© Fotolia - Denys Rudyi
Although the economies of EU member states are recovering, employment is up and government deficits are falling, action is still urgently needed. The German government is coming under increased pressure to do more to encourage European reform and recovery.
Germany and the EU need one another
Over 50 % of German exports go to other EU countries. For this reason, Germany depends on the strength of the other nations within the bloc. Conversely, the EU profits enormously from Germany. A Prognos study shows that a robust German economy creates added value and employment opportunities throughout Europe.
German demand for products from other EU countries underpins almost five million jobs. The reason is the close connection between various national economies. For almost all EU countries, Germany is either the most important or the second-most important export market, while German imports create 240 billion euros in added value. The common European economic zone not only offers Germany the resources and markets it needs.
The EU also guarantees the security and order essential to stability and growth. For that reason, it is Germany's vital interest to encourage prosperity in its fellow EU states. Paving the way now for the decade to come Starting in 2020, broad reforms within the EU will have to be carried out. Germany needs to look ahead economically and plan strategically:
- Reform of the EU budget: The EU budget and the EU in general will be changing as of 2020. A lot of proposals have been made recently - from recommendations by the so-called High Level Group chaired by Mario Monti for special funds of the EU's own to a paper entitled "The Future of EU Finances" by EU Commissioners Günther H. Oettinger and Corina Crețu. To ensure that the EU's economic prosperity continues after 2020, the beneficial effects of expenditures for Europe must be maximized. To that end, it is necessary to focus expenditures on strategic fields of activity, particularly education, innovation and economic cohesion. Traditional budgetary items cannot simply be continued. For example, direct payments in the context of the EU's common agricultural policy are difficult to justify. The German government should concentrate on strategically refocussing the EU to give the bloc additional room to manoeuvre in its budgetary policy.
© Prognos 2016 on behalf of vbw
- Strengthening European economic policy: Member states and the EU Commission are both responsible for strengthening European competitiveness and growth potential. They must initiate structural reforms, pursue sustainable financial policies and avoid excessive macroeconomic imbalances. One measure that already helps improve coordination is the so-called "European Semester," the voting cycle of EU member states on economic and fiscal policy. But only if political guidance of the economy becomes more binding and is more thoroughly enacted can a truly effective instrument develop. Supplemental encouragement mechanisms can help strategically prepare the necessary structural reforms and see that they are implemented. The so-called "Structural Reform Support Service" provides a basis for this. Nonetheless, rules-based policies are extremely important to establishing reliability among partners. A club in which members fail to abide by the rules will inevitably be eroded. Yet the rules also have to be written so that the medicine prescribed in crisis situations actually contributes to the patient's recovery. Meanwhile, we cannot forget that the EU also needs a new strategic debate on economic policy. The bloc needs a common guiding vision of economic policy so that the goals of the Treaty on European Union are reflected in the realities of national and European policy. A Circular Economy could be a core element of such a vision, however, it would require a honest assessment of advantages and disadvantages of this economic model.
- Further development of European structural and investment policy: In future, cohesion policy should continue to be one of the EU's most important investment policy lynchpin. This is crucial to the bloc's ability to better connect strategies for dealing with urgent challenges on the European and global level with long-term local developmental strategies. The German government should throw its weight behind the strategy of smart specialization as a fundamental pillar of future funding from the European Structural and Investment Funds (ESI Fund). Although the ESI Funds play an important role in Germany’s regions, there has not been sufficient strategic assistance in fulfilling the imperative of creating European added value. To ensure such added value, cohesion policy must continue to play a major role in the EU budget after 2020. We should not forget that the ESI Funds provide critical financial contributions toward active economic policies and local economic development throughout the EU regions and, in fact, also in the majority of the German federal states.
The list could be expanded to include many other challenges and reform questions, from migration and defence policy to the great question of how the united European currency can be further developed in future. One thing, however, is clear. If Germany wants to continue profiting from the EU, it is not enough to increase our financial involvement. We also have to do more to shape the future of the EU and to ensure that it functions properly.