What future for Europe and the Euro?

by MARTIN SCHULZ*

The crisis has also exposed the fragility of a monetary union without close fiscal and economic coordination. The EU today faces the double challenge of finding a fair way out of the crisis and strengthening its institutions to boost economic governance.

The European response to the crisis has been too little too late. Sometimes it has even been contradictory and overall it has failed to convince the markets. Recent months have exposed numerous weaknesses that threaten both the Euro and the integration process.

Common wisdom holds that Europe is confronted with a crisis of its common currency. But this is not true: the Euro is a stable means of payment, both in cash and in its exchange value. The real problem is that Europe is facing both a crisis of cooperation between its member states and a crisis of member states' refinancing.

To deal with the first, it must be understood that running Europe on the basis of deals between governments simply does not work. To be fit for the future, the EU needs closer cooperation of member states' economic, budgetary and social policies, and policy development decisions at European level in line with the community method.

Former EU Commission President Jacques Delors famously regretted that the economic and monetary union only had "only one leg, the monetary leg." It is high time to correct this defect and add an "economic leg". The Commission must be at the heart of economic governance, assuring its democratic legitimacy.

To address the crisis of member states' refinancing, decision-makers must understand that the economic and social crisis engulfing Europe was not only caused by budget deficits or public debt.

We need to remember that the Euro zone as a whole has less debt than the United States , which is not attacked by speculators. Unregulated financial markets account for a large part of the problem.

Financial markets shifted away from their original purpose of providing liquidity to the real economy to become high-profit, high-risk and short-term operations. This led to huge indebtedness and bubbles, whose bursting rapidly contaminated the real economy, causing the worst economic crisis in generations.

Recent months have seen the Euro in the cross hairs of speculators betting on the breakdown of the Euro zone. To prevent such speculation from ever happening again, we need tough regulations and strict supervision of financial markets.

Let us not forget what heads of states and governments promised when they were tying up huge rescue packages to save the banks: we want our money back and the bankers will have to pay. Those responsible for the crisis must also shoulder the costs. This is why my political family took the lead in the campaign for a financial transaction tax and secured a landslide majority in the European Parliament two weeks ago to have it put into effect. A Europe-wide FTT of only 0,05 per cent would produce €200 billion in additional revenues every year, money that could be invested to the benefit of citizens who have been bearing the brunt so far.

What kind of Europe do we want for the future? This question lies at the heart of disagreements between European social democrats and the right- wing. The right wing's response to the crisis is: overly drastic and indiscriminate cuts. While fiscal responsibility is a necessary ingredient of economic policy, the timing and nature of budget consolidation should not undermine recovery and growth. An overly drastic reduction of public deficits and debts in the current situation is both socially unacceptable and economically risky. European social democrats have been advocating an alternative economic policy agenda to find a fair way out of the crisis, one that ensures high quality, full employment, sustainable growth and fiscal responsibility.

We must pool not only the benefits of a common currency, but also the risks. The creation of a European Stability Agency, which will be responsible for managing European debt, is a first step in the right direction. Eurobonds would have the benefit of protecting the Euro zone against financial market speculation and would cut the costs of financing debt for every member state. They are the only viable alternative to cross-country transfers or default.

European social democrats want a Europe of solidarity, one that stands strong and united to address the challenges of a globalised world in the interest of its 500 million citizens.

* by Martin Schulz (born on 20 December 1955 in Hehlrath) - German politician and Member of the European Parliament for the Social Democratic Party of Germany, since 2004 leader of the Socialists in the European Parliament.