December 7, 2011
2011 will go into European history as an “annum horribilis”, fraught with panic, uncertainties and political ineptitude. But in five years from now it will also be praised as a year of major reforms that have consolidated the euro-zone and made the EU fitter for the huge socio-economic challenges waiting at the horizon.
It has made Europe more democratic: never have so many governments been replaced in one single year: Greece, Portugal, Italy, Ireland, Croatia, Slovenia, Spain , Belgium, Denmark, to name the major ones. Governments thus paid the price for their incapacity to manage their “crises”.
It has been a year of intense intra-European debates about the future of the continent, the role of capitalism, the banks, corrupt leadership, weak parliaments and last not least, the survival of the common currency.
At the end of 2011, the number of politicians, journalists and economists still believing in the demise of the Euro or the breakup of the euro-zone has shrunk to insignificance. It will simply not happen!
2011 has ushered in a new “culture of public debt”. Europeans have acquired a greater awareness of excessive public debt for their well-being.
During the first decade with the Euro, governments have largely ignored the rise of their public debt in relation to GDP; they allowed it to exceed 60 per cent/GDP debt without qualms; and the European Commission, the guardian of the Treaty, failed to call them to order.
Future generations will be grateful for the policy change that has begun in 2011.
2011 has demonstrated that political leadership can produce miracles.
Within less than three weeks after taking over government Prime Minister Monti has dared to submit to parliament the indispensable reforms that his predecessor Berlusconi had shunned for years, in particular the overdue pension reform, the restoration of real estate taxation, an increase of VAT rates to 23 per cent (!),luxury taxes on cars and yachts and more effective fighting against tax evasion.
2011 has seen major strides towards adapting the European retirement age to increased life expectancy. Italy will raise the official retirement age to 66, for men immediately and for women as of 2018. It will abolish the incentives for early retirement that enabled millions of Italians to take their pensions at 58-59 years, one of the causes of high the budget deficits.
Other countries also adapt their pension systems. Thus, without formal proposals from the European Commission, member states will undertake changes of their pension systems that would have been unthinkable only a few years ago.
Spain, to be followed by Italy and Portugal, has begun to tackle overdue labour market reforms that will allow entrants to the labour market better access to jobs.
Greece has introduced competition in what had been “closed shop” trades like taxies, lorries and several professions.
Portugal will resume the privatisation of its utilities and airline, and abolish its outdated system of investment licences that discouraged potential investors and should long have been outlawed by EU competition rules.
Both Ireland and Portugal have rediscovered the virtue of exporting and re-balancing their current account balances.
Most important for the financial markets, the perception of European governments failing to honour their debts has faded. Today, Greece is seen as the absolute exception and not as an example for other euro-zone countries with excessive debt levels. That is the deeper meaning behind the Franco-German efforts to insert a debt brake into the Lisbon Treaty.
Author : Eberhard Rhein