European Policy Centre

Overcoming the economic and financial crisisSeizing the opportunity for reforming the global economy

The European reaction to the crisis: the

European Economic Recovery Plan

19 November 2009Dr. Fabian Zuleeg

Introduction

• Fabian Zuleeg, Senior Policy Analyst, Political Economy Programme, European Policy Centre (EPC)

• EPC: Brussels-based independent think-tank with around 400 members – multi-stakeholder

• Independence and transparency• Mission: to make European integration work • Focus on implementable policy recommendations• Three programmes: integration & citizenship, Europe in the world,

Europe’s Political Economy (EPE)• Within EPE, covering a wide range of topics, including economic

governance, Single Market, innovation, climate change/energy, better regulation, Well-being 2030, health

Relevant EPC publications

• Where would we be now without the Euro?http://www.epc.eu/TEWN/pdf/41256017_Where%20would%20we%20be%20now%20without%20the%20euro.pdf

• The stimulus package: how much is enough – and what for?http://www.epc.eu/TEWN/pdf/41255650_The%20stimulus%20package.pdf • The recovery plan revisitedhttp://www.epc.eu/TEWN/pdf/41255650_The%20recovery%20plan%20revisited.pdf

• Where next for the Lisbon Agenda?http://www.epc.eu/TEWN/pdf/319978211_Lisbon%20Agenda.pdf • Economic recovery to a greener economy: mobilising ICT-based innovations http://www.epc.eu/TEWN/pdf/373530745_Economic%20recovery%20to%20a%20greener%20economy.pdf

The financial and economic crisis

• Long term underlying global imbalances: US triple deficit, speculative bubbles

• Triggered by sub-prime mortgage• Liquidity crisis in financial sector• Spread from financial to real economy• Recession in developed world, slow down in

emerging economies

Implications for policy

• Need to supply liquidity• Taking over banks’ assets and liabilities• Decreasing interest rate• Fiscal stimulus

But - Deficit and debt levels soaring- Long term policies?

Why is there a need to act at EU level?

• Subsidiarity

• EU added value

• Common shared objectives

• Interdependence

• Effectiveness and efficiency

EU actions – financial and economic crisis

• Stability & Growth Pact

• Broad economic policy guidelines

• Checking financial sector and fiscal measures – Single Market

• ECB – interest rates, market interventions

• European recovery programme

Coordination, Cooperation or Common Action?

• Areas of core EU competences – monetary policy (Euro), Single Market rules (competition, state aid, procurement)

• Positive role of SGP (deficits/debt) and Euro (currency stability) in the run up to the crisis

• Areas of EU cooperation and coordination (OMC) – soft law

• EU spending – limited budget, limited flexibility• National spending and taxation + EU ‘toolbox’• National public finances vs. SGP

Signs of weakening European commitment?

• Protectionist ‘rhetoric’• National plans• Financial sector• State aids and credits• No appetite for ‘more Europe’ – e.g. EU budget• Within Eurozone – interest rate spread• Outside Eurozone – limited European role

Where to now?

• Crisis highlighted European and global economic interdependence

• But responses were predominantly national• Crisis not yet over …• Some worrying signs of weakening European

commitment• Uncertainty about how to deal with the legacy of

the crisis (unemployment, debt, financial sector) and at what level

Europe’s challenges

• The crisis and its consequences are not all the EU faces• Europe faces a ‘perfect storm’

– Demographics– Globalisation– Resource scarcity– Climate Change– Income inequalities (within and between countries)– Cohesion and migration

• Strategic choices: budget review, post Lisbon Agenda• Need to decide what we expect from Europe and how we

can sustain our economic and social models

Q&A + Discussion

Contact: F.Zuleeg@epc.eu