Bruegel, the Brussels-based think tank and one of the most influential European institutions in economic policy matters, has issued a series of Memos to the President and key economic policy Commissioners of the new European Commission, announced on 10 September. The new Commissioner-designate for Economic and Financial Affairs, Taxation and Customs, under the new Commission structure, is Pierre Moscovici, a French socialist and Minister of Finance, 2012-2014.
In the memo to the new Commissioner, Bruegel points out the need to “move ahead relentlessly with structural reforms”, specifically mentioning “regulations [which] inhibit the growth of firms … administrative requirements… protectionist regulations… labour market regulations [which] do not encourage workers towards higher performance… public institutions [which] work ineffectively and various kinds of public spending [which] are used wastefully and need to be financed by distorting taxes.”
Although it stresses the need to vigourous implementation of fiscal rules, the Memo also recognizes the imperative of demand management, stating that “relying predominantly on supply-side oriented structural reform and a tough adherence to current fiscal rules is not enough for growth.” An investment programme is recommended, of “at least 1 percent of EU GDP in addition to investments currently planned… financed by the European Investment Bank, project bonds and an increase and improvement in the EU budget.” It adds that countries with weaker economies and higher unemployment should “benefit disproportionately” from the programme. (Compare with economist Yianis Varoufakis’ Modest Proposal, Policy 3.) Sectors to be thus targeted would include the European energy and telecommunications networks.
As regards inflation, Bruegel suggests supporting an expansionary policy and insists it “is essential that demand increase, in particular in countries with large account surpluses… Public and private investment and wages will have to rise”.
A warning is issued about the possible re-emergence of the crisis. Bruegel’s position is that if “inflation and growth remain subdued and debt dynamics remain unfavourable, it will be only a matter of time until the next financial attack against member states”. In this context, they warn against a repetition of “the Greek debacle – the pretence that a non-sustainable fiscal position is sustainable”, and they go on to propose “re-profiling or even restructuring if debt is unsustainable”.
Finally, the Memo outlines the key elements of any new programme of financial assistance, which pertain to the Commission’s and the ESM’s role (with the recommendation that the latter be strengthened and transformed into a “true European Monetary Fund”), as well as that of the ECB (it should be reduced to “silent participant” and “should not define conditionality”); a third element concerns the “strengthening of ex-post democratic control” with the involvement of national parliaments and the European Parliament.