Resolving the financial crisis: A political challenge for the European Union

Manon Malhere, intern at UNRIC, French desk, in Brussels

It is undeniable that the global economic crisis is somehow related to globalization, the growing integration of economies and societies around the world. It is important to note that the globalization phenomenon means that state interdependence continues to grow while borders fade. The economic globalization has already been accomplished in terms of deregulating markets, but the problem is that nothing has been done to counteract the primacy of its own rules and secure social justice (or social welfare) that States provided formerly.

So, how can the EU tackle the global economic crisis and provide a successful solution as a collective of individual states?

EU: lacking a common economic policy
In terms of the economic and monetary union of the EU, let’s first explore its weak points in order to better understand the global financial crisis effect inside the EU, namely the lack of a common EU economic policy. Although efforts have been made to standardize a monetary union within the EU (within the “Eurozone”), the economic policies are less robust. Even though EU policy currently includes the free circulation of capital and goods, and of people and services, there is a need to better implement measures to achieve the latter two. Second, the economic policy should adopt a competitive policy as well as common policies on regional development, social cohesion and structural adjustment, for example. Finally, macroeconomic policies should be created and restrictive rules should be included. The combination of these three points would create better coordination and ensure a more efficient integrated zone that would bring more social justice.

While the EU has struggled to have a coherent and binding economic policy, economic policy reforms have begun; the Lisbon employment strategy is an example. However, these reforms are multiplying without coordination, and as a result, a complicated matrix of procedures has developed, which has most likely halted European market growth.

As history has shown, such Europe-wide economic policy is likely to face strong opposition. Each state has its own social and fiscal system, which is historically and culturally entrenched, and any threat to a state’s economic policies may be, for example, interpreted as a threat to its national identity. It is almost as if economic policy has become the last bastion of national sovereignty in Europe. However, this lack of economic (fiscal and social) policy harmonization at the European level is something that should be changed – it should be more EU-wide because the EU has become so integrated.

Now’s the time for the EU to act – together
The current crisis has forced the lack of economic policy such as social and fiscal harmonization issues to the fore, and the opportunity and impetus for economic policy-building are therefore ready for action.

The socio-political aftermaths of the crisis such as unemployment, the reduction of salaries and the reduction of consumption all add to the political challenge that the EU faces. For instance, socio-political tensions have given rise to severe nationalism, which could be exploited to tackle the social dumping. However, while the short-term cost of nationalism would weaken the countries where social dumping has occurred, the long-term cost would be unthinkable in this globalized world. After all, globalization is continuing without abatement, so a return to nationals acting alone is therefore mostly inconceivable as an effective solution for the future.
Why should the EU act?

Regulating the financial crisis towards better social justice requires the EU to play a political role to improve economic and social policies. It is essential that the current policy be developed to ensure efficient and long-term efficacy. In other words, the EU should act to coordinate the initiative of the Member States to avoid this recession from becoming a depression.

Many authors, such as Jürgen Habermas, think that European society should be included in the construction of such a political community as the people are the only ones who can democratically legitimise the common policies adopted at the European level. They assume that if citizens become acclimatised to a new, but harmonised EU political line, governments would be more supportive and open to inclusion of EU-wide economic policies.

The debate remains largely open, but what is certain is that political creativity is needed for the EU as a new polity emerges. ■

For more information see: Jürgen Habermas, Après l'Etat nation, une nouvelle constellation politique (Fayard, 2000).

Social justice: Social justice, sometimes called civil justice, refers to the concept of a society in which justice is achieved in every aspect of society, rather than merely the administration of law. It is generally thought of as a world which affords individuals and groups fair treatment and an impartial share of the benefits of society. (Different proponents of social justice have developed different interpretations of what constitutes fair treatment and an impartial share.) It can also refer to the distribution of advantages and disadvantages within a society.

Deregulating markets: Deregulation is a process by which a government's control over businesses and individuals is reduced or eliminated. It is the removal of some governmental controls over a market. Deregulation does not mean elimination of laws against fraud but eliminating or reducing government control of how business is done, thereby moving toward a more free market. One consequence is the risk to the protection of consumer’s rights.

Social dumping: Social dumping is a practice involving the export of a good from a country with weak or poorly enforced labour standards, where the exporter’s costs are artificially lower than its competitors in countries with higher standards, hence representing an unfair advantage in international trade. It results from differences in direct and indirect labour costs, which constitute a significant competitive advantage for enterprises in one country, with possible negative consequences for social and labour standards in other countries.

Eurozone: The eurozone (officially the euro area) is a currency union of 16 European Union states which have adopted the euro as their sole legal tender. It currently consists of Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain.