A Community in Search of Unity, a Union in Search of Communion
The Faculty of International Business and Economics, from the Bucharest University of Economic Studies, hosted on 16th-17th November 2017 the 8th edition of The Future of Europe International Conference, with the participation of distinguished speakers and generous auditorium from Academia, public administration, and business environment.
Following two days of both persuasive and passionate debates on a variety of European themes, the event culminated with a closing panel where the participants expressed thoughts that both inspired and were inspired by the spirit of the FoE 2017 Conference. The Market for Ideas proudly shares them in a plea for educated reflection on our future of Europe.
* * *
The Establishment has drawn the wrong, and yet self-serving conclusion from Brexit
Brexit and the ascendency of populist parties are the latest challenges confronting the European Union. But what do they mean for the future of European integration?
When pondering the answer to this question, what I find more disturbing is the counter-reaction set in motion by these two challenges on the part of the establishment. My primary concern is that this counter-reaction is going to represent a turn toward more political integration, a process that amounts to making great strides along the path of political centralization, and the harmonization of regulations and fiscal policy. In other words, I fear that the establishment has drawn the wrong, and yet self-serving conclusion from the Brexit vote and the electoral gains of left-wing and right-wing populist parties: Administering more of the same interventionist medicine and using these developments as an opportunity to picking up the pace toward a more federalized Europe.
We have already observed the manifestation of this counter-reaction in the public discourse of elected and appointed policy makers, at both national and supranational levels. Two examples in this sense are the declarations of Messrs. Macron and Junker in matters concerning the future of the Eurozone, respectively the 5 (perhaps 6) scenarios for moving the EU forward in a post-Brexit world. It is perhaps eloquent that the president of the European Commission has already declared that the second scenario out of the 5/6 ones (“Nothing but a single market”) is not even a realistic option to be taken into consideration.
Now, after voicing some of my concerns regarding the future of Europe, I am going to mention some of my hopes. We are currently being told that we face a dilemma: we must choose between furthering political integration or the inward-looking populist alternative. Only by giving more power to Brussels can we hope to face these challenges, make our economy more competitive and preserve peace. Otherwise, populists would sacrifice all this by implementing isolationist policies. It is true that the EU has a democratic deficit, but this too can be addressed in time by further political integration. I hope we will realize that all this is a simplistic view of our current economic and political situation and that we are actually faced with a trilemma, not a dilemma. Besides the two alternatives already mentioned, we also have a third option if we choose to rein in the supranational institutions to the classical-liberal ideal. What I hope for is the implementation of the “Nothing but a single market” scenario, but taking it to an even greater level of economic freedom.
* * *
Migration and labour market: mind the (security) gap!
Demographic decline and its implications for the labour market have become one of the most stringent topics in developed economies, while emergent ones are not being excepted. The countries with extremely powerful economies, like Germany, confront themselves with a shrinking labour force, which is unable to keep up with the developments of the business environment, not to mention that specific sectors requiring highly skilled workers must deal with an even bigger challenge. Berlin, in its official documents, states that it will face a shortage of 3.3 million workers no later than 2020, many of which are needed in the technological and innovation industry.
In order to tackle this problem, complex policies are needed, therefore the states should have a word to say in the matter, while the natural forces of the free market are not able to cope with it anymore. The German case is also relevant in the context, but the issue can be spotted in various places across the European Union.
In another train of thought, is migration a possible solution for the labour force deficit? Due to the current evolutions in the Middle East - North Africa region, the migration-refugee issue became critical, so a couple of actors tried to transform this important challenge into an opportunity. The implications are extremely complex due to the fact that we are not just talking about the economic implications alone. Relevant security issues are at stake and, last but not least, political ones.
Germany received approximately 1 million refugees during the last two years since the crisis fully erupted, as a result of the policy promoted by Chancellor Angela Merkel. The Berlin administration put a greater emphasis on the concept of “opportunity”, thus filling the labour gap with people coming from countries affected by violence and extreme poverty seemed a fairly pragmatic approach. The statistics recently issued by the German authorities have shown that the integration process (and subsequently the absorption on the labour market) did not go as smoothly as planned. Are we talking about a failure with implications at the European level, or is it too early to give the verdict?
* * *
Innovation and the technological future of the European Union – a glance into humanoid robotics development
Ramona Dieaconescu (Țarțavulea)
Innovation has always been one of the main pillars of economic development. In the last decades the speed of technological innovation has changed the global economy by transforming not only products and services, but the way of doing business in general. Easier access to markets and clients around the globe has generated new opportunities for businesses to grow and diversify their offer. Production processes have been streamlined by automation and computerization and industrial robots are doing the work previously done by human labour force and they are doing it better, faster and cheaper. In a glance into a not too distant future, we can foresee the use of humanoid robots for jobs that are currently done by humans. So many prototypes of humanoid robots have already been developed by hi-tech companies and it is a matter of time until they will be used on a large scale in the production processes and service industry. Recently, the world was mesmerized by the speech of Sophia, the first robot to have been granted citizenship by a country (Saudi Arabia). This is a robot that is designed to learn and to develop social skills over time. This is a perspective that gives cold chills to many people who are thinking they may lose their jobs to robots in the future. In the European Union philosophy of development, social cohesion and raising living standards for all European citizens have always been set as priorities. Using humanoid robots could be an extraordinary opportunity for increasing the quality of life for European citizens, if we can develop a comprehensive regulatory framework that sets rules for robots to work complementary with people, so that the result will not be higher unemployment rates, but fewer working hours per week for humans.
* * *
Redistribution of wealth in the EU was directed through monetary policy towards countries having trouble
The last couple of years have been under the spell of deep crisis inside the Euro Area. Not only did the Great Recession struck Europe, but it was shortly followed by the Euro Area sovereign debt problem. The latter was provisionally solved through European Commission’s together with the European Central Bank’s financial help. Programmes of buying sovereign debt from highly indebted states were set up and monetary policy actually addressed the financial stability issue first, rather than its primary objective of price stability. This meant that redistribution of wealth from one part of the European Union was directed through monetary policy towards countries having trouble. Not only did an independent central bank, safeguarded against political interference, involved itself in a political issue, but it did so in spite of having a low democratic accountability in front of European citizens. Another question stands up: who is giving support to whom, are the debtors the ones benefitting from this redistribution or are the creditors ultimately the ones given the support? The European Central Bank also operated monetary policy instruments similar to the ones used by the Federal Reserve System, a less autonomous central bank, aiming comparable objectives. Thus, a concern arises: if independent institutions without democratic legitimacy redistribute wealth and are comparable to non-autonomous bodies when taking decisions, do we still consider them desirable? A hope may find its way in trying to change a system that supports such discretionary policies affecting us all.
* * *
The unfortunate “law of emigration”: poorly-designed policies drive out hard-working citizens
Mihaela Cristina Drăgoi
The freedom of movement of persons represents the greatest benefit resulting from Romania’s accession to the European Union, according to the study conducted by the Romanian Institute for Evaluation and Strategy – IRES entitled “Romania – Nationalism versus Cosmopolitanism” (available in Sinteza Magazine, No. 28, May 2016, pp. 21-45). The ability to travel, study or work anywhere in the European Union provides benefits for the European citizens, including Romanians, opportunities to know, analyse and compare various nationalities, cultures, types of political, economic and social organisation. From the point of view of the Romanian citizen, the freedom of movement is equivalent to the freedom to travel that has been restricted before 1989 and is a right and an opportunity to which Romanians are fully entitled.
On the other hand, the freedom of movement of persons transformed itself, during the 10 years of EU membership, into a considerable exodus of Romanian labour force – both highly qualified and unqualified – mainly to the Western European states. This has become a challenge for host countries and for Romania as a home country as well. The reasons for massive emigration from Romania are predominantly economic and social ones (more often connected with one another), which cannot be improved in order to alleviate the phenomenon of emigration unless articulated national economic, social and political strategies to pursue medium and long-term goals are designed.
* * *
The binary (i)logic of Europe
The European Union project seems, with the passage of time, to be born out of the “original sin” of “double-thinking”. For an honest person, scientist or not, this observation is bothering.
There is an implicit view from mainstream political scientists and practitioners that the EU is “doomed to survive” only and only under the auspices of an “ever closer union”. Put it simply: by political centralization. The underlying philosophy is said to be too obvious: since the crises pertain to the conclave (i.e. imbalanced handling of the monetary and fiscal tools; demographic ageing pressing upon national welfare states’ stability; the poor cultural and economic metabolism of migration), the solutions need to be, correspondingly, concerted. But common sense economic theory and history show that decentralized decision-making processes are associated with peace and prosperity, by coordinating smoothly social information and incentives.
Also, there is a widespread misunderstanding with respect to the meaning and source of “euro-skepticism”. The portrayal of euro-skeptics as enemies of Europe is a fraudulent and thus a perilous one. There are good reasons to be skeptical when the facts you distrust and disapprove are poorly documented or implemented (which is true in the case of many common policies). It is crux to see, for instance, whether people, pundits or politicians dislike the EU for the “freedoms of circulation” or for the “public regulations and transfers of funds”. Each of them has a different nature and impact upon the wealth and welfare of EU citizens. So, the way forward is to properly grasp the inner workings of the EU before loving or hating it alongside with its critics.
Finally, there is an eternal struggle in the case of any political construct between the need (and promise) of “liberty” and “security” (be it “social and economic”, “cultural/spiritual”, “military” etc.). Liberty is linked to the person and its property acquired by un-aggressive means. Securing more than this limited and legitimate sphere of liberty and property is a tricky undertaking, for it degenerates in a bazaar of unfounded claims and far-fetched rights, at the mercy of opportunistic leaders from either the mild, “politically-correct”, or spicy, “extremist” parts of the political-ideological spectrum. Paraphrasing a saying on naïve democracies: those who trade natural liberty for artificial security (of any kind) may find themselves short of both.
* * *
The fate of the European Union’s foreign trade
Commuting from international relations to global governance implies a significantly different network of relationships between state and non-state actors, formal and informal behavioural norms, among the goals of economic efficiency, social responsibility, and ecological relevance. In this new perspective, the following are mandatory: boosting EU exports of goods and services by determining actors to penetrate many foreign markets; ensuring protection for the European industry of goods and services, especially through measures against unfair competition caused by certain imports from third countries; counteracting all forms of discrimination or denial of community goods and services’ access on third markets; providing a legal and institutional framework favourable to foreign direct investment, with adequate protection of investors and investments; supporting European interests in international organizations; boosting trade integration of many countries in regional and international redefined landscape. European Union’s regulatory and institutional framework is constantly evolving, as this high dynamic is the result of a strategic positive sum game that involves a variety of stakeholders.
EU trade regulations must respond to citizens’ expectations and send credible messages to other regions. A regulatory and institutional framework is necessary, which should foster measures aimed at a sustainable economic growth, a correct, ethical, non-discriminatory and mutually beneficial trade with foreign countries, to ensure the proper application of the promised facilities and granted preferential schemes. New goals that need to be promoted must include: energizing multilateral trade negotiations so that multilateralism be boosted by bilateral and multilateral approaches, and not eroded by them; enhancing the presence of European economic actors on the markets of Asia, Africa and Latin America; reconsidering the partnership with BRICS countries; developing a new wave of trade relations with Australia, New Zealand, India, the Philippines and Indonesia; implementing the provisions of the Trade Agreement with Canada (recently adopted and in ratification process); restarting negotiation with US to complete the Trans-Atlantic Trade and Investment Partnership (TTIP); upgrading existing agreements with Turkey, Mexico and Chile; reviewing trade relations with the Russian Federation to eliminate hostility and to exploit existing opportunities. Transparency, credibility and legitimacy are needed.
The most challenging issue for the EU is to manage the shift of the trade paradigm towards a strategic perspective. Fulfilling the Europe 2020 Strategy means a new type of repositioning which involves: a more accurate application of multilateral rules of conduct; identification of most effective ways to support the legitimate rights of European economic actors; more strictness of retaliatory measures at unfair trade practices; successful use of the mechanism of multilateral trade dispute settlement; offering best practices in the implementation of commitments; fight against protectionism. As a demand of the new economic reality, the main measures should be focused on: supporting more stakeholders to benefit from trade liberalization; implementing effective measures to increase the inclusiveness of economic growth; an increasing EU role in translating the Development Agenda; reviewing Community schemes of nonreciprocal and non-discriminatory preferences in the logic of a new GSP; greater transparency and legitimacy regarding the correlation between trade and development; reviewing the fundamentals of the economic and trade partnership; taking greater account of social and environmental issues.
* * *
Monetary authorities cannot function in a political vacuum, they are not independent
The last global crisis illustrated, among other things, a truth which most people already suspected, i.e. that the concept of central bank independence is rather a theoretical abstraction. Periods of economic downturn make it evident that monetary authorities cannot function in a political vacuum. There is ample support to sustain the idea that in the preceding years, the European Central Bank did not do much more than copy the policies adopted by its foreign sibling, the Federal Reserve System.
The measures implemented lately by central banks, known as unconventional monetary policies, raise even more concerns for the contemporary economist. In a desperate attempt to stabilize prices, central banks have innovated traditional monetary policy, being more interested in longer term goals than before. There is hardly any solid economic theory behind these measures. Even the wave of New Keynesianism offers little support for these unconventional policies, which are extremely inflationary and have relatively unknown effects in the long run.
One definite side effect of these measures so far is that central banks now own a large amount of the world’s assets and that a consistent part of these assets are of a somewhat dubious nature. Monetary authorities, if we are allowed to use a metaphor, are now in an “all in” position. There is a growing consensus among economists that given the extreme measures already adopted by the world’s largest central banks, there is little they will be able to attempt in the next economic crisis.
* * *
Euro adoption, as a “monetary level playing field” for Romanian producers, before any other technical consideration
Accession to the Euro Area cannot be justified with “scientific” pros and cons by the economists. By joining the Euro Area, a country simply switches a fiat currency with another fiat currency, each preserving the very shortcomings of fiat money; and nothing and no one can change that. Arguments such as the “optimal currency areas”, “nominal convergence” or “real convergence” are ultimately arbitrary when previewing or reviewing the success or failure of such a transition from a (fiat) currency arrangement to another. For instance, in every country there are regions with different levels of development, that do not converge (neither “nominally” nor “really”), but their fiat currencies stayed in place; all countries are, in fact, non-optimal currency areas, but this does not lead to the collapse of their fiat monetary system. The fact that a Euro Area with Romania inside is not optimal seems rather pointless.
The argument of eliminating competition between currencies by melting them down in a common monetary area deserves also consideration: at a first sight, from the point of view of the consumer-citizen purchasing power, it is better to have more currencies in competition than a single one monopolized by countries participating in the monetary area because of the emerging general disciplinary / anti-inflationist dynamic. However, we are talking about a fiat money world, with monetary state/political monopolies. Among politicians, there is a tendency for monetary cooperation rather than for competition. The latest efforts in the field (the creation of the IMF as a monetary cooperation forum, the Bank for International Settlements, other global monetary agreements) show a dissimulated refusal of monetary competition and a strengthening of monetary cooperation, a de facto cartelization of the international monetary order.
The only argument that might be useful in such a discussion (when Romania should adopt or not the Euro) would be the removal of the barriers between the participants in the Single Market. The single currency will encourage Romanian producers to access the Single Market at lower risk and costs and capitalize on their specialization in production and its catallactic function. The more Romania delays this moment, the more Romanian producers are kept apart from the benefits of integration that truly matter – those of an economic nature. We cannot refute this recommendation (to introduce the Euro as soon as possible to help Romanian producers to be more present on the Single European Market) with the fact that the central bank can stimulate exports through the exchange rate (or keep a marge of manoeuvre in other respects). Of course, ultimately, money users tend to prefer the most stable and the most secure currency.
The more the currency is inflated, the lower the confidence in it. We cannot say a priori that a national central bank will be more or less inflationary than the common central bank (ECB). It’s a purely speculative assessment. For example, in the long-term ECB was less inflationary than the central bank of Romania, but in the short run it was not (EU’s outbreak was through a very strong increase of the Euro supply). Moreover, economic theory shows that the depreciation of the currency is not necessarily beneficial (for an exporting economy), being accompanied by various adverse welfare effects. Modern monetary policies (both inside and outside the Euro Area) are a source of monetary chaos and make the investment and financing decision more difficult. For this reason, the recommendation would be that Romanian producers have at least identical contractual conditions with Eurozone producers as a monetary level playing field.
* * *
Euro-technocracy, Brussels bureaucrats’ secular religion
In considering the European integration and European Union’s problems in general, it should not be forgotten the danger of an old phenomena which is coming up today under the name of technocracy, or the rule of experts. The rise of an apparently scientific, expertise-based elite at the top of EU’s institutions should be a real concern for citizens. The rationale behind this is based on two arguments. First is the pretence of political neutrality of expertise when it comes to laws or public policy proposals. No doubt that expertise as such is value free or neutral since it only describes laws and facts of a certain domain, profession or science. However, when technocrats pack expertise into public policy they no longer remain value free. Public policy interferes with the subjective aims of different individuals, and there is no scientific way to discover these aims. These can only be known, on the market for instance, by entrepreneurs, within a trial & error process, which remunerates those who correctly forecast consumers’ aims, and generates losses for those who do not.
The implicit value judgment of a technocrat whose expertise becomes public policy (uniform enforcement) is that the aims of the people who are at conflict with that specific policy are – at least temporarily – less important than the policy’s aims or the aims of those who benefit by virtue of uniform enforcement. The consequences of a goal such as an economic or monetary integration/disintegration can be easily explained by some economic theories, but the desirability of the goal itself is a matter of individual, subjective assessment. In holding respect for science one should not let himself moulded by government as a science enforcer.
Passing to the second argument, more than one year and a half has passed since the Brexit referendum and UK is still in the EU. The sinuous character of the exit procedure is a symptom of a deep technocratisation of EU’s structures and of a loose political control. From a democratic point of view, the more decisions are transferred to unelected bodies, the less the public (citizens) will be able to oppose certain public policies in the future. Technocracy can thus harm political sovereignty, both individual and national. Moreover, from a historical point of view, technocracy has always been continental (such as the case of Technocracy Inc.) or even internationalist (see the technocratic structure of the Trilateral Commission) in spirit, aiming at creating a single centre of power, which would be invested in those who possess expertise. Brussels today is not yet this kind of a centre, but ideas such as fiscal or political union bring it closer to the technocratic ideal.
* * *
“Emigrare” (to other EU member states) humanum est, sed perseverare (in flawed domestic policies) diabolicum
Romania’s top place in the world ranking regarding migration is a symptom that should worry us, but it is important to worry us in the right direction. Why do Romanians leave? There may be substantial reasons and subjective reasons. The substantial ones concern the precarious governance in Romania, mainly interventionist, arbitrary, unpredictable and of a human quality far from any idea of a natural elite. The subjective ones concern the possible desire of the Romanians to test on the spot the opportunities from other spaces (seemingly) more favourable for personal prosperity and happiness. In view of these things, the attitude to adopt with respect to this phenomenon seems to be, from my angle: first of all, freedom – laissez faire: if the Romanians want to leave, they must be permitted to do so; then, address the causes that drive them to emigrate (most of the measures should be in the direction to ease business start-up, hiring and firing, saving and reinvestment; these measures should also regard employment in the public sector, in the sense of reducing it, especially for sinecure-type positions in the central and local administration, positions which should be abolished all together). As for the subjective aspect of emigration, perhaps a policy of understanding and patience is the best remedy. More than once in history emigrants have returned, to their countries of origin, with capital, knowledge and good practice, but especially with the idea that the rest of the world is not necessarily a paradise and that, in the end, we are responsible for our own prosperity, that can be achieved by sound economic policies. Also, to the extent that those of us who remain, without complaining about those who leave and without putting them on trial for the “investments of the Romanian state in them” (forgetting the taxes paid by them and/or their parents), naturally reinvigorate an honourable Romanian culture and civilization, this will be the best anti-emigration or pro-repatriation policy. On the other hand, restricting emigration, non-liberating but burdensome facilities (like European funds or public funds, subsidies) would create more problems than it would solve.
And a note on Brexit: If we do not want to raise the European integration to the status of indisputable dogma, I highly believe that a kind of honourable, loyal, “from inside” Euroscepticism must be accepted. It is meant to point out the vices of the European construction, to the point of exit, if it follows an incomprehensible or unacceptable course for a certain proportion of European citizens. I believe that the danger of Brexit is not in discrediting the European construction, but exactly in discrediting sound Euroscepticism, that the EU, instead of stigmatizing it, should respect and even encourage. The best advertisement for the future European construction would be that over 5, 10 or 15 years the UK makes new steps to join the EU. Moreover, this secessionist EU exercise also has political pedagogical effects (if we choose to extract the most useful ones). When this issue was raised in the American case (around 1860), due to the fact that it was too late, civil war broke out. The future Europe should not be built on a similar ethos, according to which what has been delegated from the centre is a must, and that’s the end of it – working in irreversible terms. A moral hazard of centralization is created (already classical in the literature) that makes those placed at the top of the construction less and less connected to the real problems of ordinary people.
* * *
Entrepreneurship, brain regain and fiscal burdens in current EU context
The relationship between the emergence of entrepreneurial projects and the fiscal burden in any given country is generally negatively correlated. But, increasingly more entrepreneurs in Europe worry less about the fiscal burden and more about the indirect costs of paying taxes.
The European Union project has been aiming at ensuring an increasingly higher convergence between the fiscal regimes of the EU member states. Through the European Semester an effective monitorization of fiscal performance and reforms is conducted every year. This monitorization mechanism yields support to the fiscal convergence process even outside the Eurozone core. Even though tax policy continues to be a national issue, EU officials are pressing down on tax heavens after recent scandals on tax evasion within the European Union. As such, we have every reason to believe that the fiscal burden will become more and more similar across Europe in the years to come. What will constitute the differentiating factor then? National implementation and ease of paying one’s taxes.
As many of the SMEs funding programmes are geographically based, conditioning the establishment of an entrepreneurial project to certain EU regions, we must account for the push and pull factors in doing so. Romania unfortunately has been repeatedly warned of undue procedural fiscal burdens in the Country Specific Recommendations in the past couple of rounds of the European Semester. The first country-specific recommendation in 2017 clearly stated “Strengthen tax compliance and collection”. According to the most recent statistical data from Eurostat, Romania’s collection levels rank second lowest in the EU, which suggest an institutional weakness on the part of fiscal authorities.
However, it is important to note that over the course of the last decade, a series of administrative reforms have placed Romania in a position of relative competitive advantage to other CEE member states, with both lower overall tax rates and lower time to comply (PwC and World Bank Report Paying Taxes, 2017). At the 8th edition of the Future of Europe Conference I presented a new metric for the assessment of indirect costs of paying one’s taxes derived from the data made available in the Paying Taxes Report. An Efficiency Indicator essentially weights the number of payments required in any country, by the total time estimated to be necessary to pay one’s taxes. This metric reflects an optimistic perspective for Romanian taxpayers, as it is ranked as the 8th most effective country in EU in terms of indirect costs. With proper, transparent and predictable implementation mechanisms of tax collection in this country, this would create a significant advantage to Romanian entrepreneurs.
What is the impact of fiscal burdens on entrepreneurial projects in Romania? A previous report from Eurofound states that the main drivers for growth in Romanian SMEs are: good development in the creative industries and IT sector, with above-average performance of companies in terms of added-value of product and services, resulting in incentives to create jobs. In contrast, we stated at the time that the main barrier is the SMEs inability to cover fiscal and operational costs, resulting in closures.
In a recent survey (Volintiru 2016), approximately 85% of Romanian young professionals living abroad are willing to start an entrepreneurial project at home. EU funded programmes like Diaspora Start Up offer grants of up to 40,000 euros for such projects and can constitute the pull factor in a process of brain regain. As long as there is willingness to develop an entrepreneurial project in Romania, and financial incentives to do so, it is important to maintain an attractive fiscal framework to ensure the sustainability of such endeavours.