The Big Puzzle: How to Restore Growth in Europe? Corina Murafa
There are lessons the European Union can learn from the debt crises that plagued Latin America in the late 1980s and early 2000s. In “Surviving a Debt Crisis,” Samuel George of the Bertelsmann Foundation illustrates five of them, some of which the EU would undoubtedly be wise to follow: make austerity part of a larger consolidation strategy and not an end in itself; accept an orderly partial default within a clear-cut framework; beware of backlash (i.e., anti-system parties seizing political power while riding on the nationalistic and populist feelings of an electorate fed up with austerity). What Europe cannot learn from Latin America, however, is the alpha and the omega of any continuation of the European construction: how to restore growth.
By contrast, as an imperfect currency union, the EU cannot implement a onesize-fits-all monetary policy that would help the peripheral states boost their exports while safeguarding the core’s stability. Moreover, peripheral Europe lacks endogenous growth factors: it is neither competitive nor innovative nor endowed with rich natural resources. It also has far less potential for growth than did the Latin American countries, and, to top it all off, it is facing much fiercer global competition from emerging markets.
Indebted Latin American countries managed to restore growth and regain competitiveness primarily because of their freedom to engage in independent national monetary policy. In other words, they devalued their currencies so as to make their exports competitive. They also benefited from abundant natural resources, ample export markets, cheap labor, and a high potential for growth.
Achieving true integration means advancing a political union that goes hand in hand with an expanded fiscal union. And yes, Berlin, this will involve fiscal transfers. If the goal is maintaining the union, the underlying principle must be solidarity. The EU has such massive inequalities (member states’ GDPs per capita range from EUR 8,000 to EUR 35,000) that it can hardly be called a union—and it certainly cannot function like one. The EU budget, which includes structural and cohesion funds, comprises less than one percent of the EU’s GDP. The EU either needs to greatly increase its budget (problematic due to management challenges) or do the (politically) undoable and create Eurobonds.
http://ow.ly/lRVfF Puzzled Photo by Kate Ter Haar CC BY 2.0
So how can Europe restore healthy, cohesive growth within both the core and peripheral states? The strategic vision is clear: more EU.
In addition, painful and unpopular structural reforms must continue: implementing genuine, full labor mobility within the EU; increasing the pension age; investing in attracting and retaining the most brilliant minds of the Continent through support for research, development, and innovation; boosting public sector productivity; and implementing the Single European Market instead of merely paying it lip service. Throughout the various mini-crises Europe has been muddling through since 2009, there have been several apparent “make it or break it” moments. At present, we can only hope there won’t be a second Cyprus before we start to acknowledge the truth.
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Latin America and Europe in Conversation
Latin America and Europe in Conversation
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Corina Murafa holds an MPP from the Hertie School of Governance in Berlin. An energy expert, Corina’s current work in Romania was preceded by stints with the United Nations Development Programme, with Deloitte consulting, and with the Romanian Academic Society. She is a former Open Society Fellow (New York University) and is currently an associate fellow for the Aspen Institute Romania as well.