THE THREE CHALLENGES OF THE INCOMING PRESIDENTS OF THE EU (COMMISSION, COUNCIL AND PARLIAMENT)

The first challenge is the economic situation: The financial crisis is receding but huge economic problems remain. Unemployment in Europe is at record highs and goes a long way to explain voter dissatisfaction with national and European leaders. Debt levels are historically high. Economic growth has turned positive again but remains far too feeble to alleviate the high joblessness or meaningfully reduce public debt, in particular in countries with high debt levels. All European Union countries need to adapt their economies and even societies to the combined forces of globalisation, demographic, technological and environmental change.  

The second challenge is twofold: Reforming the functioning of the EU institutions while dealing with pressing external matters. Dealing with growing scepticism about the EU and tackling pressing strategic questions that have remained unresolved for several years must be a priority. The success of eurosceptic parties in the European elections means that efforts must focus on citizens. For this, the work on economic growth is necessary but not sufficient. The EU is still perceived as wasteful, bureaucratic and undemocratic. The internal working of the EU and its institutions need to be improved as well as the management of the relationship between the euro area and the EU countries outside it (the United Kingdom in particular). Also, the EU’s neighbourhood strategy needs a re-think and the EU's place in the world needs to be strengtened.

The third challenge is to face up to the need for EU treaty change: The economic and financial crisis has resulted in calls for ‘More Europe’ but also for ‘Less Europe’. These contradictory demands are not necessarily addressed to the same areas of competences that are centralised or not at European level. Many citizens might be in favour of ‘More Europe’ in some areas and ‘Less Europe’ in others. A more fruitful approach is to seek a ‘Better Europe’, with some further competences allocated to European level while others remain at, or are even repatriated to, national level. This implies greater clarity in the division of responsibility between Europe and its member states, and also greater effort to ensure that Europe delivers better results in the areas for which it has clear responsibility.

Admittedly, the economic challenge is the most urgent. Europe needs to deliver growth and jobs soon to regain the trust of its citizens. A credible growth strategy needs to be put forward  in time for the December 2014 European Council and by mid-2015 the strategy should be implemented. Success will only be achieved if the EU leadership works closely together and with the heads of state and government of the member states. Nevertheless it would be rational that the Commission, which has executive and surveillance responsibilities, leads on the economic issues and on the reform of the Commission, while the Commission, the Council and the Parliament lead on pressing external issues, and the European Council and Parliament lead on the institutional track.

A European strategy for growth: Europe is losing its relative weight, and its demographic developments are unfavourable. Europe needs a growth strategy based on deeper global trade integration, more openness to immigration, improved educational systems and a better functioning internal market. It will also need to step up public investment and domestic demand. In particular, the growth agenda must provide a convincing response to Europe’s immediate and medium-term economic challenges. This entails both closing the output gap and increasing potential output. The strategy therefore needs demand measures to increase aggregate demand and close the output gap, and supply measures to increase potential output. Investment, which remains depressed in most EU countries, is key. Boosting investment would increase aggregate demand in the short term and increase potential growth in the medium term. The focus of the European growth strategy should therefore be to improve the investment climate in Europe. In this respect, much of what needs to be done is ultimately the responsibility of member states. But Europe has its own instruments, which matter for investment and growth. Member states can and must implement structural measures in several areas. The first is the functioning of product markets, into which entry by new suppliers often remains hampered by various barriers. This is especially true in services. Second are labour market and social policies (including basic education, training and life-long learning), which badly need to be modernised. Greater flexibility and better security for workers are essential features. Third is the functioning of the state, including the justice system and public administration. Finally, higher education systems in many countries remain ill-adapted for the economies of the twenty-first century and continental Europe still lacks global top-notch universities.