Social Europe

  • EU Forward Project
  • YouTube
  • Podcast
  • Books
  • Newsletter
  • Membership

The challenge ahead: a safer and more dynamic Europe

Gustav Horn 9th July 2019

In the latest in our ‘Europe2025’ series, Gustav Horn focuses on macroeconomic institutional reforms for crisis-proofing and a programme of investment to engender vital public goods.

crisis

Gustav Horn

After the European Parliament elections, it is time to decide how the European Union will meet the challenges of the near future. If the EU is to survive in the long term, it can only be via deepening European relations.

The priority to which member states and the European Parliament, in particular, should devote their efforts is to make the EU and monetary union crisis-proof. Some steps have been taken but they remain to be completed.

Rapid response

True, the need for a European Monetary Fund is no longer controversial, at least in the overwhelming majority of member states. But they oppose a monetary fund as a European, as against an intergovernmental, institution. Yet the latter would likely make decision-making more complicated, causing damaging delays especially in crisis situations. A rapid response to panic-driven imbalances in the financial markets would hardly be possible. Only a turnaround in the political debate—currently unlikely—can ensure Europe is ready for the next crisis.

Rendering the eurozone resilient to crisis fundamentally entails completing the remit of the European Central Bank, so that it can be the lender of last resort. So far, it has not formally fulfilled this role, even though it did de facto during the peak of the euro crisis in 2011 and 2012. Crises, however, raise the question of its credibility and thus of its effectiveness, which must be clear from the outset and not dependent on uncertain, ad hoc decisions.

All players in the financial markets need to be confident at all times that the ECB can rush to the aid of member states with liquidity, buying up their government bonds. This will nip some financial panic attacks in the bud. Central banks of all major economies have exactly this function.



Don't miss out on cutting-edge thinking.


Join tens of thousands of informed readers and stay ahead with our insightful content. It's free.



The European currency area is distinct because of the national independence of its members. Decentralised national fiscal-policy decisions however conflict under certain circumstances with European monetary-policy requirements.

The concern of many member states is that excessive borrowing by a single government could force the ECB to buy up massively that government’s bonds to keep the financial markets stable for all member states. In other words, the possible negative consequences of such an operation—such as inflation or a general loss of confidence in the currency—would be borne by all eurozone members. This leads to the fear that such a setting is an incentive to risk high public debt more easily and that, in the end, the entire monetary union would be heavily indebted.

This conflict between greater financial safety for the entire monetary union and increased incentives for risky behaviour by individual members remains unresolved. An unavoidable conflict, which has been a source of controversy among economists and politicians since the beginning of monetary union, it can ultimately only be resolved politically.

After all, the states of the monetary union must ultimately bear the political and financial responsibility. If they do not give the ECB a mandate, they risk a crisis of confidence spreading rapidly, with considerable economic and financial consequences for individual states. If they do however give it the mandate, national debts could rise—especially under the influence of nationalist governments—and consequently the burden of high interest rates.

One way out would be to give the ECB a graduated mandate. In the event of a crisis, the bank would have a free hand to buy up to 60 per cent of a country’s government bonds on the secondary market. To go beyond that would require an explicit resolution of the European Parliament. This would mean that the political responsibility for increased intervention would be assumed from a European perspective and the ECB would be relieved of this responsibility. Irrespective of the parliament’s decision, a European Monetary Fund could grant conditional loans at reduced prices to member states in distress, with the help of which they could more easily survive such a crisis.

Investment lagging

Protection against crises is one urgent task and creating greater economic dynamism is another. The European economic area is still suffering in many regions from the after-effects of the financial-market crisis and, above all, the crisis in the eurozone. Investments are particularly weak. In some cases, public investment is lagging far behind demand and its usual dynamics, while in others private investment is also very subdued in view of the economic situation.

At the same time, there is a high need for investment, particularly from a European perspective, in view of the requirements of climate change, energy-system transformation and the digital revolution. All these challenges can be met much more easily on a European level than by purely national efforts.

This can be achieved through an improved division of labour among member states, for instance in energy production. Another avenue is to exploit economies of scale in Europe-wide production. This is particularly important with regard to digital developments.

Against this background, a European investment programme in public goods and within the framework of a European industrial policy should be launched. A sustainable and secure energy supply, achieved through the massive expansion of renewable energies, could be a desired public good. European industrial policy could meanwhile create good supply ocialconditions for the digital economy by investing in a state-of-the-art digital infrastructure across Europe.

These investments could be financed by merging the numerous investment funds, such as the European Fund for Strategic Investments (the Juncker funds), and additional funds could possibly be raised via a European financial-market transactions tax.

With this double step of improved crisis management and a dynamic investment policy, many of the economic challenges facing the EU could be overcome. In the end that should serve to foster acceptance of increased European integration.

Gustav Horn
Gustav Horn

Gustav A Horn is professor of economics at the University of Duisburg-Essen, a member of the executive board of the SPD and chair of its Council of Economic Advisers. He is also chair of the Keynes Society.

Harvard University Press Advertisement

Social Europe Ad - Promoting European social policies

We need your help.

Support Social Europe for less than €5 per month and help keep our content freely accessible to everyone. Your support empowers independent publishing and drives the conversations that matter. Thank you very much!

Social Europe Membership

Click here to become a member

Most Recent Articles

u42198346ae 124dc10ce3a0 0 When Ideology Trumps Economic InterestsDani Rodrik
u4219834676e9f0d82cb8a5 2 The Competitiveness Trap: Why Only Shared Prosperity Delivers Economic Strength—and Resilience Against the Far RightMarija Bartl
u4219834676 bcba 6b2b3e733ce2 1 The End of an Era: What’s Next After Globalisation?Apostolos Thomadakis
u4219834674a bf1a 0f45ab446295 0 Germany’s Subcontracting Ban in the Meat IndustryŞerife Erol, Anneliese Kärcher, Thorsten Schulten and Manfred Walser

Most Popular Articles

u4219834647f 0894ae7ca865 3 Europe’s Businesses Face a Quiet Takeover as US Investors CapitaliseTej Gonza and Timothée Duverger
u4219834674930082ba55 0 Portugal’s Political Earthquake: Centrist Grip Crumbles, Right AscendsEmanuel Ferreira
u421983467e58be8 81f2 4326 80f2 d452cfe9031e 1 “The Universities Are the Enemy”: Why Europe Must Act NowBartosz Rydliński
u42198346761805ea24 2 Trump’s ‘Golden Era’ Fades as European Allies Face Harsh New RealityFerenc Németh and Peter Kreko

Hans Böckler Stiftung Advertisement

WSI Report

WSI Minimum Wage Report 2025

The trend towards significant nominal minimum wage increases is continuing this year. In view of falling inflation rates, this translates into a sizeable increase in purchasing power for minimum wage earners in most European countries. The background to this is the implementation of the European Minimum Wage Directive, which has led to a reorientation of minimum wage policy in many countries and is thus boosting the dynamics of minimum wages. Most EU countries are now following the reference values for adequate minimum wages enshrined in the directive, which are 60% of the median wage or 50 % of the average wage. However, for Germany, a structural increase is still necessary to make progress towards an adequate minimum wage.

DOWNLOAD HERE

S&D Group in the European Parliament advertisement

Cohesion Policy

S&D Position Paper on Cohesion Policy post-2027: a resilient future for European territorial equity

Cohesion Policy aims to promote harmonious development and reduce economic, social and territorial disparities between the regions of the Union, and the backwardness of the least favoured regions with a particular focus on rural areas, areas affected by industrial transition and regions suffering from severe and permanent natural or demographic handicaps, such as outermost regions, regions with very low population density, islands, cross-border and mountain regions.

READ THE FULL POSITION PAPER HERE

ETUI advertisement

HESA Magazine Cover

With a comprehensive set of relevant indicators, presented in 85 graphs and tables, the 2025 Benchmarking Working Europe report examines how EU policies can reconcile economic, social and environmental goals to ensure long-term competitiveness. Considered a key reference, this publication is an invaluable resource for supporting European social dialogue.

DOWNLOAD HERE

Eurofound advertisement

Ageing workforce
The evolution of working conditions in Europe

This episode of Eurofound Talks examines the evolving landscape of European working conditions, situated at the nexus of profound technological transformation.

Mary McCaughey speaks with Barbara Gerstenberger, Eurofound's Head of Unit for Working Life, who leverages insights from the 35-year history of the European Working Conditions Survey (EWCS).

Listen to the episode for free. Also make sure to subscribe to Eurofound Talks so you don’t miss an episode!

LISTEN NOW

Foundation for European Progressive Studies Advertisement

Spring Issues

The Summer issue of The Progressive Post is out!


It is time to take action and to forge a path towards a Socialist renewal.


European Socialists struggle to balance their responsibilities with the need to take bold positions and actions in the face of many major crises, while far-right political parties are increasingly gaining ground. Against this background, we offer European progressive forces food for thought on projecting themselves into the future.


Among this issue’s highlights, we discuss the transformative power of European Social Democracy, examine the far right’s efforts to redesign education systems to serve its own political agenda and highlight the growing threat of anti-gender movements to LGBTIQ+ rights – among other pressing topics.

READ THE MAGAZINE

Social Europe

Our Mission

Team

Article Submission

Advertisements

Membership

Social Europe Archives

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Miscellaneous

RSS Feed

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641

BlueskyXWhatsApp