Re-Winning Europe

MADRID – The European Parliament election revealed the full extent of voters’ frustrations, discontent, and lack of confidence in both the European Union and their national governments. The EU’s institutions will now confront a legislature marked by growing disaffection, while rising Euroskepticism is bound to have a profound impact on national policies. If the EU is to retain public loyalty, it must listen up and proceed to action. A program of strategic priorities is in order.

No doubt, the economy must come first. Much progress has been made on new instruments of integration, such as the European Stability Mechanism (ESM) and the banking union. But much more remains to be done.

The incoming European Commission must boldly stimulate economic growth and employment, so that southern European countries can reconcile their deficit- and debt-reduction goals with policies targeting growth. Ultimately, only the latter will allow for long-term fiscal sustainability. The Commission must also launch active labor-market policies to reduce unemployment, above all for young people. The recovery of dynamism, demand, and consumption depends on its success.

No pro-growth policy is as important as stimulating public and private research and development. The EU should, for example, allow R&D spending (and some spending on active labor-market policies targeting young people) to be left out of member states’ deficit accounting. This principle has been applied to aid to the financial sector; it is no less appropriate for investment. And, on the revenue side, Europe needs a minimum of fiscal homogeneity, at least in terms of corporate taxation, in order to avoid a race to the bottom.