February/March 2008 - CER BULLETIN, ISSUE 58

My five ideas for Europe's future
by Nick Butler

To dismiss history is usually a mistake. But in one respect, at least, history weighs down on Europe in a manner that crushes its promise and potential. After a dismal century in which the continent was torn apart by men with vision and certainties, a reaction was inevitable. So for good reasons the EU was built through a process of intricate bureaucratic consensus-building. For a time, the advances made possible by such an approach, in a period of recovery and reconstruction, represented tremendous progress. Europe was peaceful, reasonably prosperous, increasingly united and generally at ease with itself.

Now, though, in a new century, these methods no longer suffice. The global economy is intensely competitive and while Europe may be able to protect its farmers, it cannot protect its industrial base or those parts of the service sector which are exposed to international rivals.

The European economy is just beginning to feel the impact of Chinese growth, which will add to the pressures already created by America’s powerful and accelerating lead in the development of innovation and intellectual property. In a world where both low and higher value added goods and services are traded through open competition based on price and quality, Europe’s comparative advantage is unclear. We are losing on both sides of the playing field.

The risk for Europe in the next ten years is not one of war or starvation, but of gradual and steady decline, with growing structural unemployment, rising public sector deficits, and an expanding gap between the sense of entitlement felt by ordinary people and the capacity of the European economy to meet those entitlements. The image which comes to mind is the gradual descent to shabbiness of a once beautiful country house whose needs have outstripped the means of its owners.

Ten years ago, the Centre for European Reform was founded in order to raise the level of the European policy debate, and it has succeeded beyond all the expectations of the small group of us who were involved. But perhaps we have been too timid, incremental in approach, and unwilling to argue the case for the radical changes that are necessary for the gains of the last half century to be sustained.

In that spirit, here are five ideas to boost the cause of renewal. The list that follows is not exhaustive. The point lies less in the details than in the direction proposed and the sense of urgency which underpins the shift of approach they represent.

First, given the magnitude of the challenge of climate change, Europe should lead the response, not just through rhetoric and support for environmentally dubious products such as biofuels, but through the development of the science, engineering and technology that will cut hydrocarbon consumption.

To underline its determination, the EU should establish a 100 per cent tax credit for all investment, personal and corporate, in all activity which reduces emissions. The credit should be enduring and would stimulate research, development and application. The businesses created would have the chance to be world leaders and contributors to the necessary global solutions. The cost would be minimal, because of the positive impact on employment and activity, and would be a worthwhile investment when set against the eventual costs of unconstrained global warming.

Second, the labour cost advantages held by China, India and the other emerging economies mean Europe’s future is unlikely to lie in substantial manufacturing activity. Our future lies in services, which extend to activities closely related to manufacturing, such as specialist engineering, and above all in education and the provision of skills. Europe’s education systems suffer from many problems, but the most obvious are at the university level: potentially strong institutions are shackled by government controls. Universities should be liberated and managed by independent trusts. Governments would still play a role in funding students, in the interests of developing skills and ensuring social mobility, but the money should follow the student – with universities competing on the basis of diversity and quality. The cost would be zero and probably negative if the intervening bureaucracies could be shrunk.

Third, education is an issue not just for Europe’s own population, but for the world as a whole. Europe should be at the heart of one of the world’s most dynamic economic sectors – where for the first time most people have the basic means to acquire skills and to develop their full potential. One step would be a Europe-wide scheme to attract the best and brightest from around the world for part or all of their higher education. Some would stay, to our benefit, while many would return home to help their countries develop. The cost for a scheme covering 100,000 students with scholarships of say €30,000 (covering teaching and basic living costs) would be €3 billion a year. A tidy sum to be sure, but less than is spent on the Common Agricultural Policy every month. The current Erasmus Mundus scheme – which sends non-EU citizens on masters programmes at EU universities, and finances Europeans to study in third countries – is not of the scale required, having only S230 million to spend over the five years to 2008.

The fourth idea is intended to meet the direct concerns of European citizens. Europe needs a programme of urban renewal to remove the blight of the slums which disfigure so many of its cities, from Paris to Naples. Urban renewal has been a success in many parts of the US and has transformed the centres of cities such as Philadelphia. A sustained programme in Europe would make a Keynesian impact, creating employment and opportunity. The development gains (the increase in land and property values which such programmes engender) could fund the activity, particularly if the programme was managed on a European scale with the gains spread to poorer communities. Such a programme should reach into every European country and remind citizens that Europe could make a difference to them as well as to farmers.

Finally, there should be action to correct the failure of the European Parliament to connect with its electorate. Even as someone who is reasonably politically active, I have never met and would not recognise my MEP. Europe is a community that is still – for better or worse – grounded in the nation-state. The European Parliament should be transformed into an institution comprising parliamentarians from each state, elected by their national legislature to serve for a specific term. The cost would be zero or less and the gain would come from the linkage of local, national and European concerns through structures which people know and understand.

More radical ideas might include a single security force to fight terrorism, or new competition laws that encourage rather than limit the development of firms on the scale necessary to compete in the global market place. Those are for tomorrow. The ideas for today may sound dangerous to some. But the most dangerous policy of all would be to do nothing and to tolerate decline, because we lacked the nerve to embrace change.

Nick Butler is director of the Centre for Energy Studies in Cambridge. He co-founded the CER and is now chairman of its advisory board.