Out of the crisis: Case for a European initiative

1. The intensification of the crisis calls for global and European responses, adapted to its global nature. Since the meeting of the G20 heads of state and government in Washington, we appear to be seeing the emergence not only of practical solutions, but of new forms of governance tailored to the global issues. The European Union can provide significant impetus to ensure real progress at the next stage, to take place on 2 April in London.
    
2. The current situation is characterised by economic difficulties on an unparalleled scale, as well as a crisis of confidence affecting financial institutions, monitoring institutions, public issuers and politicians. Not forgetting the dramatic social dimension of this crisis.
    
3. Against this background, it appears that the countries of the euro area, and more generally Europe, have a specific contribution to make:
   a. Because they are not, primarily, responsible for the crisis
   b. Because they are among the main victims
   c. Because the euro area has experimented with the benefits of economic and monetary union, in particular with the success of the euro
   d. Because Europe has unique institutional experience in joint action accumulated over a period of almost 60 years.
    
4. However, we believe that the world needs joint action to come up with cooperative and non-protectionist solutions to today’s problems and the economic governance institutions of tomorrow. Political, economic, social and financial actors, and, in a wider context, consumers, investors, savers and all citizens need this joint action to restore their confidence. In our view, more joint action means more confidence, and thus impact and possibilities for recovery. Furthermore, the need for concerted European action is becoming more apparent now that the United States has a confirmed leader at the end of a period of political transition.
    
5. The findings, directions and suggestions sketched out here are the fruit of joint reflection between French and German leaders. Reflection that is open to representatives of other European countries, who may make their own contribution. Their objective is, by spreading their ideas, to contribute towards the initiatives promoted by European politicians seeking to bring us out of the crisis. They aim to promote European and global economic governance, required alongside national arrangements as a result of the globalisation of economies and companies.
    
6. In recent times, we have seen that certain initiatives taken in isolation by member states, with no joint European perspective, can be inefficient or even counter-productive. Insufficient coordination at a European level creates the risk of escalation and adverse effects which, by possibly focusing on short-term difficulties, are creating systemic difficulties with even more serious consequences in the medium and long-term. One of the convictions shared by signatories is that the current crisis once again demonstrates the urgent need to strengthen the union and the ability of Europeans to act together. This concerns both public policies and private actors (companies, trade unions, civil society). In the current period, we need to support the emergence of truly European industrial groups and services.
    
7. In the first place, financial regulation and the supervision of financial institutions have revealed their shortcomings. Europeans must actively contribute towards the emergence of new financial regulation, based on long-term objectives, and helping to direct saving towards shares, with proper evaluation and remuneration of risk.
    
8. With regard to supervision of financial markets, the Luxalpha business – one of the European aspects of the Madoff scandal – demonstrates the need to bolster regulation of European funds and harmonise protection for savers. Once again, in a broadly harmonised market, only a European initiative can achieve this objective. We therefore support the idea of strengthening the European dimension of supervision of the financial sector, currently too segmented at a national level. We must be able to draw inspiration from the decentralised but federal structure adopted in the monetary area, with the Eurosystem, to bring national supervisors together equally effectively. More particularly, with regard to banks and insurance, the crisis has also shown the benefits of proximity between supervisors and central banks: at a European level, this proximity could be achieved by linking the CEBS and CEIOPS committees, strengthened and federalised, with the European Central Bank.
    
9. Secondly, we feel that Angela Merkel’s proposal of creating a UN Economic Security Council responsible for defining a sustainable economic Charter is an important idea since it is in line with the new global economic situation. Its key functions should include monitoring and preventing the global imbalances that have helped to trigger the current crisis.  This Council should also have the power to impose financial sanctions on countries that do not respect the new prudential regulations which will need to be applied to the financial sector. It could also contribute towards the emergence of these new supervisory rules in the financial sector. We are now aware of the extent of the need to review international accounting standards, in particular to help bolster banks’ own capital, or to improve the perception of accumulation of financial risks at a global scale.
    
10. This Economic Security Council, the composition of which could be based on the current G20, should be able to call upon the Financial Stability Forum (FSF) for issues relating to financial regulation, on the IMF for macro-economic analyses and interventions, and on the BIS as a forum for dialogue between the main central banks. It is important to point out the important work being undertaken by the FSF and the IMF on the harmful effects of offshore financial centres (tax havens): the future Economic Security Council could, in particular, take a front line position for decisive action in this area. Of course it is important for the euro area to present a united front within this future Economic Security Council: the Eurogroup has an important responsibility in this respect.
     
11. Thirdly, we are calling for, over the next 6 months, the launch of major trans-European infrastructure works programmes. Beyond and alongside national projects, these programmes (for which inventories already exist) will demonstrate Europeans' awareness of their shared interests. They could cover areas such as very high-speed telecoms, river shipping, high-speed rail transport or energy supply. They must be in line with the recently adopted energy-climate package, in particular its environmental and sustainable development aspects. They could involve upgrading existing, and often ageing, infrastructures or accelerating new projects.
     
12. To fund such infrastructure programmes, we suggest issuing special Eurobonds. These bonds could be the first to be issued by a future European debt agency. In this sense, we are reflecting the recent proposals put forward by Jean-Claude Juncker and recommending that they are applied initially, in coordination with the EIB, to these major European infrastructure works. Closer coordination of their interventions in the public shares market is in the interests of all European countries.
     
13. Europe can and must make its contribution towards reducing the global imbalances that have led us into this crisis. We have created a currency that has become the second biggest in the world. To ensure the continued prosperity and stability of the euro area economy, it must be capable of attracting capital by offering attractive returns. The attractiveness of the euro area will also depend on the stability of its financial system and the buoyancy of internal demand, hence the necessity of investing in trans-European infrastructures and, more generally, in sectors offering prospects for young people, such as research and innovation.
     
14. Finally, we must not lose sight of the fact that institutional Europe needs the support of its citizens at all times. 2009, the year of European elections, will also be an opportunity to promote awareness among Europeans of the need for joint action. We feel it is crucial for the main political parties to take up and promote these ideas in their electoral programmes. We also hope that the Czech and Irish leaders, who must submit or resubmit the draft Treaty of Lisbon for ratification, will get involved in explaining the global issues to the citizens of their countries.
     
15. The crisis must also help to raise awareness and, once the Treaty of Lisbon has been ratified, Europe and its collective leadership can emerge strengthened, with more effective institutional tools to continue along the path towards unity, peace and renewed prosperity.

This text was written, on their own behalf, by Philippe Bonzom, Jean-Christophe Boulanger, Ekkehard Ernst, Christoph Gottschalk, Benoit Guillemot, Paul Jaeger, Juan de Liedekerke, Marcel de La Haye,  Sébastien Loubry, Thomas Mostert, Oliver Nass, Philippe Perchoc, Grégoire Postel-Vinay, Wolfram Vogel, Philippe Ward and Jean Winckler  (partnership between the Groupe des Belles Feuilles in Paris and the Deutsche-Französisches Institut-DFI in Ludwigsburg). In 2008,  the Groupe des Belles Feuilles published the article “Zone euro: renforcer le pilier économique” (Euro area: strengthening the economic pillar) which suggested strengthening the Eurogroup’s ability to coordinate national economic policies, while fully respecting the independence of the single monetary policy of the Central European Bank.