Europe’s non-rhetorical values

By Leszek Balcerowicz
Former governor of the Central Bank of Poland and Deputy Prime Minister and Finance Minister in the first post-communist Polish government, Professor of Economics at the Warsaw School of Economics.

The debate about Europe's future is burdened by misleading and emotionally charged rhetoric, with vague talk of "more Europe" hampering productive discussion about European countries' real problems. Indeed, beyond the loaded language lie fundamental questions that have yet to be answered convincingly. What exactly would "a federal Europe" entail? Is "European solidarity" a euphemism for the transfer union that Germany opposes, or for massive bailouts by the European Central Bank?

Such rhetoric usually displays a centralist bias, with the pursuit of "more Europe" depicted as the only way that the European Union can compete economically with politically centralized countries like the United States and China. But this confuses economic competitiveness with military power. In order to reap the benefits of European integration, it must be achieved through individual interactions, economic and otherwise, facilitated by the removal of regulatory barriers.

The centralist approach disregards the vast discrepancies in economic performance among EU countries - and ignores the fact that one finds more economic success stories among Europe's smaller countries than among its large ones. Within the eurozone, cumulative GDP growth since 2008 has ranged from -23.6% in Greece to 5.2% in Slovakia; outside the eurozone, it has ranged from -4.1% in the United Kingdom to 12.5% in Poland. The economies of Poland, Slovakia, the Baltic states, Bulgaria, Sweden, and Germany have all grown faster than that of the US, while Hungary, Denmark, and most eurozone countries have registered negative growth.

These variations are rooted in differences in national policies, which highlights the fundamental flaw in the idea that solutions to European countries' problems lie mainly at the EU level. In the US, the federal government does not take responsibility for solving states' individual problems; indeed, the states that have been hardest hit by the crisis have undertaken their own reforms.

Likewise, there are no "European" solutions to, say, Italy's problems. Italy needs Italian solutions, just as Greece needs Greek solutions, Portugal needs Portuguese solutions, and so on. European arrangements must not weaken countries' incentives to address the challenges facing them - and that means exercising extreme caution when it comes to bailing out eurozone economies.

Current discussions also tend to ignore - and even distort - the values that European institutional arrangements are supposed to serve. "More Europe" is not a goal in itself. For any believer in traditional European values, individual liberties - including economic freedom - and their associated responsibilities constitute the ultimate criteria for developing and assessing institutions, from the local to the European level.

At the heart of the European project lies a commitment to the single market, the subsidiarity principle, and the "four freedoms," as well as other traditional liberties such as freedom of speech and religion. These values are universal; there is nothing specifically "Anglo-Saxon" or "German" about them.

Moreover, embedding these values in European institutional arrangements demands no sacrifices in terms of long-term GDP growth and employment. On the contrary, experience has demonstrated that economic liberalization and de-politicization (including reducing the share of public expenditure) is vital to lasting recovery.

But there is no way to predict whether Europe's leaders will adopt this strategy. After all, the EU's future depends on its members' policies, which, in turn, depend on their diverse and variable political situations.

What is certain is that delaying much-needed reforms would be more than risky; it would spell disaster for the eurozone. Indeed, given Europe's accumulated public debt and its rapidly aging population, maintaining the status quo would serve only to intensify economic crisis, threatening the euro's very existence. Even if European institutions like the ECB continued to extend rescue operations, they could not compensate for a lack of reform. They would, however, aggravate social and political turmoil in the eurozone, with Europeans increasingly challenging such operations' legitimacy.

It is against this background that the risks inherent in different kinds of reform should be assessed. Despite the chorus of voices condemning austerity, labor-market flexibility, and so on, there is a reasonable chance that these are the reforms that will be pursued. The problem countries in the EU have been moving in this direction, and their reforms' success is largely proportionate to the speed with which they have been introduced. The examples of Poland, Estonia, Sweden, and Germany, among others, demonstrate that early reforms can yield huge social payoffs.

Europe's future will ultimately be decided by the balance of competing political pressures, particularly at the national level. As it stands, there is no shortage of resistance to freedom-oriented reform and pressure to pursue statist policies. If believers in traditional European values fail to ensure that their voices, too, are heard, hazy rhetoric will continue to overshadow constructive debate of the EU's problems - and misguided policies will continue to undermine Europe's prospects.

Copyright: Project Syndicate