Can Europe rise to the Challenge? EU Policy Responses to the Global Crisis
By Ralf Fücks
There are crises and crises. Some come and go without leaving any lasting trace but others signal a break with the past. You do not need to be much of a prophet to predict that the current global economic shock will go down in the history books as the end of an era. A growth period of almost 25 years has come to an end that has helped lift around one billion inhabitants of emerging countries out of abject poverty and enabled the top of the social pyramid to amass unbelievable riches not only in the old developed world but also in the new rich countries such as China, Russia, India and Brazil.
This growth was driven by the liberalisation of global markets, international trade that increased in leaps and bounds and, above all, by a feverish expansion of the financial sector. It was here that the big money was made and events set in motion that brought the global economy to the brink of destruction. Yesterday, Wall Street and the city of London were the beating hearts of capitalism. Today they are the epicentres of the crisis.
The crash began when the US property bubble burt. So-called sub prime mortgages, used to finance this bubble, had been rebundled as mortgage securities and sold worldwide. In the end this growth model collapsed under the sheer weight of both public and private debt.
Turbo-charged capitalism had finally gone too far. The time has now passed for making money out of ever changing financial products. In future, it will be more about producing value added sensible goods and services rather than indulging in get rich quick speculative activities. The key economic figure of the future will not be the investment banker but the entrepreneur making a contribution to society. It will no longer be about maximising short-term profits but rather establishing sustainable added value.
The capitalism of the future will be more moral – because in the long term only responsible actions will create prosperity.
Global rules for global markets
Market economies are demanding systems that require transparency, competition to limit monopoly powers, effective price mechanisms, owner liability and a balance between profit and risk. If these checks and balances get out of kilter then the system spins out of control and this is exactly what happened.
If we are going to talk about failure of the markets we also have to consider the failure of governments. It is incumbent on the state to keep order in the markets but it was national governments that, in the race to attract business, relieved whole sectors of the financial services industry of any regulation. It is absurd that all forms of medication have to undergo an exhaustive authorisation procedure and every vehicle requires a technical certificate of worthiness while financial products that can leverage whole economies can circulate without any form of risk management being in place.
The crisis has revealed what is wrong with globalisation: lack of global regulation, the extreme imbalance between the world’s economies and the unequal distribution of benefit and risk. Countries that, in recent years, have managed to lift themselves into a state of modest affluence are in danger of being cast back into their previous survival mode. A return to economic nationalism, or more popularly protectionism, would only make things even worse. De-globalisation is no utopia but rather a spectre of doom. Not just because it will mean a loss of wealth around the globe but also because economic fragmentation can foment political nationalism − remember the 1930s.
What is now needed is more cooperation and coordination. We need to strengthen the International Monetary Fund and the World Bank so that they can play the role of global fire fighters. This, however, is also not possible without political reform. There is no way that we can avoid emerging economies and developing countries having a fair say in these institutions. The end has now come for western hegemony over the global economy. We will have to learn how to share power and wealth if we are to avoid everyone fighting everyone else.
The crisis has also cruelly exposed the shortcomingsof the EU. We have a single market and a single currency but no European coordination of economic and financial policy. European economies, however, are, for better or for worse, interdependent. Standing by countries up to their neck in debt is not altruistic but a rational act.
What is also required is binding regulation that enforces fiscal discipline and ends the tax competition that puts a burden on society. If the EU uses this opportunity it will emerge strengthened from the crisis. If European governments fail then the Union will be gradually destroyed and the euro zone will break apart.
The affect that the economic and financial crisis has had on the European Union and its policies is the central theme of this publication. The authors have looked at European policies from different angles. They have analysed and evaluated how the Union has dealt with the different aspects of the crisis: which measures have been successful, which have failed and what still needs to be tackled. We hope you enjoy reading these interesting and motivating articles.
Ralf Fücks studied social sciences, economics and political science in Heidelberg and Bremen. He joined Bündnis 90/Die Grünen in 1982. After completing his studies he worked as lecturer at the University of Bremen and as an editor for the two magazines Moderne Zeiten and hefte für demokratie und sozialismus. Ralf Fücks served as senator for urban development and environmental protection in Bremen from 1991 to 1995. Since 1996 he has been a member of the executive board of the Heinrich-Böll-Stiftung.
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Final editing: Marianne Ebertowski.
This project has been funded with support from the European Commission. This publication reflects the views only of the author, and the Commission cannot be held responsible for any use which may be made of the information contained therein.