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Symposium 2013

Proposal - Building on our strengths – Seizing Europe's growth opportunities

The Challenge

It is obvious by now that the German economy is not immune to the on-going crisis: A severe drop in exports to the rest of the euro zone is hurting manufacturing. At the same time a combination of lar ...

It is obvious by now that the German economy is not immune to the on-going crisis: A severe drop in exports to the rest of the euro zone is hurting manufacturing. At the same time a combination of large-scale immigration and of capital inflows makes Germany look like a beneficiary of the gloom elsewhere. While the negative economic effects have so far been largely offset by rising domestic demand and exports to countries outside Europe, the longer-term consequences of the crisis may be severe: Economically, Germany will have difficulties to strive in a Europe in perma-crisis. Politically, Germany faces adverse reactions for the austerity it imposes on weaker partner countries.

Every time a brighter economic signal emanates from anywhere in Europe, politicians and scientists strike up yet another discussion about whether the crisis is at last drawing to a close. After a good three years of riding the roller coaster, that is understandable.

Yet debating whether the beginning of a happy end has finally materialized puts us on the wrong foot. Europe does not have the luxury of taking a breather. Notions of any kind of stability are deceptive. Under severe pressure to manage the crisis, the EU spent the first half, if you will, putting together important reform packages – the right ones, indeed. (And it proved itself more agile and effective than many had thought.) Now, the second half has just kicked off and is just as important. The game must now focus on growth – specifically, how Europe can leverage its tremendous growth potential.

In the next five years, European growth policy must naturally go beyond economic policy aspects alone. It must also modernize Europe's institutions, step up innovation in the arena of social cohesion and foster a general sense of a new beginning. Seven key things should be done:

1. Give top priority to the Transatlantic Free Trade Agreement: The stimulus to growth triggered by an American-European free trade area would be worth a good 5% of economic output for Europe in the long term. Equally important is the fact that Europe's geopolitical role too is at stake in the negotiations. The world will only continue to see the G3 – America, China and Europe – as the centers of power if agreement is reached. One indispensable prerequisite if the negotiations are to succeed is for the agreement to be seen as a job for the boss in both Brussels and Berlin. Only then can the obstacles that will surely emerge be overcome. The first, unexpected obstacle is already there in the shape of the US eavesdropping scandal.

2. Establish manufacturing as the driver of growth: The financial crisis showed that Europe's manufacturing skills plays a crucial part as an engine of growth and prosperity. A significant correlation exists between manufacturing as a share of the economy and the rate of growth: The higher industry's share, the stronger the growth. What matters is not only manufacturing's quantitative share, of course, but above all the ability to make sound business use of it. The EU Commission now wants to reverse industrial shrinkage in many member states. The talk is of a "third industrial revolution". These good intentions must quickly be followed by tangible, workable initiatives.

3. Stay pragmatic about the rest of the growth agenda: Europe must set itself goals that are ambitious but realistic. The obvious thing to do is to finally complete the single market. Three years ago, former EU Competition Commissioner Mario Monti came up with a hands-on concept that identified where work is still needed: transportation systems, digital technology, green technologies, the energy infrastructure, a free market for industrial and business services, freedom of movement and greater mobility for employees. One aspect of the latter issue involves swiftly introducing a "European professional card". Personally, my "favorite European project" would be a Nobel prizewinner initiative: Instead of arguing over abstract concepts such as what R&D quota might be suitable in Europe, we should set ourselves the goal of winning more Nobel prizes than the Americans in the next ten years – and then take action that enables us to do so.

4. Gradually establish a "European economic government": We have already taken our first steps toward closer coordination of national economic and financial policies (including a new Stability and Growth Pact, fiscal union and the Euro-Plus Pact). Yet Brussels needs still greater competencies in areas – such as the labor market, education and taxes – where competitiveness is again the issue. A new institutional architecture also needs new political faces. That is why it is a good idea to appoint a full-time president of the eurozone finance ministers as quickly as possible. This granting of power cannot be a one-way street, however: Europe must also relinquish power – in those areas that can be better managed by the member states themselves.

5. Ramp up Europe's defenses against crisis: When it set up the European Stability Mechanism or ESM (the first institution the 17 eurozone countries had created together!), Europe made a quantum leap forward. It is now in a position to do what the International Monetary Fund has long been doing successfully: lending money to crisis-ridden countries subject to clear-cut conditions. Further discussion of the funding for the mechanism and the effectiveness of its programs will yet be needed, by which plans for an insolvency statute for the eurozone countries should also be on the agenda. Banking union too must be implemented fully and as fast as possible to provide extra protection. Regrettably, however, the ECB's announcement that it would buy bonds without limit if necessary – the right step in order to stabilize the financial markets – eases the pressure on governments to reform.

6. Uphold Europe's culture of consensus: People are regularly calling for Europe to make faster and more uncompromising decisions – to show stronger leadership, in other words. Many want to see Germany in particular in the driving seat. The Anglo-American community, infatuated as it is with the idea of leadership, is where most of these utterings can be heard. When that happens, Europe must turn a deaf ear. Our culture of consensus reflects our attitude of mind: inclusion instead of exclusion, sustainability instead of short-term optimization. Which means that we rarely produce "star" politicians – but plenty of stable solutions backed by a broad majority. It is nevertheless true that the EU must become more approachable, livelier and more transparent. In a word, more democratic. For example, Europe needs a parliament that is genuinely a place where decisions are made, issues are debated and the top people (first and foremost the Commission President) are elected.

7. Communicate optimism on every level: Europe will only be able to properly leverage its growth potential if the prevailing mood senses that, despite the crisis, things can be made better. A lack of optimism can stifle even the cleverest growth policy, because it blunts people's passion and motivation. That is why we need to think and speak differently about Europe: about our manufacturing skills, our culture of skilled crafts that enables sustainable management, about the role of a strong Europe in a globalized world, and about the opportunities that Europe gives to young people. And then we must roll our sleeves up and work in order to grow again.

I remain as optimistic as ever that Europe will not only weather the crisis, but will make the best of it. 500 million enthusiastic Europeans can change the world!

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