The Key EU Policy Debates

On May 1, 2004, in the framework of an enlargement that will bring about an unprecedented political and economic transformation, the European Union will acquire ten new members. How should the EU meet this challenge? Echoing the many voices calling for economic reform in the EU, Jordi Gual, professor and director of the department of Economics at IESE, has edited the book Building a Dynamic Europe – The Key Policy Debates (Cambridge University Press, 2004). The book brings together a number of analyses that point in this direction, carried out by himself and four eminent European economists – Francesco Giavazzi, Assar Lindbeck, David M. Newbery and Gérard Roland.

In the interest of a more dynamic European economy, as envisaged in the Lisbon Agenda, the book’s contributors map out the legislative reforms that the EU will have to carry out if it is to cope with the far-reaching political and economic changes that will come about as a result of enlargement and the ensuing political and institutional reorganization. The authors focus on the key issues in the debate on the EU’s political strategy: the institutional design of an enlarged EU to ensure effective decision making; the scope and nature of the process for integrating markets such as energy and banking; the coordination of macroeconomic policy; and the reform of the labour market and the institutions of the welfare state.

The authors’ position is unequivocal: Europe must radically reform its political institutions if it wishes to achieve the goal of closer economic integration and so create a more dynamic economy. According to Jordi Gual, economic dynamism must go hand in hand with political transformation, as the scope for economic reform within the framework of existing political institutions has been exhausted. Rapid growth of the economy, he argues, would improve the chances of changing the EU’s political institutions because it would make such reform more palatable to the population. A strengthening of political authority within the EU is equally crucial at a time when the demands of economic integration are beyond the capacity and will of individual member states.

From various perspectives the authors show how the existing institutional framework of the EU tends to hinder economic reform. Some conclude that in-depth reform will be impossible without a complete overhaul of the system of institutional decision making. The shortcomings of the existing system highlight the need for a new, more rational mechanism. Gérard Roland, in the chapter on the new EU government, argues that a presidential system made up of a strong executive with a set of clearly defined powers under the supervision of the European Council is the EU’s best option to advance its political and economic agenda.

Introducing new institutional mechanisms capable of driving economic reform will require a high degree of political integration among member states. This is a huge challenge for the countries of the EU, which will have to decide whether the benefits of reform and economic integration outweigh the consequent loss of national sovereignty. Whatever happens, as the chapters on macroeconomic policy make clear, it is vital that Europe pass this test. A new political framework that enhances the democratic legitimacy of the European Commission would give a massive boost to the credibility of the Growth and Stability Pact. It would also allow closer coordination of macroeconomic policies and more effective operation of the European Central Bank.

With respect to reform of the welfare state, a European Commission with wider powers would be able to hasten the process at EU level, as so far only a small number of member states have taken timid steps in this direction at their own initiative. Again, to reinforce the legitimacy of European political institutions, member states will need to give up a greater degree of national sovereignty. The same formula can be applied to the integration of the energy and banking markets, which would be able to go ahead if common political institutions were able to impose a rationalization and harmonization of legislation.

“Building a Dynamic Europe”

Jordi Gual.

Cambridge University Press, 2004.