Briefing Paper

Elements of a new economic narrative

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“Without economic prosperity and confidence Europe will not be able to take the global leadership needed to build the conditions for sustainable development.” Nick Mabey’s paper looks at how the European economy can be put back on track, and highlights the political nature of the task.

Elements of a new economic narrative: Summary

  • Prosperity has always been the foundation of political stability. Europe has many misplaced fears about its ability to maintain its prosperity, and this is resulting in a politically debilitating lack of confidence. However, without this confidence Europe will be unable to play the leadership role necessary to secure the global conditions for its future prosperity and security.
  • Europe does face economic challenges: high levels of long term unemployment in some countries; greater global economic competition and faster change; an aging and stabilising population; and tightening environmental and resource constraints. Of these unemployment receives the most publicity, but is probably the easiest to address.
  • All other major countries face similar structural stresses, even the US and China will have rapidly aging populations in the next 15 years. But the stabilisation of global population at 8-10 billion is a positive development, as environmental limits have already been breached with only 6 billion people and high levels of global poverty. Europe benefits by being one of the first to stabilise its population, as its ability to trade and invest with fast growing economies increases incomes and eases the pension burden.
  • In this world the core founding insight of the EU becomes globally relevant: while companies may compete, countries are interdependent. Europe’s history shows how crude economic nationalism leads to conflict, and Europe is ill fitted to prosper in a world of competing “great powers”. Europe will have to act as a pathfinder for achieving cooperative global sustainable development. Europe has the economic weight to shape global conditions over the next two decades; if it chooses to take a lead.
  • Europe should be more confident in its record of providing prosperity and stability, and its strong assets for delivering them into the future. The single market is deepening and driving up efficiency, supported by EU regulations which have become the global standard in emerging economies. Europe’s growing network of major cities is the main source of new jobs and wealth creation, and leads the world in global economic integration. Europe is a pioneer in innovative approaches to the “public purpose” economy; such as the European Emissions Trading system. Europe leads all major economic powers in generating political support for investment in the public goods which underpin the economy: in healthcare; in pensions; in social security; in education; in tackling climate change and preventing poverty and instability outside the EU.
  • Europe also outperforms other countries in ensuring economic growth actually leads to increased well-being, equity and social mobility. In contrast, the US and most emerging economies are struggling to generate necessary investment in social security, healthcare, pensions and modern, efficient infrastructure.
  • But the process of European economic reform has failed to construct an offer based on these European assets and values, and so lacks public support. Too often reform is presented as if Europe needs to become a pale imitation of the US or China. A credible offer which could build public confidence would: as total GDP growth slows redefine economic success in terms of well-being; reconstruct the social bargain around strong positive incentives for women, older workers, young people and immigrants to work; and use the Lisbon agenda to drive radical increases in resource efficiency across Europe.
  • A new approach must also resolve the growing intergenerational tensions inside Europe. Younger people shoulder the fiscal burden of an aging society, but have less economic security and face high environmental and energy costs. The new politics of Europe needs to generate intergenerational cooperation to share fairly the cost of higher public investment in pensions, healthcare, resource efficient infrastructure and in tackling climate change.
  • Europe cannot secure its prosperity just by focusing internally, but must help create the global conditions for prosperity and stability. At the heart of this must lie a more strategic EU approach to building global economic rules, and one which is not subordinated to short term trade negotiations.  Economic interdependence also means that the EU must help create the conditions for others to manage common challenges. Global economic and political disruption has increasingly large impacts on the EU; as recent energy shocks have shown. Europe cannot isolate itself from these effects, but must work with others to tackle problems at source. Helping resolve US fiscal imbalances, Chinese energy security and global climate change are necessary steps to underpin the economic growth needed to manage Europe’s aging population.