The debt disaster, Brexit, the affect of the vitality disaster on business, the reliance of the EU on overseas commerce within the context of rising geopolitical tensions, decrease growth-rates compared to different massive jurisdictions, the absence of any EU nation within the high 10 of start-up ecosystems worldwide, ageing populations, low funding charges in R&D, reducing fiscal areas and an unfinished financial and financial union are among the many causes for some economists and policymakers to imagine the financial and political weight of the EU and the euro space is about to lower within the coming a long time.
Whereas these components must be absolutely taken under consideration when deciding what public insurance policies to design, different strengths could have been neglected just lately, resulting in a gloomier prospect concerning the EU and the euro space than is really deserved.
First, the EU is the biggest single democratic market on the planet, with virtually 500 million customers and uniform guidelines. Between 2012 and 2021, the yearly commerce of products within the EU elevated from €2.4 trillion to €3.4 trillion, whereas the yearly commerce of products between the EU and the remainder of the world in the identical interval went from €1.8 trillion to €2.2 trillion.
Subsequently, whereas geopolitical tensions and lack of respect for multilateral commerce guidelines have a unfavorable affect on the EU, the true cornerstone of the EU is the only market — which this yr turned 30.
For that reason, it’s of utmost relevance that the only market continues to be preserved and for that, ample implementation of competitors insurance policies is critical, avoiding an unwarranted use of state help devices by deep-pocketed member states.
Second, EU and euro space labour markets are sturdy and resilient, with unemployment charges at historically-low ranges and labour-force participation charges at historically-high ranges.
In October 2023, the unemployment price within the euro space stood at 6.5 % and through the second quarter of 2023, 65.5 % of euro space inhabitants between 15 and 74 years previous was employed or looking for employment. But, figures are even higher in different areas, such because the US, the place the unemployment price is at 3.8 % and the labour pressure participation price is at 69 %.
Consequently, it’s important to not be complacent and sustain the wanted reform momentum in lively and passive labour insurance policies to foster the matching between provide and demand of labour.
Third, the European banking sector, which a decade in the past was in a disaster, is now effectively capitalised, with growing income and excessive liquidity ratios, having proven nice resilience vis-à-vis the monetary turmoil that originated within the US final March.
Resilience was confirmed earlier than the summer season break by the outcomes of the most recent banking stress assessments carried out by the European Banking Authority. Nonetheless, there shouldn’t be room for complacency on this entrance both and banks ought to use a part of the rise in income noticed within the brief time period to strengthen their resilience, and higher deal with potential worst-case threat situations.
Fourth, public help for the transformation of the financial system by EU, nationwide and regional authorities is substantial. The response to the Covid-19 pandemic, the Subsequent Technology restoration fund, quantities to virtually €800bn in transfers and loans focusing totally on the inexperienced transition and digital transformation of our economies.
A lot speak has been dedicated to the US Inflation Discount Act (IRA), with its $369bn [€341bn], however the quantity of funds for the inexperienced transition within the US isn’t increased than within the EU. What differs between the US and the EU is the best way public funds are channelled to the personal sector, with the US relying extra on tax credit on the federal degree and the EU on prolonged administrative procedures at completely different ranges. Thus, any efforts the EU may make to extend the pace and certainty with which public funds attain the personal sector could be welcome.
Fifth, the euro space counts on a thriving exterior sector and the euro, the second-most related worldwide reserve foreign money after the greenback. Aside from a couple of months currently, the euro space has historically relied on sizeable present account surpluses, granting the block with financing capability vis-à-vis the remainder of the world. The standing of the euro as a world reserve foreign money can be exceptional, although efforts must be made to protect its worldwide function.
Innovate vs imitate vs regulate
Sixth, the EU is a regulatory energy, an ordinary setter that advantages from the so-called ’Brussels impact’. This grants the EU the first-mover benefit, so when different main jurisdictions think about regulation, they typically discover inspiration within the laws authorised within the EU.
However, the EU ought to attempt not solely to keep up its standing as a regulatory authority, feeding the saying that ’the US innovates, China copies and the EU regulates’, but in addition to change into a spot of innovation.
Lastly, the EU and the euro space are sturdy as a result of they’re very a lot conscious of their weaknesses and lacking items. All events across the desk agree on the significance of enlarging the EU, the necessity to finalise the Banking and Capital Markets Union and introduce a everlasting fiscal capability financed by frequent debt, the relevance of making certain the sustainability of our public funds, the pertinence to foster R&D and have a pro-investment regulatory setting, amongst others.
Being conscious of the lacking items is essential, however the EU mustn’t wait till the subsequent disaster to take motion.
Certainly, in the previous few years, deepening efforts within the financial and financial union have solely taken place when confronted with main crises, such because the euro space sovereign debt disaster, when the Banking Union and the European Stability Mechanism have been launched, or the Covid-19 disaster, when the restoration fund was created.
In a nutshell, in fact, there’s hope for the EU and the euro space. We’re confronted with challenges, however have additionally many strengths to construct on. All we want is the political will to go forward.