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For policymakers and politicians, it’s easy to discount the millennial generation as lazy, footloose and obsessed with social media. In Italy, a whole generation are now derided as bamboccioni (big babies) who prefer to lounge at home with their aged parents, rather than embrace a more financially independent lifestyle. But such easy stereotypes belie a much harsher economic reality. And nowhere is this despondent realism more evident than in an Italy seemingly on the verge of perpetual economic and societal collapse.

Italian millennials (those born between 1981 and 1996) have confronted the 2008 financial crisis and the ongoing Corona crisis. But even these crises are mere bookmarks in the longer story of Italian economic fragmentation which began with the recession of the early 1990s. This is a stagnation which has already resulted in a whole generation of young Italians being without steady employment, bereft of economic independence and increasingly without hope for the future. 

This millennial disenfranchisement has caused frustration, distrust of government and a tendency to vote for populist parties. This is a society where young women are still exposed to the ridiculously discriminatory and illegal ‘dimissioni in bianco’ (blank resignation) letter which allows employers to dismiss workers on account of any future pregnancy or marriage. An economy where the richest 1% of Italian adults increased their share of total personal wealth from 17% to 24% in the two decades up to 2016 notwithstanding a stagnating economy.

Although Italian millennials are more educated and skilled than their parents, two out three workers with a short-term contract are under forty. As a result, young Italian adults are poorer than the previous generation. A 2018 study showed that Italians in their thirties earn 17% less than their parents did at the same age. This had led to reluctance to start a family (Italy has one of Europe’s lowest birth rates) and a gradual decline in the size of the traditional middle class.

Closing this dichotomy – between the struggling younger generations and their often affluent parents and grandparents – is the biggest obstacle to fundamentally rebooting Italy’s economy.

But to give millennials a fighting chance at success means confronting two bedrocks of Italian society: an antiquated education system and a reorientation of political power away from well-heeled middle-aged and retired Italians.

The Italian education system is exacerbating millennial struggles. Highly theoretical and based on the acquisition of general background knowledge but few practical skills, the Italian teaching system at the post-primary level is not attuned to the realities of the 21st-century labour market. The results are either abstract or controversial. Italy (the third largest economy in the EU) has no university in the top 100 globally. This compares to eight from Germany and seven from the Netherlands.

Closing this dichotomy – between the struggling younger generations and their often affluent parents and grandparents – is the biggest obstacle to fundamentally rebooting Italy’s economy.

Perhaps even more importantly, giving young Italians a fair opportunity at economic independence requires challenging the stranglehold on policymaking held by older Italians. Italy has become the Florida of Europe with the conservative (and often regressive) economic policies to match. The oldest population in the EU (22% of Italians are aged over 65) benefit disproportionally from a welfare system designed to protect their interests over all else.

Over 77% of public social spending in Italy goes to retired people while only 3% of total expenditure is targeted on working families and children. Remarkably, Italian retirees enjoy the highest net pension replacement rates in the EU (nearly 92%) notwithstanding Italy having the largest public debt in Europe.

It’s a retirement heaven for older Italians. But it’s deliberating sabotaging the prospects of millennials. It is also – very obviously – totally economically unsustainable.

A country famous for putting family at the heart of society is in fact dressing up this wealth grab as a continuation of traditional norms. Witness the mass hysteria when former Prime Minister Mario Monti attempted to reform the unaffordable public pension system in 2011. The reforms were subsequently rolled back and the Italian retirement gravy train (just like Snowpiercer) is still speeding around and around the tracks.

So what can Italian millennials do?

The first thing is to realise that neither a naive EU nor its much-heralded Economic Recovery Plan will save Italy. Such initiatives will only facilitate existing Italian policymakers clinging to power while the money flows from Brussels. Tens of billions of euros of investment in combatting climate change and digitalisation, while very welcome, will change nothing if more deep-seated structural reforms are ignored.

Second, Italian millennials should refuse to accept the current status quo as the only available path for Italy. This will mean confronting the older generations (including parents and grandparents) about the illogicality of such generational inequality. It means the young need to inject a sense of urgency and positive disruption into their approach to mainstream politics. It’s time for a productive movement of change that is not just the same old negative messaging stuck on repeat.  For all the noise they generate groupings like the Movimento delle Sardine (Sardines Movement) are devoid of tangible reform proposals.

Italy needs a generational awakening dedicated solely to pursuing the interests (and rights) of young Italians. Unburdened by history and unfettered by the conservatism of wealth preservation, this movement should work towards fundamental economic and social reform by working for young Italians across the political spectrum. Only then will Italian millennials have a fighting chance.

Existing politicians are incapable of reforming Italy because that would mean compromising their own tightly held privileges. That’s why only its ‘big babies” can save Italy now.

Last week’s Social Summit for Fair Jobs and Growth, also known as the Gothenburg Summit, was a success. Commission President Jean-Claude Juncker obtained the endorsement of the Heads of State and Government to his proposed Pillar of Social Rights, while the Swedish presidency promoted at the European level a theme that is at the heart of the Swedish model back home.

The EU has started a difficult process of reflection on how to reorganise itself as a successful multilevel union in the next decade. It is therefore only natural that its possible future role in social policies should be carefully considered. I would like to make three points which seem to have received little attention in the debate so far.     

The EU welfare we already have 

First, in anything but name there is already an embryo of EU welfare, albeit a very dysfunctional one. The Common Agricultural Policy makes up around 40% of the EU budget, and in essence it is a programme of income support to farmers explicitly designed to grant them a safety net. The ground for this policy to be so sizeable – in fact the ground for it to exist at all, at least at the European level – is far weaker than it was fifty years ago, but here we are.

The Common Agricultural Policy is in essence a programme of income support to farmers. 

Cohesion policy – another big item in the EU budget – is strictly speaking not a welfare programme, as it addresses inequality between regions, as opposed to individuals, but it has redistributive effects. It has financed many worthy projects in the EU’s poorest regions – sure, many unworthy ones too – but it seems to have miserably failed to foster convergence.

Then there is the European Social Fund, which is modest (10 billion) but it exists, and that’s its main merit. It would be useful to see these programmes as elements of EU welfare – perhaps suboptimal and in need of reform – but to be included in an overall debate on social Europe.  

The two fundamental weaknesses of the European Pillar of Social Rights

Second, there is now a European Pillar of Social Rights (EPSR). Its twenty principles are structured around three broad goals – equal opportunities and access to the labour market, fair working conditions and social protection. A scoreboard will be used to assess the relative performance of Member States (MSs) against these principles under the European semester, providing a solid governance framework to encourage the achievement of the set goals.

As with many similar EU ideas, it is interesting and well-structured. As with most similar EU ideas, it suffers from at least two fundamental weaknesses. To begin with, there is a clear abuse of the rhetoric of rights, sadly common to so much contemporary public policy.  

What does it exactly mean to say, for example, that ‘young people have the right to continued education, apprenticeship, traineeship or a job offer of good standing within 4 months of becoming unemployed or leaving education’?

Or that ‘everyone has the right to timely and tailor-made assistance to improve employment or self-employment prospects’? Whose obligation is it to grant those rights? And who’s going to enforce compliance if, for example, a young person does not receive ‘a job offer of good standing within 4 months’?

When words still meant something, every right had a correlative obligation. 

When words still meant something, every right had a correlative obligation which was legally enforceable and backed by public powers. This is clearly not the case anymore. Now declarations of wishes and desires whose realisation is largely beyond the reach of public authorities are solemnly proclaimed as ‘rights’, inevitably fueling popular and populist anger when it becomes clear that they cannot be enforced.  

The second weakness of the pillar is all political. As the inglorious Lisbon strategy and the – admittedly more glorious – Europe 2020 strategy, the EPSR is largely made up of non-binding commitments by MSs within what was once called an Open Method of Coordination (OMC), i.e. a soft governance system that tries to foster convergence through peer pressure, benchmarking and supranational monitoring.

True, the EPSR will be more institutionalised than previous instances of OMC, but the essential political point is the same: once more the EU is committing to a grand vision of something – social Europe in this case -, without having the slightest control over the means and initiatives necessary to deliver it, which largely remain in national hands.

If there is any success, it will be a national success. If there is no progress, it’s the EU that will have proved to be ineffective. Nothing new under the sun – well, the clouds – of Brussels.

It’s subsidiarity, stupid!

There is a final, important point that deserves close scrutiny. Bluntly put: I suspect that arguments for social Europe are ultimately bound to be arguments for harmonisation – possibly for total harmonisation – and against subsidiarity. 

To illustrate my point, let me take the one piece of European welfare that seems to make most sense in the EU context: a federal unemployment insurance scheme. This sounds very plausible and sensible, as it would provide much needed automatic stabilisers in a very suboptimal currency area constantly exposed to asymmetric shocks. But, as always, the devil is in the details. Unemployment is not only a function of the economic cycle but also of domestic policy factors. As long as national policies differ, any federal unemployment insurance scheme is bound to subsidise bad policies in countries with high unemployment, at the expense of countries with good policies and low unemployment.

As with many similar EU ideas, the EPSR is interesting and well-structured. As with most similar EU ideas, it suffers from at least two fundamental weaknesses. 

The only way to eliminate the differentiation created by domestic policy choices is – logically enough – to eliminate domestic policy choices, i.e. to progressively harmonise social and labour market policies through binding benchmarks at the European level. Unsurprisingly, such benchmarks were supported for the long-run by the five presidents’ report of 2015 and featured as one scenario – perhaps the favourite scenario? – of the recent Commission’s reflection paper on the social dimension of Europe.

To summarise: social Europe deserves to be seriously discussed in the context of the future of Europe debate. When doing so, let’s remember to include in this discussion EU social policies that already exist, as well as to go beyond mere symbols and rhetoric.

Most importantly, let’s remember that in a union of states that wish to retain their identity and policy differences, arguments for social Europe cannot be made on purely technocratic ground. They must be assessed against an overriding commitment to subsidiarity.

At present the biggest threat to the monetary union is posed by the anti-European political parties. These parties call for their countries to leave the union. They are thriving especially in countries with slower economic growth and high unemployment rates. The best remedy against them is to increase economic growth and thus reduce the unemployment rate in their home countries.

The measures taken to achieve this need to be systematic, rather than merely temporary patches. In peripheral and semi-peripheral economies, undercapitalised banks and the lower competitiveness of domestic producers are slowing down growth. The correct measures to address these problems include banning dividend payouts by undercapitalised banks and creating minimum standards for competitiveness.

Read the full article in the June 2017 issue of the European View, the Martens Centre policy journal.

Events in recent years have put the European economic integration project and the euro under pressure. The main cause of the euro crisis is loss of competitiveness, particularly on the periphery of the Economic and Monetary Union. To reverse this, Union members must promote structural reforms that increase long-term employment, productivity and external competitiveness.

The successful implementation of reforms, however, requires sufficient public support, which in turn presupposes measures that support demand during the implementation of reforms. To that end, important steps include taking an expenditure-based approach to fiscal adjustment and the introduction of the European Deposit Insurance Scheme.

And for Greece in particular, the set of necessary steps includes taking ownership of reforms, the downward revision of fiscal targets, and medium- and long-term measures of debt relief conditional upon meeting fiscal/reform targets. Finally, the stability of the euro hinges on the moderation of all fiscal and external imbalances across all member states, regardless of whether these imbalances are apparent or not.

Read the full article in the June 2017 issue of the European View, the Martens Centre policy journal.

The free movement of persons, goods, services and capital is the basis of the European Single Market. It is one of the most successful achievements of European Union, bringing jobs to the European citizens and growth to the European economy.

The four freedoms were enshrined in the 1957 Treaty of Rome, laying the groundwork for a functioning single market, since then, however, technological progress has changed our economies.  How can the European Single Market adapt and keep pace?  With a 5th freedom: the free movement of data.

A fifth freedom?

The concept of a 5th freedom was coined by, Janez Potočnik, former European Commissioner for Science and Research,  in April 2007  by calling for the ‘freedom of knowledge’. He aimed to improve Europe’s ability to remain competitive in terms of knowledge and innovation, as ’the cornerstones of prosperity’, he argued.

In this blogosphere, Bruno Maçães, former  Portuguese Secretary of State for European Affairs, defended the freedom of knowledge by proposing reforms to transform the single market. He called this ‘knowledge mobility’, considering the rapid and borderless nature of the digital economy.

Freedom of knowledge and knowledge mobility can be achieved with the free movement of data.

The new fabric

Data is the raw material in the digital world, a good with major socio-economic value which can unleash the potential of the data economy expected to reach € 566 billion by 2020 (European Commission). It is a key driver for increasing Europe’s competitiveness and economic growth in order to ensure the continued well-being of EU citizens as they face the challenges of globalisation.

90% of today’s global data has been created in the last two years alone. And data will keep on growing. Data is produced largely by people while interacting on the internet — foremost via pictures and videos, as well by an ever-increasing number of connected devices, such as smartphones and sensors (a.k.a. the IoT – Internet of Things), which gather climate information, satellite imagery, GPS signals, and much more.

When analysed, all this data represents a land of opportunity. It has the potential to transform raw data into useful information to build up knowledge, and to enable that knowledge to utilise higher orders of intelligence in all sectors of society. It can bring greater efficiency and productivity to services, lowering delivery costs. It can create new and innovative services and business models, making the digital economy a major driver for growth and jobs. It can help us solve major societal challenges. It can even be used to make governments more accountable, more transparent and better at policy-making.

DIKW Pyramid (Ackoff)

But are we letting data move freely in Europe like we do for persons, goods, services and capitals? What can the free movement of data bring?

Let’s take the example of a self-driving car. The car receives data from a traffic light that has turned red. This is then processed: the red traffic light is identified as a stop signal. But what happens if data cannot move freely among connected devices (in this case, between the traffic light and the car)? Or what happens if the car crosses a national border?

Consider another scenario. have you ever been to a doctor while abroad? You are seated opposite the doctor, but your medical records remain at home. This can lead to a tricky situation, besides the difficulty of being ‘lost in translation’ between the foreign language and medical lingo. But if the doctor can access your medical history, this whole process can be facilitated and a more informed decision can be taken.

The European Commission, in its Digital Single Market Strategy, identifies the economic and societal growth potential of data technologies such as Big Data, Cloud Computing and the IoT.

After the European Cloud Initiative, the Digitalisation of Industry Initiative and the Internet Connectivity Package, the Commission is due to present the European ‘free flow of data’ initiative. It will tackle restrictions on the free movement of data and on the location of data for storage or processing purposes. It’s been said that by removing data restrictions, the EU could generate € 8 billion per year in GDP.

This initiative should balance societal and economic benefits. It should address, properly and clearly, data ownership, liability and portability (encompassing confidentiality, availability, privacy and integrity) in order to achieve trust.

Digital leadership

The four freedoms opened many opportunities in the European Single Market, increasing the well-being of European citizens. With the freedom of data, we will not just keep pace but power greater innovation. And innovation is the only way to grow.

We must take the lead in unleashing the potential of data and in rooting our values and standards in today’s globalised and competitive digital economy.

The ‘free flow of data’ initiative may well be just the first step; to go further, we must show political leadership and vision: to add and open when reactionary forces push to remove and close.

By creating more barriers to the free flow of data, as a protectionist reaction, we are not increasing security. The centralisation or the closing of the data is as interesting for hackers as a honey pot is for bees.

So, in order to enable the Single Market to truly go digital, we must add a 5th gear to our engine. To fuel this, Europe must add to its core freedoms the free movement of data.

References:

Ackoff, R. L., (1989) “From Data to Wisdom”, Journal of Applies Systems Analysis, Volume 16, pp 3-9.

Bellinger, G., Castro, D., Mills, A., (2004) “Data, Information, Knowledge, and Wisdom”, System-thinking

The gurus of the economic left are at it again: in ‘a plea for economic sanity and humanity’, a group of progressive economists led by Joseph Stiglitz and Thomas Piketty published yet another letter to condemn the austerity allegedly practiced on Greece. The initiative follows an earlier plea published in January against ‘the dogmatic insistence on debt repayment in full regardless of the social and political consequences’.

The distinguished signatories insist that ‘to condemn austerity does not entail being anti-reform’, and that ‘austerity’ actually undermines Syriza’s key reforms, namely its efforts to overcome tax evasion and corruption: ‘Austerity’, they explain, ‘restricts the space for change to make public administration accountable and socially efficient’. This is surely a scientifically and politically respectable perspective. But let me make some points from a different one. 

First of all, let me contest the appropriateness of the term ‘austerity’ for what we have witnessed in the last years in the periphery of Europe. One would think that a person is austere when she is thrifty and saves part of her income, namely she spends less than she earns. Under this common sense definition, austerity is a virtue (yes, a virtue!) virtually unknown to all European governments. They all spend way more than they receive in revenues, and most of them have been consistently doing so for decades!

The fact that public opinions can seriously regard the attempt to curb overblown fiscal deficits and to slow down an accumulation of public debt unprecedented in the history of modern economics as ‘austerity’ is a clear sign of the dismal progressive spell which we’ve all been living under since WWII.

Second of all, the claims of the anti-austerity crowd are even more dubious when we move from Europe in general to Greece in particular. The idea that EU-inspired adjustment programmes forced Greece to adopt an otherwise unnecessary ‘austerity’ policy is a gross misrepresentation of what actually happened. Nobody said it better than CEPS Director Daniel Gros in a commentary last February:

‘it is disingenuous to claim that the troika forced Greece into excessive austerity. Had Greece not received financial support in 2010, it would have had to cut its fiscal deficit from more than 10% of GDP to zero immediately. By financing continued deficits until 2013, the troika actually enabled Greece to delay austerity’.

Exactly, from more than 10% of GDP to zero IMMEDIATELY. As explained in this post by IMF Chief Economist Olivier Blanchard, what is being consistently rejected by the Syriza government now is a primary budget surplus target of 1% in 2015, not exactly the ‘fiscal waterboarding’ one may expect when reading the recurrent progressive pleas for forbearance and debt relief.

Third of all, I would argue – together with many conservative economists – that the much decried austerity is nothing less than an instrument of economic liberation. Contrary to the fallacy constantly spread by progressives, austerity is not primarily about cutting, but about transferring. Specifically, it is about transferring control over productive resources from bureaucrats to individuals and companies.

Austerity does not simply mean balancing the budget by doing ‘whatever it takes’. It means balancing the budget as part of an overall reduction of public expenditure that allows people to keep more of their income and to freely decide how to spend it, instead of having government bureaucrats decide on their behalf.In other words, true austerity returns to people what rightly belongs to them and was unduly appropriated by the state in the last century of progressive drunkenness. It enlarges the scope of individual freedom and choice in our society.

Furthermore, far from restricting ‘the space for change to make public administration accountable and socially efficient’, austerity forces public administrations to limit their notorious wastes, to optimise their utilisation of scarce resources and to become more efficient. 

In conclusion, the most legitimate criticism against austerity in Europe is probably that it has not really happened. Although the emphasis of ‘the institutions’, as they are now amusingly called, on balanced budgets was sound, the need for a radical restructuring of the social model that has generated Europe’s over-indebtedness was never recognised.

As we know, spending on education and health consumes 10-15% of the national income of developed countries, while replacement incomes and other transfer payments account for another 15-20%. Compared to the resources that could be freed by reorganising the provision of these services along more competitive lines, the savings imposed by the most draconian European programmes of adjustment are just cosmetics.

As long as the need for a profound paradigm change is not understood in Europe, progressives will keep attacking conservatives for imaginary misdeeds, conservatives will take the blame for policies they have never dreamt of, and common citizens will continue to suffer under the oppressive weight of a wasteful and bureaucratic social model.

As I write, it remains unclear whether Greece will reach an acceptable deal with its creditors, who are mainly other European Governments.

It is important to say that the recession in Greece has been much deeper than expected by those who agreed the original bailout package with Greece in 2010, a 25% fall in output as against a predicted 7% fall. The budgetary adjustments have also been bigger than in any of the other bailout countries.

It must be acknowledged that, when Greece got a bailout from the other Governments and the IMF, the ultimate beneficiaries included banks, not only in Europe but also elsewhere.

These banks had been lending to the Greek Government, long after they should have stopped doing so, and have forced Greece to confront reality. They assumed that, because Greece was in the euro, someone somewhere would ensure they were repaid.

Yes, some the banks, who were thus saved from their errors by the bailout, were indeed German. But many of the banks who were rescued from their embarrassment were British and American, and the British and American taxpayers have avoided a proportionate exposure to the costs, through the Greek bailout, of saving THEIR banks!

The Euro zone is bearing the main burden, while the others offer free advice.

That said, it would have been in nobody’s interest, for a panic about Greece to have infected banks around the world. Bank credit constitutes 95% of the money we use, and a collapse in confidence in money could have had really devastating global consequences. Without confidence in banks, economic activity would have come to a shuddering halt.

We would have had a crash, rather than just a crisis. Hindsight critics can ignore that now, but it was a real risk then. 

The origins of the Greek problem are very deep and longstanding. For years, Greeks had been consuming more than they were producing, retiring on pension earlier than is normal in other countries, and running an educational system that had few links with the real economy. All these gaps were bridged by borrowing money from foolish investors, who averted their eyes from the profound underlying problems of the Greek economy.

Meanwhile Greece supported a cumbersome and slow courts system, and an equally inefficient system of public administration and of regulating entry to professions. These systems got in the way of growth, because growth needs a capacity to move human and other resources quickly from less, to more profitable activities. Such systems might have been affordable in a very rich country, but Greece never was a rich country.

Meanwhile Greece failed to develop a broad modern industrial sector. It relied too heavily on tourism and ship building. Greeks made money selling things to  other Greeks, rather than to the rest of the world.

Greek businesses stayed small, not big enough to become exporters.  Indeed the proportion of micro businesses in Greece is very large, and this sort of business frequently under declares its income for tax purposes. This is part of the reason for poor tax collection in Greece.

There is growth potential in the Greek economy

A McKinsey study back in 2011 suggested, for example, that Greece could develop medical tourism (it has a large population of dentists).  I met someone recently who was waiting for ages a treatment for tonsillitis in Ireland, who went to Greece, and had the operation done in days. McKinsey suggested big scope for Aquaculture and food processing in Greece. Greece could develop its port infrastructure to provide a regional cargo hub.

But none of these things can be financed unless Greek business people have access to a healthy banking system.

The Greek banking system is far from healthy. Its capital is tied up in Greek government bonds. The credibility of these bonds has been called into question by the brinkmanship and loose rhetoric of the new Greek government. The uncertainty over whether Greece will still be in euro, in a few months time, also inhibits investment, and nationalistic rhetoric in Germany on that topic has added greatly to that uncertainty.

Greece’s future needs to be underpinned by a credible plan that focuses on private sector led growth, backed by a healthy European banking system,that invests in productive Greek businesses, rather than just in Greek government bonds, as it did in the past.

If that is to happen, it is not just Greece that needs to do a lot of homework, but the entire European Union. The EU needs a real banking union that allows banks to lend across borders to good projects wherever they are found in the euro zone. This needs common EU legislation on debt collection, collateral and the like.

The fact that Greek, Irish, Portuguese and Spanish taxpayers have borne large burdens to recapitalise their banks, or have undertaken new debts, as part of a project to sustain the global banking system, also needs to be recognised by the rest of the world.

This cannot unfortunately be done straight away. The problems that gave rise to the crisis must be understood, and fixed, first.

The Greek election result would not lead one to believe that Greeks understand the source of their problems. And the credence that many voters elsewhere give to rhetoric that suggests that being “against austerity” constitutes an implementable policy, in a world of free capital movement, suggests that many do not understand what went wrong or what can realistically be done about it.

But ultimately there must be an honest attempt to find a fair settlement of these legacy issues.

A Global Debt Conference, some time before 2022, when Greece has to make huge repayments, should be considered.  It could be sponsored by the IMF, and might negotiate debt relief on the basis of the extent to which countries have, in the seven years between 2015 and 2022, implemented growth promoting reforms and achieved primary surpluses on their current budgets, taking account of the demography and the tax raising potential of each country.

Greek elections were not about the end of austerity and debt-write off. This was just an election narrative that captured the hearts of the Greek electorate and, surprisingly, dazzled large majority of the pundits, commentators and economists in Europe.

As good as it gets

As financial analysts are explaining, countries like Italy, Spain, and Portugal are spending larger share of their GDP to service their official debt than Greece. Much of the debt has already been written off or “hair cut”, a lot has been reprogrammed, postponed, the interest rates on the European loans are quite small. The troika is not requiring any substantial new austerity measures anyway. Much of what Syriza claims it wants has been done already.

In the words of Daniel Gros: “… in the end, the difference between a government that has never made good on its promises to pay and a government that promises not to pay might not be that large.”

If not much will change with respect to debt and austerity, what was this election really about then?

Economy?

The problem of Greece is that it is not competitive, exports are sluggish and foreign investors are avoiding it. There is much to be done to make the country friendlier to entrepreneurs. This may include liberating the markets from the capture of tycoons and family networks that prevent fair competitive capitalism. It also includes a more efficient public sector.

The elections were hardly about this either.

Instead of a debate how to achieve that Greek economy would earn more, the elections were a mix of national and social populism. Like any populists, Syriza exploited natural and (in fact positive) instincts of compassion and patriotism.

National and social populism

The national populism was manufacturing an outside enemy in Europe and particularly Germany. The social one was spreading hatred towards capitalists and was promising hand-outs that the Greek citizens should be getting. Cheaper rents, cheaper oil, higher minimum wage, even more employment in the public sector …

National and/or social populism has proven a receipt for populists, anarchists and radicals to get to power. Generally few people fall for it. But under special circumstances, like war or major crisis, it works. As we have learned the hard way in the 20th century.

What is also needed is wishful thinking by democrats. A conviction that what populists say is what they really want. Like ending the humiliation of a country and all will be well; abolishing a treaty; some other small concession.

Economists (equipped with a hammer they too tend to see all problems as nails) are already proposing a compromise between what Syriza wants and what the EU and the creditors need to stick to.

Power. To the “people”

The real danger of Syriza and other populist left and right wing parties is their ambition for revival of ideology that has been proven wrong in the 20th century. Its essence is a disrespect for the human rights, the individual, her life, freedom and property.

The fight against domestic and foreign enemies in the noble name of social justice and patriotism was just a pretext, a side show, a slide show, to capture the hearts of the voters. Let’s not mistake this with the real agenda of the radical left – which is capturing of power and ruling the country, perhaps Europe, according to their ideological agenda. The agenda is to shape a “radically new post 2008 world”.

Center left and right

The radicals and populists may not be alone in this. Tony Judt once wrote that the Western European social democrats were always envious of their Easter European communist comrades. The latter could exercise the leftist agenda without the trouble of elections and without checks and balances of democratic society.

Today, traditional European left has a choice to make. Are left wing populists and radicals an ally or a competitor? Should they celebrate their success and join them in their struggle for a “better” world. Or see them as an enemy of democracy and liberty and therefore incompatible with modern Europe.

While the left may be inclined towards appeasement, the center right must confront populism with reason. That there are no free lunches. That hard work pays. That opportunities are there to exploit for everyone. That jobs are created by entrepreneurs and the role of the state is to make sure there is fair competition among them.

That solidarity is important too and it is not just an internal affair of each member state. 

Revival of populist and radical utopian regressions, not the debate about more or less austerity, is the story behind the curtains in Greece and beyond. Debating austerity and hoping for an economic compromise is a discussion about a smokescreen. Not entirely irrelevant, but definitively not central.

The response to Syriza’s election in Greece has been marked by much comment on the impending conflict between the new government and the EU, European Central Bank (ECB) and the International Monetary Fund (IMF).  ‘Greece and global creditors dig in for fresh struggle over austerity’ headlined the Financial Times.  In this narrative, Syriza in Greece, Podemos in Spain and Sinn Fein in Ireland are new forces in European politics, a left wing phalanx with a harder edge and a radical path to economic rejuvenation.  This path to salvation will be achieved, in the short run at least, by increasing public expenditure (everything from pensions to salaries) and casting off the perceived shackles of the existing agreements with the EU, ECB and IMF.

However, as noted recently by my colleague Angelos Angelou, Syriza itself is characterised by deep rooted divisions over its long term economic goals.  The recent moderation of Alexis Tsipras is matched by a substantial internal opposition who view the Euro (and the EU) as symbols of capitalist oppression and real impediments to the creation of a fairer Greek society.  However, now confronting the realities of power, Syriza is faced with a fundamental choice – engage with the wider economic system as it is, or attempt a full blown restructuring of Greek society based on isolating Athens from her European partners.

These internal contradictions within Syriza also form part of the wider strategic shift to left-wing political movements in many member states, particularly in those states subject to bailout programmes since 2009.  For these movements (which are more diffuse than traditional political groupings and generally bring together a diverse range of left wing interest groups) the campaign to end ‘austerity’ represents an opportunity to refashion classic socialist (and even communist) mantras for the twenty first century.

This strategic shift to the left does not just represent a campaign against the bailout agreements  Rather, movements like Syriza are acting as lightning rods for public discontent at dire economic conditions, mistrust in centre-right political elites and a sharp decline in the public’s belief in the EU as a mechanism for achieving higher standards of living.  The populist appeal of Syriza is based on the classical socialist approach of more public spending.  Apart from a laudable commitment to tackle tax evasion the Thessaloniki Programme is very high on aspiration, but very short on hard economic realities or definite timescales. 

For the centre-right in Europe the challenge now is to provide a more coherent vision of the social market economic model in the twenty first century:  An updated model that places private enterprise at the centre of Europe’s return to growth.  A model that gives all people – from start-ups to well established firms – equal opportunities to succeed and flourish.    And of course, we need to keep working on the most effective way to provide countries in distress with a sustainable reform path based on our guiding principle of solidarity.

The referendum against “mass immigration” in Switzerland has reminded us of the importance of the principle of freedom of movement at the heart of the Single Market. The principle is based on four pillars or freedoms – goods, people, capital and services. However, there is another pillar which has been overlooked but is intrinsic to the principle, one that we often use to justify the other four freedoms – the freedom of knowledge.

This fifth pillar is not a new concept. Janez Potočnik, the former European Commissioner for Science and Research, introduced the idea. Potočnik identified that lack of cooperation between member states on R&D rendered the European Research Area less dynamic. He argued that there should be greater synergy across national borders, reducing costs, promoting economic growth and job creation.

To me it always seemed that the idea went a bit beyond what Potočnik had in mind. Knowledge is not limited to R&D, technology and science. It includes culture and the arts. The fifth freedom offers us a way to think about knowledge which is free from many of its traditional limitations.

We cannot speak of a fifth freedom without taking into account the digital economy, which is of course key to innovation – making it faster and borderless. Telecommunications, high speed internet and services are integral to the economy. However, this sector is not getting the investment it needs, gravely increasing our competitiveness gap with other markets such as the US and Asia. A recent study [http://ces.tc/1nJnm5W ] estimates that by 2020, if the current year-on-year drop in investment in the telecoms market continues, Europe will not meet its EU Digital Agenda targets for broadband coverage and penetration. We will find ourselves having missed a huge opportunity for the broader EU economy.

A new approach to the digital economy and smarter EU funding will make Europe more competitive and unlock further investment.

Strengthen links

Too much funding might be distributed to duplicate research or funding may be mismatched [http://ces.tc/1gyTKrH ]– i.e. it might go to a region that lacks know-how in one area, instead of going to a stronger region unaware of available funds. Creating meaningful consortiums by bridging universities, research institutions and businesses will help fill these unnecessary overlaps and gaps. You can do this by investing in facilities that enhance the transfer of knowledge between institutions. The exchange of cultural experiences and skills can unlock further funding, investment and ideas.

Knowledge mobility

Member states, research bodies, universities and EU institutions can facilitate knowledge mobility:

• Member states could reform laws by making them innovation friendly. They could offer tax incentives to innovative enterprises similar to tax breaks for low emission vehicles [http://ces.tc/1nJnHWl ]. Member states should also agree to harmonise telecoms regulation at the EU level, unlocking wasted money for much needed investment in technology and increasing innovative capacity.
• As part of the new EU’s research programme Horizon 2020, designed to make Europe a more competitive economy, the EU could simplify bureaucracy for funding applicants and also help identify partners – the EUapp report [http://ces.tc/1m4sx1j ] is a good example of EU support aimed at finding opportunities in the digital economy.
• Universities and research institutions should raise the awareness of European organisations in these areas and work in collaboration with other universities on specific projects and look to partner with private enterprises. This in turn, will help them gain international recognition. Consortiums may be more appealing for investors, like multinationals looking for breakthrough ideas. Microsoft [http://ces.tc/1jN2OfC ] alone spends $10 billion per year just on R&D.

David Bohm famously conceived of knowledge as the stream of thought flowing among, through and between us. The freedom of knowledge is an ideal high enough and noble enough for all Europeans.

GLOBALISATION REFLECTS OUR CHOICES

Ireland’s new Minister for European Affairs, Paschal Donohoe TD, gave an interesting speech last week. He made the point that globalisation, of which many people complain, is not something “done to us, but is a consequence of the human desire to communicate, share, and exchange”. He is right.

He could have added that humans also want lots of variety and choice in their lives, sometimes to an excessive degree, and that this drives globalisation forward as people go to the ends of the earth to find elusive “highs” in their lives. He went on to say that the European Union gives us an opportunity to “positively mediate the consequences of globalisation”. He is right here too. A small country on its own, like Ireland, could have little impact on global trends, but the EU, as a block, can make a difference. Globalisation has been facilitated by the internet, Skype, containerisation, cheap air fares and plentiful energy sources.

All these took investment to generate and would not have happened if people did not want them or were unwilling to pay for them. These technologies cannot be “uninvented” now. So globalisation cannot be reversed. It is here to stay.

HOW SHOULD WE COPE WITH THE CONSEQUENCES OF GLOBALISATION?

But all this variety, all this communication and all this exchange does not necessarily make us happier.

In fact, the more choices we have to make, the more discontented we can often become. This is especially so if we feel we have to make these choices to keep up with neighbours or others with whom we feel we must compare ourselves. Choices are hard to make. They require an effort. They involve saying No, as well as Yes. And the more choices you have, the more are the things you have to say No to. The more options you have, the more regrets you may have about the choice you could not make. The more choices we have the more we expect of life and of ourselves.

“The Paradox of Choice”, by Barry Schwartz, had the subtitle “How the culture of Abundance robs us of satisfaction”. People are shopping more now, but enjoying it less. Increased choice may actually contribute to the recent epidemic of clinical depression. Depression has tripled in the last two generations, despite all the treatments now available, that were not there 60 years ago.

The culture of “more choice” undermines institutions like churches. Because choice is the priority, people do not want to regard religious teachings as commandments, about which they have no choice, but as suggestions about which they themselves are the ultimate arbiters.

The over estimation of the value of choice may also have something to do with the increased divorce rate, because, as Schwartz puts it, “establishing and maintaining meaningful social relations requires a willingness to be bound and constrained by them.” But constraints are exactly what the ideology of choice rejects!

EUROPE NEEDS A RENEWED VALUE SYSTEM, IF IT IS TO MEDIATE GLOBALISATION

“Studies have estimated that losses have twice the psychological impact as equivalent gains” says Schwartz. In other words, people hate losing 100 euro, a lot more than they like winning 100 euro. This may explain why people in modern well off societies are so anxious, and why, in the face of recent economic losses, many are regressing to old dead end ideas like nationalism, class warfare, and xenophobia.

Happiness is at last being measured by economists, as well as the gross domestic product. It seems that once a society’s per capita wealth crosses a threshold from poverty to adequate subsistence, further increases in national wealth have little effect on happiness. You may find as many happy people in Poland as in Japan, even though the average Japanese is much richer than the average Pole. This should make us stop and think.

Economic growth is a good thing, but it has physical limits, as we are discovering with climate change and pollution. Economic growth also has psychological limits, in the sense that some forms of growth increase anxiety by offering people a bewildering array of choices that they do not feel competent to make. Markets only work well if people are informed enough, and have the time and mental energy, to make wise choices.

Laws and government subsidies will never be enough. Societies need a strong value system if they are to be happy. These values must put human respect ahead of material things and human relations ahead of maximising choice. The science of economics is only beginning to recognise this.

If the European Union is to positively mediate the consequences of globalisation, it must ask itself whether the values of more choice and more material abundance, imported from economics, are sufficient to build a good society. I believe they are not, but I do not have the sense that a discussion of alternative and better European values is yet taking place.

Jürgen Matthes, co-author of a new CES study on public finances and growth talks about how to counter the dangers of self-defeating austerity and the four objectives that have to be taken into consideration when implementing smart fiscal consolidation measures.

The topic of this year’s Economic Ideas Forum (EIF), organized by the CES in Helsinki, was “From Reform to Growth: a Roadmap for Europe”. We chose this title because we are convinced that it is the combination of budgetary AND structural reform that will create the conditions in which lasting growth is possible. And only lasting growth will lead to more and better jobs for Europeans. It is difficult to image a better place than Finland to organize a conference with this in mind. The country successfully reformed itself after an economic crisis 20 years ago and today it is a prime example of good economic governance.

“Both more Europe and more national responsibility”, these are the words spoken by Prime Minister Katainen when addressing the European Parliament’s plenary session in April, and I could not agree more. To the populist voices claiming that Europe cannot find common solutions: I say that’s simply not true. To the populist voices saying that European institutions are a threat to their countries I say, quoting Prime Minister Katainen, that strong rules and strong European institutions are the protectors of the member states, especially the smaller ones.

The EIF was a great opportunity to emphasize the idea of cooperation between different Member States. At the European People’s Party (EPP), we have always felt that the EU is much more than a partnership. The EU is a community, and it brings together countries of different size, economic power and wealth, and different cultures. However, the aim is to find, and strengthen, the things we have in common and to value the richness and opportunities of our diversity.

At the EPP we believe in the power of individuals and the importance of union and solidarity. We believe that a European community exists an adds value to people’s lives. It is an antidote to both egoism and populism. This is why, when citizens and states show initiative to cope with difficult times, this European community should show its solidarity. The strong have to help those who are weakened and the weakened have to make the effort to get back to economic growth. This means reaching a careful balance. We must give our members the freedom to follow their own paths to success, while maintaining a common goal and vision.

We do not believe in the artificial growth defended by other parties. We profoundly disagree with their proposals to create unsustainable, short-term growth by increasing public spending and refusing to present credible measures for fiscal consolidation. This is an irresponsible and populist approach, which will lead us deeper into the crisis.

I should make a small mention of my own country: Spain. It has been a tough few years: reforms were unpopular and often misunderstood, but we have been patient. We held the course and the economic fundamentals are starting to paint a better picture. Unemployment has decreased for three months in a row, inflation has been kept under control and the competitiveness of our exporting companies has increased non-stop. I believe that we can feel prudently encouraged, and all my colleagues in the EPP, Prime Ministers, Finance Ministers, have shown their admiration and encouragement for our reforms and efforts.

Maintaining social cohesion is a priority, but we must achieve this in a responsible, sustainable way, with emphasis on the “sustainable” part because this is where we differ most from the Socialists. We know that growth is not something that a government, or the EU, can decree. Growth is created by people: by entrepreneurs and consumers who act within a stable and predictable framework. In order to create this framework, market confidence in politics has to be restored, and that means fiscal consolidation and economic reform. In the long run, it means a stronger economic and political Union.

There is no silver bullet for resolving the current crisis. Its causes are complex and the solutions cannot be simple, which is why conferences like the EIF are necessary.

Today, no one disputes that credit is vital for small and medium enterprises. Despite the momentum that big businesses give to our economies, SMEs are still the basis of the Spanish productive sector and the ones employing the majority of citizens in Spain and in Europe.

With the crisis, the challenges facing SMEs have become more pronounced. Not only because of the drop in sales as it is the case for other companies, but because of major difficulties in accessing credit. A few years ago, almost any solvent SMEs in Europe could take out a loan. However, the situation has changed and today, the financial market is “fragmented”. What do we actually mean with this? Simply that the criteria for accessing credit varies greatly across Europe. For example, an SME in Spain must satisfy vastly different criteria than an SME in Germany in order to take out a loan.. The result of this is that banks are failing to grant loans to companies in Spain, while similar companies in Germany are being provided with the credit they need. Moreover, even in cases where they can access loans, Spanish companies end up paying a hefty premium, estimated by Deutsche Bank to be in the region of three and four percent.

This fact is drowning many small and medium Spanish enterprises and therefore affecting the recovery of the country and of Europe as a whole. If SMEs do not have access to credit, their ability to run a business is severely impeded and this in turn has serious consequences on the employment situation and economic growth. We need to consider the different possibilities available to solve this problem. The ECB is expected to cut the interest rate by 0.5% in a few months. However, we have observed how a decrease in interest rates will not solve the fragmentation in the financial markets. We should therefore consider measures such as the ECB changing its collateral policy and authorising banks to use SMEs debt to access credit from the ECB. There is also possibility that the ECB could buy SMEs debt directly from banks in the periphery countries.

These measures, as opposed to low interest rates, would have a direct impact on SMEs, as they could access credit and thus bring us back to the path of growth. The two questions that will decide the future are: will Germany accept such measures? Will the ECB assume a role that it has until now refused? I have no doubt that something is moving in the ECB.

News emerged last week which contributed to a climate of confusion, fuelled by conflicting messages fantasising about unlikely scenarios.

After a series of reports suggesting that the Commission could carry out a Macroeconomic Imbalance Procedure (MIP) with Spain, some sections of the media interpreted this as a reprimand of the Government of Spain. Last week the President of the Eurogroup, Jeroen Dijsselbloem, re-affirmed his confidence in Spain, stating that Spain can be the engine of growth in the Eurozone.
These events give the feeling that some sections of the Spanish media are liable to deliberately magnify the negative when reporting economic news.

Despite of the importance that carrying out a MIP could have, one must bear in mind certain facts. Firstly, we must remember that any decision to carry out a MIP will be made on the basis of previous procedures, including an analysis of relevant data in 2011 under the government of President José Luis Rodríguez Zapatero. Subsequently, there is a final check to identify the countries with excessive macroeconomic imbalance. In this case, Spain and Slovenia.

This process involves an information gathering process and does not necessarily involve any mandatory corrective action. We must bear in mind that in order for this procedure to have consequences, like the imposition of conditions or sanctions, we would have to move to a new step of the process in which the Council, on the basis of a recommendation from the European Commission, would advise the concerned Member States to take corrective action.

Therefore, it is obvious that the controversy does not respond to reality. Moreover, I have no doubt that corrective actions will not be recommended. The Vice President of the Commission, Olli Rehn, has already hinted the fact that the Commission would give Spain two additional years to meet its deficit targets.

Data shows that Spain, despite the challenges that still have to be faced and of which its current Government is fully aware, is on the right track.

But let us not forget that is also time for Europe to act. Even if Spain is on the right track, every effort will be useless if Europe does not create a banking, economic, fiscal and ultimately political union.

The new dimension created by the development of Information and Communications Technology (ICT) provides a clear business opportunity for small and medium sized enterprises in the European Union, which should be taken as a formula to create jobs and boost business competitiveness.

At present, the possibilities offered by newly created tools such as cloud computing enable European SMEs to have an opportunity to grow that needs to be promoted by the EU institutions.

Cloud computing is a new technology tool that allows businesses to access a catalogue of services. It also allows businesses to respond to their needs in a flexible manner and enable them to adapt to the demands of the moment, paying only for what they need to consume at any given point. Cloud computing also increases the number of network-based services, enabling providers to operate in a faster and more efficient manner. Finally, these benefits come with an optimisation of costs and a guarantee that the service will remain secure.

The European Union must make a firm commitment to further the use of this valuable tool., As my colleague MEP and President of the European Internet Foundation, Pilar del Castillo points out, cloud computing offers a unique opportunity to spur economic growth and boost employment. Studies have concluded that fully implementing this tool could generate an estimated 3.8 million new jobs in the EU in the framework of the Horizon 2020 Programme.

Besides promoting job creation and innovation, and contributing to increased productivity and competitiveness, cloud computing has tremendous potential in terms of cost savings of ICT. It will also act to boost the development of the digital single market.

Data protection regulations must be adapted in order to accommodate this new technology and, at the same time secure and strengthen consumer confidence.

On the other hand, the fragmentation of the Digital Single Market should no longer be one of the outstanding issues, in order for cloud computing to realise its full potential.

In order to carry out these actions, we need the support of the EU to continue to promote access to new technological innovations including the deployment of High Speed broadband in Europe or the achievement of other initiatives already underway, such as the Galileo program of the European Commission for the development of the European satellite navigation.

President Obama’s state of the union address contained a big success for transatlantic relations: “And tonight, I am announcing that we will launch talks on a comprehensive Transatlantic Trade and Investment Partnership with the European Union – because trade that is free and fair across the Atlantic supports millions of good-paying American jobs.”

A comprehensive Partnership agreement, covering investments, regulatory convergence and other non-tariff barriers would be a game changer in world trade relations. And this, for different reasons:

– It would enable the European Union and the United States to lead instead of follow when it comes to standard setting. This might seem as a technical argument but it is not. It would enable the EU and the US to set world standards for electrical cars, mobile devices, etc. giving our industries a competitive advantage.
– Indirectly, this Partnership agreement will increase the appetite for other economies to open up as well. When barriers to invest between the EU and the US are lowered, it will increase the interest of emerging economies to engage in similar negotiations. As they will want to avoid that EU or US investments are diverted from their economies to the transatlantic economic area. As such, a EU-US agreement will revive multilateral free trade negotiations.

Overall, a EU-US Partnership will make both economies more competitive and stronger. Such an agreement will not be a zero-sum game but a gain for both parties. However, some EU and US industries will face more competition and might lose or, to the contrary, become more globally competitive. Moreover, it might make the US a bit more European and the Europeans more American, an evolution that should benefit both societies.

A recent study conducted by Deutsche Bank concluded: “Based on this approach the authors could identify improvements in competitiveness in the GIPS countries (Greece, Ireland, Portugal and Spain), but not in Italy and France. This suggests that the reduction in Italy’s current account deficit has been cyclical. The persistence of the French deficit is consistent with the lack of competitiveness and more robust domestic demand growth.”

In short, while some European countries such as Spain are improving the competitiveness of their economies, others are making no such progress. Should this trend continue, economic imbalances in Europe could emerge. In order to emerge from the crisis we need to improve productivity. The only alternative would be to lower wages. All European countries should strive towards creating innovative economies that can sustain relatively high wages and good working conditions. Europe cannot compete on the basis of labour costs. Rather, Europe must compete in terms of innovation and talent.

The second issue on which we should reflect is the lack of competitiveness of the French and Italian economies, as found by Deutsche Bank. Economic experts are concerned about both economies. France has become less and less competitive because of a failure to introduce necessary structural reforms. In Italy, the forthcoming elections make it unclear whether or not an agenda of structural reforms, of the sort which benefited countries such as Spain, will actually be introduced.

Hopefully in the coming months, Italy and France will resume a reform agenda and begin to experience economic growth once again. Not only for the good of their respective citizens, but for the good of all Europeans.

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