldwide and is the best engine to restore growth. Key economic sectors, such as financial services, benefit greatly from the single market’s common rules. Without the single market, all member states would be less attractive to foreign investors, who, once established in one member state, can move freely around the EU.

The single market also provides a platform and leverage to export goods and services to international markets. So we must make the single market more open, internally and externally.

But, to do so, we will need to make EU institutions more efficient, with better regulation and a lower administrative burden. Common institutions are needed to ensure that all EU countries’ interests are protected, and to act as a bridge between eurozone and non-eurozone member states.

Frankly, the functioning of the EU and its institutions during the crisis has been a part of the problem. For many people, EU decision-making is opaque, inefficient, and removed from democratic control.

Most worrying, the crisis has challenged the very idea of European integration. Thus, we will be able to advance a reformist agenda only if we have a convincing narrative that explains why we need Europe and why it serves the interests of current and future generations.

I am a committed pro-European. I have in mind the extraordinary image of Helmut Kohl and François Mitterrand at Verdun in 1984, two old leaders, standing hand in hand, remembering the victims of World War I.

Next year will mark the 100th anniversary of the outbreak of that war. The experience of two world wars was foundational for European integration. But these memories no longer provide a sufficient catalyst for action. We need to find a forward-looking rationale that, after 50 years of integration, shows how acting together can help Europe achieve its goals in a changed global environment.

There is nothing worse than letting people believe that European integration is something that proceeds by stealth, a journey driven by invisible and uncontrollable forces. The EU cannot last unless it is built on its citizens’ explicit commitment.

Today, we have a chance to remodel Europe. Next year’s European parliamentary elections will provide an opportunity for a fundamental debate about the EU’s future. Unless we make a successful case for Europe (and for a different Europe), Euro-skeptic forces will gain ground and Europe’s decision-making processes will be blocked. The choice is clear, and it will have to be made sooner rather than later.

Read The Re-emergence of Europe by Klaus Schwab.

The opinions expressed here are those of the author, not necessarily those of the World Economic Forum. Published in collaboration with Project Syndicate.

Author: Enrico Letta is Prime Minister of Italy.

Image: Flags are seen reflected in a window at the European Council Building REUTERS/Thierry Roge