Social Europe

politics, economy and employment & labour

  • Themes
    • Global cities
    • Strategic autonomy
    • War in Ukraine
    • European digital sphere
    • Recovery and resilience
  • Publications
    • Books
    • Dossiers
    • Occasional Papers
    • Research Essays
    • Brexit Paper Series
  • Podcast
  • Videos
  • Newsletter
  • Membership

A European Plan For France And Germany

Henrik Enderlein and Jean Pisani-Ferry 3rd December 2014

Henrik Enderlein

Henrik Enderlein

Europe is falling into a stagnation trap. With growth barely visible, and dangerously low inflation causing real interest rates to rise, the weight of public and private debt has grown very heavy, and many fear that another lost decade is at hand. And, though the threat of eurozone fragmentation has receded, it has not disappeared. Given all of this, Europe is losing relevance internally and externally.

France and Germany – which largely drove European integration for more than six decades – must not resign themselves to this state of affairs. They urgently need a common plan, not mutual recrimination by German supply-siders and French demand-siders.

We find such controversies pointless. Lackluster productivity growth is prima facie evidence of a supply deficiency. The combination of high unemployment and falling inflation is prima facie evidence of a demand shortfall. Interest-rate differentials within the same currency area are prima facie evidence of fragmentation. The truth is that Europe suffers from multiple ills.

Jean Pisani-Ferry

Jean Pisani-Ferry

So action is needed on all three fronts. The question is how to carry it out. If Europe were a single country with a single government, it would adopt a two-handed strategy, combining ambitious pro-growth reforms with fiscal-policy support. The central bank would make it clear that it stands ready – provided that the reforms are real and the commitment to subsequent fiscal consolidation is credible – to serve as a “backstop for government funding” (as European Central Bank President Mario Draghi put it in August).

Europe can do none of this, and no easy solutions are available. Some say that Germany should stimulate demand while other countries, including France, implement supply-side reforms. But an increase in debt in one country beyond what is desirable from a national perspective cannot be traded for the benefits of pro-growth reform in other countries.

One solution would be to establish a fiscal capacity at the eurozone level, or, in plain words, a eurozone budget, including the ability to borrow. But, though that is certainly desirable in the long term, currently there are no revenue flows into such a budget, and there is no governance structure to execute it.

In this context, investment has emerged as everybody’s favorite response. The European Commission has proposed a plan to stimulate investment spending through a new financing scheme, one that we hope will succeed. But solving Europe’s growth problem requires more than just throwing money at it.

In a recent report to the French and German economy ministers, we propose a pragmatic agenda that accounts for the fact that, while both France and Germany need reforms, they face different challenges and must focus their policies accordingly. In France, short-term uncertainties are reducing confidence, but the longer-term outlook looks promising. In Germany, longer-term uncertainties are reducing confidence, but short-term prospects look good. In France, we fear a lack of boldness; in Germany, we fear complacency.

French policymakers should give priority to a new growth model, based on greater flexibility and security for employees, and a leaner, more effective state. Germany, meanwhile, must address its demographic challenges, in particular by preparing German society for increased immigration, and promote the transition to an inclusive growth model based on improved demand and a better balance of saving and investment.

We also call for a clearer regulatory environment. Private investment is a judgment about the future. In energy, transport, and the digital sector, to name just a few, regulators must set the right parameters and ensure predictability. Investors need to know with certainty that Europe is committed to accelerating its transition to a low-carbon, knowledge-based economy.

This requires eliminating uncertainty about the future price of carbon and the future regime for data protection. France and Germany should also promote a “borderless sector” model in a few strategically important industries, which means common legislation, common regulation, and even a common regulator. We think that energy and the digital economy are such sectors, and we propose a similar initiative to ensure the full portability of skills and social benefits.

Moreover, like the European Commission, we believe that higher investment is a big part of the answer to Europe’s growth question. Germany’s public-finance framework rightly attributes constitutional status to keeping debt under control, but it neglects investment promotion within the remaining fiscal space. Leaving a worn-out house to future generations to repair is not a responsible way to manage wealth. The German government can and should increase public investment.

At the same time, while authorities are asking banks to assume less risk, they also must prevent pervasive risk aversion in the financial system. We propose injecting new European public money into the development of risk-sharing instruments and vehicles that support equity investment. We also propose creating a European grant fund to support public investment in the eurozone that advances common aims, strengthens solidarity, and promotes excellence.

Europe is more than a market, a currency, or a budget. It was built around a set of shared values. To uphold those values, France and Germany must join forces to rediscover and reinvent Europe’s social model, starting with concrete initiatives in the fields of minimum-wage standards, labor-market policies, retirement, and education.

For decades, the Franco-German alliance bound Europe together and drove it forward. Today, French and German officials issue joint declarations and exchange accusations. But the time for bickering is over. Europe needs action.

© Project Syndicate

Henrik Enderlein and Jean Pisani-Ferry

Henrik Enderlein is a Professor at the Hertie School of Governance and Director of the Jacques Delors Institute in Berlin. Jean Pisani-Ferry is a Professor at the Hertie School of Governance in Berlin and currently serves as the French government's Commissioner-General for Policy Planning. He is a former director of Bruegel, the Brussels-based economic think tank.

You are here: Home / Politics / A European Plan For France And Germany

Most Popular Posts

Russia,information war Russia is winning the information warAiste Merfeldaite
Nanterre,police Nanterre and the suburbs: the lid comes offJoseph Downing
Russia,nuclear Russia’s dangerous nuclear consensusAna Palacio
Belarus,Lithuania A tale of two countries: Belarus and LithuaniaThorvaldur Gylfason and Eduard Hochreiter
retirement,Finland,ageing,pension,reform Late retirement: possible for many, not for allKati Kuitto

Most Recent Posts

Nagorno-Karabakh,European Union,EU,Azerbaijan,Armenia Azerbaijan exploits vacuum on Nagorno-KarabakhGeorge Meneshian
Abuse,work,workplace,violence Abuse at work: who bears the brunt?Agnès Parent-Thirion and Viginta Ivaskaite-Tamosiune
Ukraine,fatigue Ukraine’s cause: momentum is diminishingStefan Wolff and Tetyana Malyarenko
Vienna,social housing Vienna social-housing model: celebrated but misusedGabu Heindl
social democracy,nation-state Social democracy versus the nativist rightJan Zielonka

Other Social Europe Publications

strategic autonomy Strategic autonomy
Bildschirmfoto 2023 05 08 um 21.36.25 scaled 1 RE No. 13: Failed Market Approaches to Long-Term Care
front cover Towards a social-democratic century?
Cover e1655225066994 National recovery and resilience plans
Untitled design The transatlantic relationship

Foundation for European Progressive Studies Advertisement

The summer issue of the Progressive Post magazine by FEPS is out!

The Special Coverage of this new edition is dedicated to the importance of biodiversity, not only as a good in itself but also for the very existence of humankind. We need a paradigm change in the mostly utilitarian relation humans have with nature.

In this issue, we also look at the hazards of unregulated artificial intelligence, explore the shortcomings of the EU's approach to migration and asylum management, and analyse the social downside of the EU's current ethnically-focused Roma policy.


DOWNLOAD HERE

Hans Böckler Stiftung Advertisement

WSI European Collective Bargaining Report 2022 / 2023

With real wages falling by 4 per cent in 2022, workers in the European Union suffered an unprecedented loss in purchasing power. The reason for this was the rapid increase in consumer prices, behind which nominal wage growth fell significantly. Meanwhile, inflation is no longer driven by energy import prices, but by domestic factors. The increased profit margins of companies are a major reason for persistent inflation. In this difficult environment, trade unions are faced with the challenge of securing real wages—and companies have the responsibility of making their contribution to returning to the path of political stability by reducing excess profits.


DOWNLOAD HERE

ETUI advertisement

The future of remote work

The 12 chapters collected in this volume provide a multidisciplinary perspective on the impact and the future trajectories of remote work, from the nexus between the location from where work is performed and how it is performed to how remote locations may affect the way work is managed and organised, as well as the applicability of existing legislation. Additional questions concern remote work’s environmental and social impact and the rapidly changing nature of the relationship between work and life.


AVAILABLE HERE

Eurofound advertisement

Eurofound Talks: does Europe have the skills it needs for a changing economy?

In this episode of the Eurofound Talks podcast, Mary McCaughey speaks with Eurofound’s research manager, Tina Weber, its senior research manager, Gijs van Houten, and Giovanni Russo, senior expert at CEDEFOP (The European Centre for the Development of Vocational Training), about Europe’s skills challenges and what can be done to help workers and businesses adapt to future skills demands.

Listen where you get your podcasts, or for free, by clicking on the link below


LISTEN HERE

About Social Europe

Our Mission

Article Submission

Membership

Advertisements

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641

Social Europe Archives

Search Social Europe

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Follow us

RSS Feed

Follow us on Facebook

Follow us on Twitter

Follow us on LinkedIn

Follow us on YouTube