IEP Lunch Debate with Thomas Westphal: “The Stabilization of the Eurozone: Current Successes, Unfinished Business”
The IEP lunch debate on the topic of “The Stabilization of the Eurozone: Current Successes, Unfinished Business” with Thomas Westphal, Director of European Policy in the Federal Ministry of Finance, took place at the Representation of the European Commission in Berlin on 10 December 2014. Michael Vollprecht, Economic and Financial Counsellor from the Political Division of the European Commission in Berlin, gave the opening remarks. Prof. Dr. Mathias Jopp, director of the Institut für Europäische Politik (IEP), moderated the event.
In his introductory remarks, Michael Vollprecht emphasized that the new president of the EU Commission, Jean-Claude Junker, aims to strengthen the Economic and Monetary Union (EMU) during his tenure. Thomas Westphal began his presentation by asserting that in order to strengthen and further stabilize the Eurozone, the confidence that was lost during the crisis must be won back. Confidence was achieved during the first ten years of the EMU, which he regarded as a great success. The Euro had become the world´s second most important currency in only a short time and the European Central Bank had worked towards price stability, whereupon the interest rates on government bonds among the Eurozone countries converged. The doubts that arose during the financial crisis in markets regarding investments, however, had dramatic consequences. Interest rates rose once again. In Greece, Portugal, and Ireland, the increase was many times higher than it was in Germany. The crisis exposed many weaknesses in the EMU, e.g., that the competitiveness of the EU countries had developed unevenly during the previous years. In order to win back trust, these weaknesses must be eliminated. Westphal agrees with the current four-pillar system of the EMU, though there are still obstacles to its implementation. The first pillar consists of reforms for more competitiveness, despite the fact that many citizens are showing signs of reform fatigue. In the short term, confidence can still only be rebuilt through continued reform efforts by all member states. Efforts toward rebuilding competitiveness depend on country-specific requirements including the European Semester and growth-friendly consolidation. The second pillar consists of cross-border European oversight over the financial markets and better regulation. At the level of the institutions of the EMU, the third pillar, a revision of the EU treaties cannot be ruled out. The development of the fiscal union must be promoted and the Stability and Growth Pact must be strengthened. The fourth pillar consists of the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM), crisis mechanisms which according to Westphal only comprise “a firewall to keep the fire from spreading to neighboring houses.” They don´t, however, extinguish the fire itself.
The initial successes of the four-pillar model can already be noted. Three aid programs have already ended (Ireland, Portugal and Spain). Westphal lamented the fact that little has been said about these successes while much attention has been given to the problems in Greece, where the second aid program is currently underway. The programs have improved competitiveness, but confidence is only slowly recovering. Interest rates on government bonds will become more consistent again. Still, there is much unfinished business. Growth is weak and unequally distributed within the EU member states. Investment activity is low, but debt levels are high. There is still a need for consolidation and little room for public spending. The crisis posed another challenge to the Eurozone: unemployment rates have climbed dramatically. This is critical, as the Eurozone cannot afford the loss of labor force and high unemployment rates can fuel the trend of Euroskepticism. “The idea of ‘Europe’ is great, but is difficult to comprehend for someone who has just lost their job,” Westphal said in closing.
By Helen Müller and Anthony Baumann