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The future of the European economy: the new Commission’s choices

Rome, 31/01/2020, International Roundtable

The European Union is confronting a series of long-term structural challenges that, nevertheless, require the immediate implementation of high impact, broad-spectrum policies. An initial issue is climate change, naturally a planet-wide concern for which Europe has already set goals, such as carbon neutrality within 2050 (which will obviously have direct effects on the energy sector). A second challenge is demographic in nature, associated with both the ageing of the population and the influx of immigrants that is currently asymmetrical in terms of destination within the EU, points of transit and provenance, and is producing very different effects on various Union members. A third structural concern is economic growth in a global context where finance is heavily interdependent and volatile, and in which budget policies are often influenced by the high level of public debt.

The great transition toward a green economy and a model of sustainable growth is yielding important albeit gradual results and overall will have clear positive effects on employment as well; yet the serious problem of managing negative local and/or temporary repercussions that risk damaging the weaker and more vulnerable segments of the society directly remains. An equally decisive ingredient is the necessary injection of investments that have been estimated at approximately one trillion euro. Also to be kept in mind is the political consensus at stake, as demonstrated by the case of the “yellow vests” in France and, more generally, public diffidence toward institutions in light of technological changes and the rules imposed on markets – thus on manufacturers but also on consumers.

Looking at demographic trends and, in particular, at the ageing of the population, the entire social welfare apparatus needs major adjusting in order to make the economic transition under way acceptable and preserve the social market economy that is the hallmark of the European Union. Inevitably, the mechanisms of democratic politics are feeling the impact of demographic change in terms of possible intergenerational friction as well as of the difficult integration of immigrant communities. Regular and open dialogue with all components of the civil society becomes essential to making rational and well-considered choices in the common interest.

With regard to growth, general economic trends have been positive over recent years, even in terms of stimulating employment. However, new and even significant risks are emerging, associated for the most part with international trade. Thus, the aim is to make the European economy more resilient to external shocks through increased productivity and better integration in the banking and capital sectors.

Strengthening the euro as an international reserve currency could help support the European economy and encourage the pursuit of a more solid economic sovereignty in a highly competitive global setting that is also less stable than in the past. Among various other concerns is fiscal and monetary policy, given the difficulty in introducing anti-cyclic measures in an international context such as the current one.

One of the lessons of the latest financial and sovereign debt crisis has been how necessary it is to monitor even the macroeconomic imbalances of individual Member States. The Commission’s task, therefore, is to evaluate the combination of factors that could place the overall stability of European economies at risk. A policy choice that will continue to be discussed is whether and how to incorporate the European Stability Mechanism and parts of the Fiscal Compact into the EU’s legal framework: for now, the related proposals have not garnered sufficient support among Member States, but the debate continues in the recently installed Commission and Parliament.