Once again, the specter of the debt crisis haunts Europe. The developments of recent days tell us nothing new: Even if there are initial signs of success, completely overcoming the crisis will take years — and there are no shortcuts.
The real causes of the economic crisis are the massive debts incurred over many years and the lack of competitiveness in certain countries. The consistent, long-term continuation of budget consolidation is an indispensable precondition for recovery. The Group of Eight leaders subscribed to this approach last weekend when they committed to “sustainable fiscal consolidation policies.” That is why the European Union’s fiscal compact — the agreement to keep deficits in Europe permanently under control — must not be renegotiated now.
Budget consolidation is just one pillar holding up strong national economies: Growth policy is the other. In this context, responsibility for new growth lies first and foremost with E.U. member states. They must undertake national structural reforms to restore competitiveness, which Europe needs for new growth. These include making social security systems fit the future; improving access to labor markets, particularly for young people; eradicating off-the-books work, in which some don’t pay taxes or pay into the social security systems; and prioritizing education, science, and research.
The countries caught in crisis have already decided to make important reforms. We have great respect for the difficulties faced by many in those nations. But given how considerably some countries’ economies have shrunk and the alarmingly high unemployment rates among youth, the reforms that have been launched are the only chance for getting back on track to sustainable growth. Patience is needed: It will be a while until the reforms take effect. But the experience in Germany, Poland and the Baltic states indicates that they will succeed.
At the continental level, too, we must do more to boost growth. That’s why we want to supplement the fiscal compact with a growth pact for more competitiveness. A European growth pact should contain six points:
First, the European Union’s budget should be consistently oriented toward growth: Anyone who wants new, flash-in-the-pan stimulus packages financed by yet more borrowing has learned nothing from the dramatic experiences of the crisis. The E.U. must utilize its resources better than before without spending more. Money is available for future-oriented tasks; in recent months, E.U. officials have been negotiating a 1 trillion-euro budget for 2014 to 2020. We should concentrate on using this huge sum consistently to promote growth and employment, innovation and competitiveness. At the same time, spending must be more closely monitored and linked to quantifiable criteria. Every euro spent from the E.U. budget must be shown to have been spent effectively.
Second, unused E.U. funds must be activated. Around 80 billion euros in the regional cohesion fund have not been allocated to any concrete projects. The European Commission and member states must invest these funds quickly and effectively in new growth through better competitiveness.
Third, access to capital must be improved. In some countries, although governments have embarked on the right course, the banking sector cannot play its part properly because it is burdened with bad loans. So companies are not in a position to make sensible investments that would stimulate growth. The European Investment Bank is an instrument we could use to a greater extent and in a more targeted fashion, not least to ensure that small and medium-size businesses have better access to loans.
Fourth, infrastructure projects must be promoted. The banking sector’s sluggish “blood supply” is also a problem for larger-scale infrastructure projects. Our roads, railways, and energy and telecommunication networks are among the European economy’s trump cards. They are important contributors to the European standard of living, which can be secured only in a Europe that continues to grow closer together. State-of-the-art infrastructure opens new prospects for growth by making private-sector investment more attractive. We need to mobilize private capital for the cross-border expansion of European infrastructure and look at innovative forms of public-private partnership.
Fifth, we must complete Europe’s internal market. In the 1980s and ’90s, realizing the “four freedoms” — the free flow of goods, capital, services and people within the E.U. — released tremendous forces for growth. Today, the expansion of the internal market to cover new spheres again offers great opportunities. That applies to the digitized economy, e-commerce and the energy sector, and it will strengthen small and medium-size companies by reducing red tape and ensuring better access to venture capital. For additional growth we also need to strengthen cross-border mobility. Employment opportunities — and thus future prospects — of young people must be the clear priority.
Sixth, we want to strengthen free trade. Three-quarters of the world’s trade occurs outside the European Union. More than 80 percent of global growth is produced outside Europe. The E.U. must work toward making the Doha Round a success while also concluding more free-trade agreements with new and long-established centers of power.
This all goes to show that one can create growth without incurring new debt. A new growth pact should be adopted as early as the European Council meeting in June. At the informal meeting in Brussels on Wednesday, the E.U. heads of state and government agreed to follow that road. Now, we must translate our objective into a concrete growth agenda.
We are under no illusions: There’s still a long way to go to get out of the crisis. But if we resolutely pursue consolidation and reform, and if we creatively use the possibilities open to us, to give impetus for growth in the short term, too, then the whole of Europe will emerge from the crisis stronger and healthier than it was before. We know that our determination and ability to hold our own as a European cultural community in a globalized world is closely observed. Our success could serve as a model to our partners.
Guido Westerwelle is foreign minister of Germany.