Brussels - In 2011 Europe has to be smart, great and ambitious to achieve quick recovery from the crisis, fiscal discipline and international competitiveness, whereas all the Eurozone countries focus on safeguarding the stability of the common currency. The recent financial and economic crisis has clearly indicated a number of inadequacies of the current legal and political framework, which are currently being tackled by the EU. Hence, 2011 is expected to be a year of challenges for the European Union in developing a new framework that will improve financial supervision, enhance economic governance and establish a permanent crisis mechanism. In parallel, the challenges imposed by the ageing population, climate change and the lack of innovative funding instruments remain at the forefront of European, as well as international discussions.
2011 marks the beginning of the new European framework for financial supervision. The measures include a European Systemic Risk Board to oversee the health of Europe's economy, while other supervisory bodies will overlook banking, financial markets, insurance and pensions. It is expected that the new framework, adapted to the level of financial market integration, will enhance financial stability in the European Union and, consequently, contain potential risks to the real economy and public finances.
The system will safeguard the interests of consumers, investors, and other users and stakeholders of financial services, or at least prevent the magnitude of the effects of a potential crisis. Eventually, it aims to make EU financial markets more competitive and foster integration, while supporting their sustainable development. It is clear that in the future there will be no place for fragmented, national responses, with a lesser effect to the globalized markets, but rather a single and clear answer to external risks. In addition, the recent economic crisis has indicated that national policies have to be better coordinated to avoid similar crises in the future. 2011 will be a decisive year regarding the exact form of the new economic governance package, as well as its effectiveness. This new legislative framework is expected to deliver increased fiscal discipline, broader economic surveillance, deeper coordination and stronger institutions. It is worth mentioning that budgetary consolidation alone cannot ensure neither sovereign debt sustainability nor the correction of the observed imbalances.
There are fears that expenditure cuts and higher corporate taxes may discourage investment, reduce demand and raise unemployment. Moreover, the tough sanctions proposed may exacerbate the situation of already heavily indebted countries and thus the degree of automaticity is being debated. Europe needs a strategy that will allow growth acceleration both in the core and the periphery. Hence, European leaders are confronted with the challenge of achieving fiscal discipline without hampering growth.
2011 will also be a year of decision for the establishment of a permanent mechanism which will replace the temporary European Financial Stability Facility and aim at preventing, managing and resolving future crises, although it will probably not be implemented before mid-2013.
The purpose of such a mechanism is to safeguard financial stability in the euro area and its implementation requires a limited Treaty change. It has to be stressed that this proposal encompasses two new features; the potential participation of private creditors in the financial assistance programs and the possibility of debt restructuring or "controlled default".
The implementation of such proposals has to take into serious consideration the development agenda and the social and economic specificities of Member States which are facing fiscal problems and above all the European solidarity and cohesion.
In this direction, the internal market's advantages should be fully exploited for it to achieve its potential. The extent of economic and political integration lies behind the efforts of EU leaders in supporting the common currency. It is the right time to push market integration to new levels targeting the significant persistent imbalances across Member States as a well-functioning Single Market is the only way to ensure long-term growth for jobs. In this context, opening up market access for European - particularly small and medium sized - businesses, modernizing public procurement administration rules, reforming tax systems and regulating cross-border debt recovery are all necessary steps that have to be taken. Structural reforms, such as liberalizing the services sector, can promote productivity, innovation and investment as well as attract valuable human resources. Furthermore, it is essential that European institutions and national governments put increased efforts into designing and implementing an ambitious agenda for economic, social and territorial cohesion that supports a well-balanced development of regions and localities. 2011 also calls for greater emphasis on the "knowledge triangle" of education, research and innovation which can speed up recovery and employment in a time of globalization and growing international competition. Combining high growth rates with poverty reduction is the major challenge in achieving "inclusive growth".
The consolidation efforts by Member States put further pressure on public expenditure during an era of population ageing and rising cost of healthcare provision and social protection. Hence, delivering adequate and sustainable pensions for European citizens is a critical issue. In conclusion, dealing with the economic crisis and building the momentum of recovery, sustainable development and jobs requires well thought-out solutions at both national and European level in addition to building an area of freedom, justice and security, launching negotiations for a modern appropriate EU budget and pulling EU's weight on the global stage. Unilateral approaches seem not be sufficient in overcoming the difficulties countries are facing in establishing sound public finances and growth, finding innovative sources of funding the national and European projects and facing the strong international challenges.
2011 is expected to be a promising year for European citizens and states, and making the best use of the opportunities ahead will allow Europe to broaden its horizons and move towards new directions.
Source: www.neurope.eu
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