Is Europe about to be “Trumped”? That’s the question EU leaders are asking as they cast nervous eyes at next year’s French presidential elections, where the populist, anti-immigration, anti-EU National Front candidate, Marine Le Pen, is positioning herself to deliver a historic upset. Her chances are still slim (particularly if the centre-left and centre-right decide to join forces to block her coronation), but it wouldn’t be the first time the polls have called it wrong.
Frankly put, Europe needs to deliver jobs. Whether it’s by getting out of the way, promoting structural reforms, cutting red tape, and letting the private sector do its thing; or through massive public investment and debt write-downs to kick-start the economy; or via some combination of the two, the EU needs to drive economic growth across the continent if it wants to survive. But, politically, how can a program for growth be achieved in practice? Crudely speaking, Southern voters don’t want painful structural reforms and Northerners don’t want to pay for investment and debt forgiveness.
The McKinsey Global Institute recently a held global essay contest aimed at crowd-sourcing solutions to this conundrum: How could a pro-growth reform programme be made deliverable by 2020, and appeal to electorates and decision makers alike at the national and European level? You can find the winning entries online here (pdf).
Idea 1: Compensate globalisation’s losers
The award for the best essay by an author under the age of 30 went to 23-year-old Antoine Levy from France, currently a PhD candidate in economics at the Massachusetts Institute of Technology (MIT). He proposed compensating losers of structural reform programs, including offering workers in industries affected by foreign competition shares indexed to GDP growth, as a way to make them more politically palatable. Levy argues that, even though the economy in general may benefit from greater liberalisation, there are bound to be individual losers. So, by compensating them up front, he hopes they can be encouraged to drop their opposition to reform.
Idea 2: A ‘new deal’ for Europe
First prize was won by Professor Volker Brühl, managing director of the Center for Financial Studies at Goethe University (in Frankfurt, Germany) Professor Brühl proposed national growth and investment initiatives, along with European efforts to support ‘clusters’ in certain industries so they can benefit from economies of scale, and a ‘new fiscal deal’ (i.e. modified EU rules around national debt that allow for more flexibility and greater scope for investment).
Idea 3: Cut debt, stop quantitative easing, and start investing
The joint-winner of the first prize was Dan Ciuriak, director and principal of Ciuriak Consulting (in Ottawa, Canada). Mr. Ciuriak’s essay proposed an end to the European Central Bank’s quantitative easing program, and a raising of interest rates. He argues this will make labour in Europe more affordable relative to the cost of capital, and will end the “jobless recovery” that Europe is currently mired in. He would also like to see the cancellation of excess public-sector debt (he argues that moral hazards do not apply in a crisis); and a reorientation of industrial policy to stimulate public investments.
Could these ideas help boost Europe’s economy? What measures does Europe need to undertake to encourage economic dynamism? How could governments implement reforms in a way that would be palatable to the public and politicians alike? Let us know your thoughts and comments in the form below, and we’ll take them to policymakers and experts for their reactions!