21/11/2011 Alain Lamassoure: "The current crisis is not a crisis of the euro"
Alain Lamassoure is president of the European Parliament’s Budgets Committee, member of the European People’s Party (EPP) and vice-president of the French delegation of the EPP group. On the occasion of one of the “European breakfasts” organised by France’s Ecole Nationale d’Administration (ENA), he was interviewed on the theme of “Europe boosted by crises”, a conference and debate within the wider theme of the “new financial regulation in Europe”. This debate gave Mr Lamassoure the opportunity to discuss the crisis, his perspective and solutions to get through it.
The political consequences of the crisis
For Mr Lamassoure, this crisis has never been a Euro crisis as the euro is doing very well. It was worth $1.16 in January 1999 and today is worth between $1.30 and $1.40. China is continuing to buy euros to diversify its resources.
The crisis has never threatened the unity of the Eurozone either. Those who doubted the Eurozone will be reassured by what happened in Greece. When the Greek people were offered a referendum to decide on whether or not to stay in the Eurozone, 80% of the population was expected to vote yes.
According to Alain Lamassoure, “the real problem is the serious debt problem in about fifteen EU Member States – some of whom are Eurozone countries” (Ireland which is doing quite well, Spain and Italy). However this is a problem also affecting non-Eurozone countries – the United Kingdom which is in a similar position to Spain as well as Latvia, Hungary and Romania.
The 2008 financial crisis is at the root of the excessive debt as it led to bailout programmes being launched which further eroded deficits. Nonetheless, these excessive debts would not exist if the indebted countries had been better managed from the outset.
What the Greek case revealed…
Two things, in Mr Lamassoure’s opinion:
- Following the change of government in Greece two years ago, its excessive debt situation was fully revealed and it became obvious that the massaging of their figures went deep. Lenders got a serious shock for the first time since 1945 as the risk that a developed country would not be able to pay back all of its debt started to look likely. Member States started to do what they should have been doing since 1999 i.e. vary interest rates from State to State. “It was thought – incorrectly – that with a single currency, we had common monetary policies whose most visible instrument was the interest rate set by the ECB and that the interest rates also had to be the same across Member States”. The dangers of the Eurozone were underestimated, according to Alain Lamassoure.
- The second analytical mistake was the reaction to the crisis. In reacting to the Greek crisis, ratings agencies and potential lenders started to compare management of public funds in the different Eurozone Member States. This led to the appearance of “spreads” which is the difference in interest rates across Member States.On May 9th 2010, sixty years after Robert Schuman’s declaration, leaders committed to supporting Greece and the other Eurozone countries experiencing difficulty by creating the European Financial Stability Facility (EFSF).
This decision has serious consequences because:
- It is contrary to what is contained in the treaties which do not permit aid to badly managed countries.
- Even more importantly, they made a commitment that they could not keep.
According to Mr Lamassoure, “today we have to fight the root of the problem and the root is not in Brussels but in about 15 Member States.”
What have the political consequences of the crisis taught us?
- Firstly, that we have “a community of interests among European Union countries that is more significant than what even the most federalist leaning among us could have imagined.” Over the last ten years, the rest of the world has moved forward as we have become weaker. This was obvious during the last G20 Summit where the European Union was certainly not setting the global agenda.
- The Lisbon Treaty is a compromise between a federal system (domains covered by community competence are only adopted with the agreement of the European Parliament) and a confederal system (Member States retained competencies but are still required to coordinate them as is the case for economic policy). As such, the Treaty strengthens the mechanisms for coordination but is inadequate given the urgency and seriousness of the situation.
“The crisis has thus had an accelerating effect and requires us to go much further in coordinating our budgetary policies.”
Reviving European public debate
Mr Lamassoure now believes that to complete what has already been decided upon with regard to government coordination, a European parliamentary summit is needed with representatives from all national parliaments as well as the European Parliament. Political legitimacy will therefore be achieved through involvement by national parliaments which will in turn make parliamentary ratification easier. In this way, problems such as those encountered when applying the July 21st agreement could be avoided (the Slovakian Parliament opposed it). European public debate is still monopolized in each Member State.
We must therefore finish the existing procedures to make them more transparent and precise while we wait for the treaty changes that will probably be necessary.
We need European public debate. This debate will start in 2014 with the election of the Commission President by the European Parliament as candidates will have to run campaigns.
Promoting future policies
The rest of the world does not have faith in the European Union’s ability to keep its promises. However, Europe’s biggest problem is that it is in a phase of slow growth. We therefore have to bet on future policies of innovation and even research. If we do not manage to reach growth levels of at least 2.5% or 3%, then we will have enormous difficulties exiting the crisis.
Plans to establish a financial transaction tax may serve to finance such policies. Mr Lamassoure has a Westphalian understanding of budgets – good taxes are those that generate income. A good tax is also one that has the largest possible base and the lowest possible rate. An important question that is much under discussion is where the tax income should be spent.
Some States believe that it should be used to help develop Africa… but Europe itself is bankrupt.
For Alain Lamassoure, “the best solution is to add this income to the European budget in order to finance future public policies and national budgets so that we can return to a balanced situation.”
The European Solidarity Pact
In the wake of the crisis and the consequent rise of anti-European sentiment (people are suffering a lot today causing an emergence of xenophobia and withdrawal into self-interest), Mr Lamassoure proposes creating a pact whereby:
Member States commit to managing their affairs well (the golden rule must therefore be written into national constitutions) so that they do not require aid from other States:
Based on this commitment, all European countries facing difficulties will have the right to help from others;
Solidarity should not only be shown in periods of crisis but also in how future policies are financed such as research and innovation (the flagship actions of the Europe 2020 Strategy are a good example of this).
If we manage to conclude this agreement at the beginning of 2012, the European Union can get back on track.
What is China’s role in European governance?
China is not to be feared. Of course in terms of trade, China is a major competitor but in trade terms Germany is our biggest competitor. Germany’s trade surplus is $200 billion while China’s is ‘’only” $150 billion.
Is the European Parliament capable of taking action?
We should not expect too much from the European Parliament as political initiative can only come from the executive. The crisis has pointed out some shortcomings – the president of the European Council is almost unknown after two full years in the position and the European Commission did not take sufficient actions to deal with the crisis. France and Germany are to be lauded for stepping into the breach. However, this pairing is not legitimate so it is necessary to make their decisions European oriented and community oriented.
With regard to budgets, does the European Parliament play its part?
The European budget – limited to 1% of European Union GDP – cannot increase as long as it is financed by Member States. The fact remains that all, as stated before, European spending should be financed by European income. The European Parliament has revived this debate with the aim of establishing a financial transaction tax.