Ladies and Gentlemen, dear colleagues,
It is my great pleasure to address the closing remarks of this third IPD-FEPS conference. Let me first convey my sincere thanks to the Institute for Policy Dialogue for their partnership, which is, in my view, one of FEPS’ most important assets. Let me also thank my colleagues from Foundation for European Progressive Studies, who, as usual, have done a great job in organizing an event, which, I hope, has fully lived up to the expectations of us all and has, once more, given us food for thought.
There is, I believe, a growing consensus that it will prove impossible to restore growth and create quality jobs in the European Union without stimulating investment.
Recently, the European Council strongly asserted that the Union needs to take bold steps to increase investments, create jobs and encourage reforms to boost competitiveness. They called for immediate mobilization of the right mix of private and public funding using both existing and new financial instruments.
To this end, in his last July speech in front of the European Parliament, President-elect Jean-Claude Junker argued for the mobilization of up to 300 billion Euros in additional public and private investment in the real economy over the next three years.
These statements are of significant importance, but allow me to add that it will be necessary to speed up the pace in the implementation of such programme, as they could represent the first steps away from the very conservative policy focus that has characterised Europe since the outbreak of the crisis. Indeed, policy initiatives to date have predominantly focused on attempts to cut government debt ratios directly through austerity measures, while relying on labour market adjustment – that is to say cuts in wages – to address problems of stagnating aggregate demand and the structural imbalances inherent in the institutional arrangements of the Eurozone.
However, as Professor Joseph Stiglitz has recently observed, if 300 billion Euros could have a positive impact, it is not an adequate amount yet. The United States have invested 700 billion dollars and this has proved insufficient. Furthermore, the credit channel in Europe has not been repaired yet. And, essentially, without credit there are no private investments.
This said, the approach suggested by President Juncker is a turn that we consider crucial for European politics and to which we are strongly committed. Nevertheless if we take into account the contradictory political landscape that emerged from last May European elections, it is far from being an easy target. We shall honestly acknowledge that even if, considering the electoral results, the collaboration between conservative and progressive forces is inevitable, the political set-up that has taken shape is far from satisfactory.
Under Mrs Merkel’s leadership, the EPP managed to secure the presidency of the European Commission, those of the European Council and of the Eurogroup. Moreover, Mr Moscovici’s appointment as the Economic Commissioner has been strongly counterbalanced by the supervision of the incoming vice-president Katainen, a most passionate supporter of austerity policies.
In other words, socialists, who had not lost the elections, have risked losing the post-election by showing little capability to affect the process of shaping of the European institutional framework. Particularly if compared with the determination with which Mrs Merkel has played her role as European leader.
Given this premise, it follows that it will be necessary to face a difficult fight in order to achieve the political turn we hope for. In particular, the enhancement of the European Parliament will be crucial. It is, in fact, within the EP that European progressive forces can more effectively exert their influence.
After all, even among conservatives, many are becoming aware that austerity policies have not led to the promised results. Despite spending cuts across Europe, government debt levels have continued to rise: OECD figures show that government debt to GDP ratios have further increased in Italy from 126% in 2012 to 133% in 2013, in Spain from 85% to 92%, and in the UK from 88% to 92% over the same period.
Unemployment, especially among the young, is at record levels, and there appears little hope of improvement in the near term, given the limited potential for economic growth. Recent IMF estimates for the Euro area forecast average GDP growth of 1.4% for the period 2014-2018 compared to an average pre-crisis GDP growth of 2.2%. In the United Kingdom, growth rates for the same period are predicted to be slightly higher at around 2%, however this growth appears to be based on the shaky foundations of increases in debt-financed private consumption.
In order to address the dire economic situation and projected negative trends in Europe it is important that growth-enhancing supply side policies go hand in hand with significant increases in both public and private investment with the aim of stimulating aggregate demand, and hence increase growth and create jobs.
Progressive politicians and academics have already put forward a series of initiatives and policy proposals, which I strongly believe should be fully endorsed by the European institutions. For instance, the Italian government, who has taken over the six-month presidency of the EU on July 1st, has demanded for a fundamental rethink of the fiscal rules in the Eurozone. In particular, the Italian government is requesting that EU member states are given more time for deficit reduction and that investment spending and educational costs are excluded from deficit calculations. This would then allow crisis-hit European countries to carry out some fundamental investment project and invest in education and research without being faced by the dreaded ‘excessive deficit procedure’. Let’s not forget that even Germany last August registered a 0.2% decline of the GDP.
For this reason, it is not understandable why the Renzi government has put on top of his political agenda the topic of the reform of the labour market and the reduction of the guarantees and protections for the workers. I do not think that this is a top priority for a country such as Italy. Let me quote again professor Stiglitz, who affirmed that introduce labour reforms in periods of recessions is extremely difficult, and to increase labour flexibility is largely more acceptable in periods of economic growth.
It is clear that Italy and all the other European countries need much more investment in order to embark on an employment-focused recovery. In particular there is a need for a strong investment promoting financing strategy which produces rapid and significant effects, enhances productive capacity, encouraging future sustainable growth by financing economically sustainable projects and activities.
In a recent study conducted by FEPS and Professor Stephany Griffith-Jones of IPD we proposed two promising ways to use limited public resources to stimulate investment: first, to increase paid-in-capital of the European Investment Bank and, second to achieve leverage within the EU budget (that is to use a small part of the EU budget as a risk buffer to allow the EIB to lend additional resources).
The study suggest that if both avenues are pursued the EU could increase lending and investment at approximately 60 billion euros per year for the period 2014-2020. It is estimated that such lending and investment plan would lead to the creation of an additional 5 million jobs in the EU during the period 2014-2020 and to an additional average growth rate of 1.2% over the same period.
Above all the additional finance should be put in economically viable projects which can increase productivity and innovation. It is essential for investment to be redirected towards new sectors, strategic for creating jobs and stimulating growth. Public and private funds should support projects in areas such as:
- Energy efficiency and renewables: for instance increase investment in wind turbine and solar energy technologies, or in transnational gas interconnection networks to encourage a more functional use of energy resources and avoid waste of energy, something that, I would like to underline, it is particularly important in an international context characterized by strained relations with Russia and the Middle Eastern crisis. This would also represent an outstanding example of trans-European investments.
- Other examples could be the expansion of investment in intra-European electricity grid to improve the transmission of renewable energy, invest in the construction of zero-carbon emission building that rationalises energy use.
- Support the deployment of broadband networks in those European countries that are lacking this kind of infrastructure,
- Finance small and medium enterprises that are credit rationed,
- Financing of innovation in enterprises.
In the three decades prior to the crisis, with the exception of Germany, Europe – and in particular peripheral countries – has experienced a significant impoverishment of the productive matrix and the quality of composition of trade flows. It is therefore of paramount importance that investment should be directed towards the creation of an innovative European-wide production system. Otherwise, increases in demand will be predominately transmitted to the German production system.
From this perspective, the issue is to improve the overall quality of products and services in Europe so that we can create a new global supply of products and services. Furthermore, there are important innovation possibilities deriving from the collaboration between different economic sectors. For instance, in the case of sustainable mobility, cooperation could be devised between the automobile and urban planning sectors. Indeed, the concept of a mobility platform implies a task to be fulfilled not only for mobility, but also for the architecture of the urban areas and on a synergy between the two.
This implies a different kind of innovation, one based on societal needs and demands, a type of innovation socially responsible as regards risks, and an innovation based on forms of international divisions of labour which are agreed upon through international agreements.
Only by increasing and redirecting investment in an effective and innovative way, Europe will be able to regain a prominent role in leading innovation and industrial development – and thus embark on a sustainable employment-focused recovery.
Of course, without a radical turn of European politics, even the international recovery will have an element of weakness and precariousness. We shall acknowledge that the results of the last European elections and what has happened afterwards have not yet provoked this turn. Only a strong political initiative and a courageous political fight, linked also to the actions of the social and labour forces, can really produce the necessary change.