Internationale Politikanalyse Europäische Politik, January 2006 Working Group„European Integration“* The EU needs a new Economic Policy! − Kick off to the Debate − Criticism and Recommendations I. For decades the prevailing economic policy in Europe has followed an orthodox-liberal credo. It boils down to this: more competition brings more innovation, growth and employment. ∗ II. But the reality is different: decades of liberaliza­tion have been accompanied by sinking growth rates of GDP and of macro-economic productiv­ity combined with high unemployment and even higher under-employment. On the one hand the increase in unemployment in recent years has been curbed by a slow-down in the progress of productivity induced by labour mar­ket policy. On the other hand the progress in productivity of businesses was often achieved by a cut in employment. To put it bluntly – the pre­vailing economic policy in the European Union has done little for employment and has contrib­uted instead a lot to un- and under-employ­ment. III. The attempt to transfer the business world’s concept of competitiveness to the overall econ­omy leads to erroneous political recommenda­tions, not only in the area of salaries but often also in the areas of labour market, education and innovation policy. The structural policies fol­lowed in these areas cannot produce the de­sired results in growth and employment without a balanced macro-economic policy. IV. The EU creates the framework for the member states’ employment and growth policies, in par­ticular through the ECB’s monetary policy, the deficit criteria, the internal market and competi­tion rules and the priority of competitiveness, as has recently been again stressed in the Lisbon strategy. This framework has not produced the ∗ The Working Group“European Integration” was founded in 1995. Its members work in EU institutions, federal ministries, research institutions and non-governmental organizations. desired results in the areas of growth and em­ployment, but has instead drastically restricted the options of social policy because of high under-employment. V. The member states cope with this framework in different ways. But overall the EU needs an eco­nomic policy which is able to coordinate the in­teraction of monetary policy, budgetary policy and wages to bring about an increase in de­mand in order to facilitate markedly stronger growth and higher employment. For monetary policy this also means actively supporting gen­eral economic policy in achieving growth and employment targets, as long as price stability is guaranteed. Monetary policy has fallen short of this goal which is stipulated in article 105 of the consolidated EU Treaty(EUT). VI. It is also necessary to find European answers to the topical question of how to avoid the down­ward competition of wages and taxes which is accentuated by under-employment. The EU’s few social policy powers(e.g. protection of la­bour, equal opportunities, social dialogue) must be increased and not exposed to further under­cutting by re-nationalisation. Company tax must be harmonized. VII. Under-employment represents at the same time a major growth potential. With a given high profitability and while maintaining price stability, the combined effect of monetary, budgetary and wage policy allows a development in which investment creates the necessary jobs and pro­duction capacity and demand further increases. Only this kind of growth can gradually reduce under-employment and at the same time enable research, development, innovation and better training of workers to give their full return. VIII. In this way progress in productivity will speed up again alongside growth and employment. Simultaneously this means more wealth and healthier competitiveness – a sound foundation