Speakers:

Carsten Sieling MdB, (Member of the Finance Committee of the German Bundestag),

Roger Liddle (Chair, Policy Network),

Wayne David MP (Shadow Europe Minister),

Chair: Jürgen Kronig (Freelance Journalist)

The seminar took the form of a roundtable discussion between panellists and the audience. It was the final event in a series of roundtables focusing on the future of the eurozone after the economic crisis and its wider implications for the entire European Union

The discussion began with a widespread acknowledgement that the eurozone as a whole has responded surprisingly well to the economic and fiscal crisis. Unlike the G20, which have been slow in responding to calls for greater financial regulatory reform, the EU has demonstrated a strong political will and cohesion to save the euro. However the crisis has also demonstrated that the current set-up of the single currency is not sufficient to guard the eurozone against future crises and thus must be reformed.

In the first instance the discussion focused on the particular context of Germany, whose support for the single currency has been vital in stabilising the euro. While there is a strong consensus among the German political elite that the euro has been immensely important and advantageous to the country and has to be stabilised, opinions over how this is best achieved vary considerably. Thus the market-liberal section of the current Coalition Government between the Christian Democrats (CDU) and the Free Democrats (FDP) believes that the current economic trouble represent a crisis of the euro and the difficult budget situation in some eurozone countries. In their view tough austerity measures are sufficient to ensure public finances are put in order and trust in the economy of these countries is restored.

In contrast the centrist parts of the CDU as well as the Social Democrats (SPD) believe austerity measures would further destabilise the euro as it would inhibit growth and in turn deepen the crisis that countries such as Greece, Ireland or Portugal face. Instead what is urgently needed, is a joint economic policy strategy that would harmonise the difference among the eurozone countries in the long run and prevent the emergence of a strong centre and a weak periphery. Furthermore advocates of this position argue that the establishment of a transfer union – a mechanism that would allow money to be transferred from richer European states to poorer ones in order to avoid huge imbalances - is inevitable although not desired. The principle of transfers within the EU has existed since the 1970’s with the EU’s cohesion policy and the current crisis of the eurozone demonstrates that it is impossible to have monetary with fiscal union.

The clash over the response to the eurozone crisis within the Coalition leaves Merkel in a difficult position and may weaken the German response at time when its firm commitment to the EU and eurozone is particularly needed.

The German Social Democrats are in favour of a joint economic policy and believe that particularly the idea of joint eurozone bonds - to help weaker eurozone countries raise funds – would be a useful tool to stabilise the economic situation. The SPD also supports wider reforms of the financial markets, which are necessary in order to prevent similar crises in the future. An increase in regulation is vital and concepts such as a financial transaction tax on the European level are important to ensure that the costs of the crisis are not borne by the taxpayer alone.

Central to the stabilisation of the eurozone is a new strategy for economic growth, which the EU has tried to stimulate through a number of recent initiatives. However several participants raised concerns that the recently passed Euro Plus Pact for example focuses predominantly on fiscal consolidation and austerity with the private sector being envisaged to achieve the necessary growth by itself. Many are doubtful that the private sector alone will be able to prevent mass unemployment and ensure sustainable growth without the help of the state through large-scale public investment. It was emphasised that a growth strategy for the eurozone is also of vital importance to Britain, which exports 40% of its goods to the continent. A strong demand from the eurozone is therefore central to Britain’s own economic recovery strategy if, as currently looks the case, the Government looks to an export led recovery. Thus while it is politically unlikely that Britain will join the Pact, it needs to develop a relationship with this structure in order not to isolate itself.

The Euro Plus Pact also highlights a growing dilemma among EU countries outside of the eurozone. In order not to be isolated within the Union they need to have some kind of relationship with the eurozone without actually being part of it. The Euro Plus Pact is intended to increase competitiveness, foster employment, contribute to public finances, and reinforce stability but when cooperation in these areas deepens and the eurozone becomes more and more cohesive it will put these countries in a difficult position and risks creating a two tier Europe.

Many within the EU always considered such a development as strategically undesirable; however this alignment is now taking shape out of economic necessity. Although the Euro Plus Pact is based on the principle of intergovernmentalism, the European Commission is also involved the Pact, which means that there will certainly be consequences for all EU members even though it is hard to predict at this stage what shape they will take. Several countries such Poland, Denmark, Bulgaria and Romania indicated that they want a relationship with the new developing economic governance structures. However Britain has completely disengaged from this process and is currently the only major country to do so. This is problematic because it risks alienating the UK continually from negotiations of all kinds at the European level. Concerning Britain’s future relationship with the eurozone, one participant remarked that the argument for the euro has never been seriously considered by the British public, because 1993-2008 marked a period of stable economic growth that was not matched by many of the eurozone countries. This created a sense that Britain was doing much better economically than the rest of Europe due to the freedom to devalue its currency (which in fact lead to much higher inflation than the rest of the eurozone). However given the likelihood that the UK now faces a period of slow growth and high inflation, it is possible that the debate about whether Britain should join the euro will return.

One participant pointed out that in Britain, the crisis of the eurozone is mainly seen as a crisis of the euro as a currency. However it should be emphasised that the euro has been very successful in achieving its primary objective of ensuring monetary stability across most of the eurozone; rather the current troubles have to be understood as a crisis of particular member states with a variety of different challenges. The German insistence on purely fiscal consolidation for instance is too narrow in its analysis of the range of problems different eurozone members face. The crisis in Greece for example was caused by covering up its immense fiscal problems while Portugal has experienced 10 years of low growth coupled with a failure to implement necessary economic reforms. Even more importantly it should be noted that none of these countries feel that the solution to their problems is to leave the euro, as this is believed to produce a far worse outcome.

Participants felt strongly that the response to the crisis was one that has been dominated by the centre-right and the adjustment mechanism that has been put in place is essentially a combination of tough austerity measures and internal devaluation in the countries affected. This will lead to a considerable increase in labour mobility, with Irish workers moving to Britain – a trend that can already be observed now - and Spanish and Portuguese ones moving to northern European countries.

The discussion concluded with the question of why there isn’t a more coherent centre-left alternative to the right-wing agenda?  It was emphasised that the Labour Party should have a meaningful debate on its vision of the future relationship with the EU as a whole and the eurozone in particular. This also links into a broader debate of what it means to be European and the need for the European left to create an alternative narrative for the EU. This is especially urgent as many on the left increasingly oppose the European project due to its sole focus on market liberalism, which is not matched by a project for a more social EU. This was most recently demonstrated by the opposition of several European Trade Unions to the Euro Plus Pact, which, it is argued, will have a negative impact on workers wages. There is a general sense that if this is what is means to be European than they are no in longer in favour of it. Thus it is vitally important that the left defines its vision of why the EU is important and how it defines issues such as social Europe, competitiveness and growth.