Prof. Dr. Rene Tissen, Professor of Business Studies at Nyenrode, put together an 8-Point Plan for Europe to find a way out of the huge crisis it is confronted with.An 8-Point Plan for Europe
By Prof. Dr. Rene Tissen, Nyenrode Business Universiteit
September 2011
September 2011
At present, the debt crisis in Europe is making it painfully clear that there is no question of a political union, and that the absence of such cannot be regarded as a minor flaw in the Maastricht Treaty of 1993 (when the heads of government got food poisoning) or of the 2009 Lisbon Treaty. The current European leaders are confronted by the virtually impossible task of bringing together member states, political parties and the public to deal with one key issue – the distribution of debt instead of the distribution of prosperity.
For politicians, too, charity usually begins at home. When it comes to money – when things really get tight – the sovereign self-interest of the individual member states becomes a major (possibly even insurmountable) obstacle to the development of a magnanimous perspective on mutual interests. There may be a lot of talk about the advantages of a united Europe, but the measures that are being proposed – and there are many of these flying around– are actually only about the disadvantages, at least in the eyes of the public.
On the one hand, they do not feel they are saviors (Finland, for example) and on the other hand they do not feel they are saved (Greece, for example). Many of Europe's problems, if not all, relate to banking, including the national debts. Ordinary banks and central banks are reluctantly engaged in putting forward and implementing solutions, but these efforts have a large element of wishful thinking, both in fact and in the public perception. These same banks now appear to have come to the end of the road and kick the ball (back) into the politicians' court. What is Europe to do in this struggle to resolve the debt crisis? Can anything still be done or is it already too late? Will Europe fall apart?
1. Reducing the European debt mountain instead of building it up
The current European (and American, it must be said) crisis policy is designed to pile debt upon debt. That has to stop. The debt mountain has to be reduced, not increased, and this has to be done via a controlled process of debt remission. Only in this way can we lighten the onerous burden on national budgets and, consequently, on the citizens themselves. This can be done in relative terms by establishing statutory (low) rates of interest, and in absolute terms by writing off the national debts of the member states (including the healthy ones) against each other as a form of European consolidated balance sheet reduction. It is also possible if banks mutually write off their claims on their own initiative. This is already happening at present.
2. Stopping the trade in national debt and (hence) normalizing the banks
The earning capacity of banks and insurers is still determined to a significant extent by the trade in national debt and related services. If this trade is stopped, it will give rise to an acute necessity to restructure the financial sector with the (legally defined) aim of getting back to the heart of business. By largely abolishing the mutual trade in national debt between major banks, with the simultaneous abolition of the system of collateralized securities, we can get ordinary banks again. These measures will mean the elimination of many banks, and this will involve high exit costs. Each member state can then support its own problematic banks if this serves the public interest, via democratic decision-making and monitoring. In any case, local support is better than the current European support.
The current European (and American, it must be said) crisis policy is designed to pile debt upon debt. That has to stop. The debt mountain has to be reduced, not increased, and this has to be done via a controlled process of debt remission. Only in this way can we lighten the onerous burden on national budgets and, consequently, on the citizens themselves. This can be done in relative terms by establishing statutory (low) rates of interest, and in absolute terms by writing off the national debts of the member states (including the healthy ones) against each other as a form of European consolidated balance sheet reduction. It is also possible if banks mutually write off their claims on their own initiative. This is already happening at present.
2. Stopping the trade in national debt and (hence) normalizing the banks
The earning capacity of banks and insurers is still determined to a significant extent by the trade in national debt and related services. If this trade is stopped, it will give rise to an acute necessity to restructure the financial sector with the (legally defined) aim of getting back to the heart of business. By largely abolishing the mutual trade in national debt between major banks, with the simultaneous abolition of the system of collateralized securities, we can get ordinary banks again. These measures will mean the elimination of many banks, and this will involve high exit costs. Each member state can then support its own problematic banks if this serves the public interest, via democratic decision-making and monitoring. In any case, local support is better than the current European support.
3. Balance the budgets of the member states
The current crisis has made it painfully clear that nobody (whether individuals, businesses or governments) can live beyond their means for too long. If Europe is to be forged into a union, the domestic budgets of the member states have to balance. No more should be spent than is collected in revenue, and borrowing should only be done if there are realistic possibilities to recoup the money within a realistic timeframe. Investments must be supported by realistic securities and always by solid business plans. Where necessary, member states will have to cut their coats according to their cloth, but not through a European tax system in which the rich countries shell out for the impoverished ones. In that case, it is better to have citizens drop to a lower level of prosperity in one go, rather than via the more painful method of the 'cheese slicer', to avoid acute discontent turning into a smoldering fire.
The current crisis has made it painfully clear that nobody (whether individuals, businesses or governments) can live beyond their means for too long. If Europe is to be forged into a union, the domestic budgets of the member states have to balance. No more should be spent than is collected in revenue, and borrowing should only be done if there are realistic possibilities to recoup the money within a realistic timeframe. Investments must be supported by realistic securities and always by solid business plans. Where necessary, member states will have to cut their coats according to their cloth, but not through a European tax system in which the rich countries shell out for the impoverished ones. In that case, it is better to have citizens drop to a lower level of prosperity in one go, rather than via the more painful method of the 'cheese slicer', to avoid acute discontent turning into a smoldering fire.
4. Reconstruct Europe based on core qualities
Germany recently put forward a rescue plan for Greece. This was both innovative and promising, but it received hardly any support. Turn Greece into Europe’s main supplier of solar energy and invest vigorously in this, based on transparent supply contracts from which all the citizens of the member states benefit. A similar plan can be made for Hungary, which can function as the node for European mobility and logistics. Europe as a whole must profit from a ‘hub’ of this kind, with proof based on high-quality transport contracts. In the same way, a core quality can be defined for each member state, providing something required by several member states and capable of contractual regulation.
Germany recently put forward a rescue plan for Greece. This was both innovative and promising, but it received hardly any support. Turn Greece into Europe’s main supplier of solar energy and invest vigorously in this, based on transparent supply contracts from which all the citizens of the member states benefit. A similar plan can be made for Hungary, which can function as the node for European mobility and logistics. Europe as a whole must profit from a ‘hub’ of this kind, with proof based on high-quality transport contracts. In the same way, a core quality can be defined for each member state, providing something required by several member states and capable of contractual regulation.
5. Introduce European ‘right to work’ legislation
Unemployment in Europe is high and rising fast. Just about everywhere, youth unemployment is painfully high and a cause of growing social unrest. Employment is fundamental to Europe. It is an essential component of the European economic motor, which must be stimulated vigorously and therefore with an element of compulsion. This helps to ensure loyalty because it directly serves people’s own interest. I therefore call for new European legislation that gives all citizens of the member states a statutory and real ‘Right to Work’. Such legislation aims to put an end to the erroneous myth that an ageing population leads to the idea that work is no longer so important.
Unemployment in Europe is high and rising fast. Just about everywhere, youth unemployment is painfully high and a cause of growing social unrest. Employment is fundamental to Europe. It is an essential component of the European economic motor, which must be stimulated vigorously and therefore with an element of compulsion. This helps to ensure loyalty because it directly serves people’s own interest. I therefore call for new European legislation that gives all citizens of the member states a statutory and real ‘Right to Work’. Such legislation aims to put an end to the erroneous myth that an ageing population leads to the idea that work is no longer so important.
The public conception is being created – without foundation – that new work is no longer really necessary and that some member states (including the Netherlands) will even have to attract people from abroad to meet their own demand for labor. We are talking here about an insourcing effect that is already noticeable (Poland and Bulgaria among others) and which has to be countered. Security of employment starts at home, in principle. Work must, in any case, remain within Europe, I also call for a European prohibition on the outsourcing of work to countries such as China and India.
6. Make innovation compulsory
It only makes sense to employ people and go on employing them if businesses are obliged to innovate. In many areas of Europe, a highly educated workforce is available due to the investment that Europe has made in the knowledge economy over recent decades. Now Europe faces the danger that a significant proportion of the population will be over-qualified for the work that is available. Businesses should therefore be compelled to innovate and to report on this in their annual accounts. Innovation subsidies should be awarded retrospectively, based on proven performance and/or demonstrable progress.
It only makes sense to employ people and go on employing them if businesses are obliged to innovate. In many areas of Europe, a highly educated workforce is available due to the investment that Europe has made in the knowledge economy over recent decades. Now Europe faces the danger that a significant proportion of the population will be over-qualified for the work that is available. Businesses should therefore be compelled to innovate and to report on this in their annual accounts. Innovation subsidies should be awarded retrospectively, based on proven performance and/or demonstrable progress.
7. Simplify taxes & introduce a uniform, flat-rate tax, including for businesses
The introduction of a uniform tariff for income tax (and tax on businesses) in Europe (the ‘flat tax’), while simultaneously abolishing all deductions for individuals and ‘rulings’ for businesses, will create a transparent and easily understandable tax climate. If the administration of this is largely automated and payments by the public are also fully electronic, the need for an extensive fiscal bureaucracy in each member state will disappear. Simplicity is strength and it will lead to a more stringent fiscal practice and morality in Europe. Tax competition between businesses in Europe has to be stopped by law. Cooperation must be promoted, but on a level playing field.
The introduction of a uniform tariff for income tax (and tax on businesses) in Europe (the ‘flat tax’), while simultaneously abolishing all deductions for individuals and ‘rulings’ for businesses, will create a transparent and easily understandable tax climate. If the administration of this is largely automated and payments by the public are also fully electronic, the need for an extensive fiscal bureaucracy in each member state will disappear. Simplicity is strength and it will lead to a more stringent fiscal practice and morality in Europe. Tax competition between businesses in Europe has to be stopped by law. Cooperation must be promoted, but on a level playing field.
8. Harmonize European pricing policy
The variations in petrol prices at the pump have been a major source of irritation for European citizens for years. Eliminating most of the differences in these prices will make the advantages of Europe immediately visible. The same applies to raw material prices. The benefit of Europe will quickly become clear if an effort is made to harmonize prices (of bread, for example, as in France). In other words, Europe can become more important in the perception of its citizens if consumer interests (at least as regards staple requirements) are actively supported and guaranteed. There is simply no reason to make alcohol so much more expensive in the Scandinavian member states than it already is. There is no point in prohibition. Alcoholism must be combated by other means.
The variations in petrol prices at the pump have been a major source of irritation for European citizens for years. Eliminating most of the differences in these prices will make the advantages of Europe immediately visible. The same applies to raw material prices. The benefit of Europe will quickly become clear if an effort is made to harmonize prices (of bread, for example, as in France). In other words, Europe can become more important in the perception of its citizens if consumer interests (at least as regards staple requirements) are actively supported and guaranteed. There is simply no reason to make alcohol so much more expensive in the Scandinavian member states than it already is. There is no point in prohibition. Alcoholism must be combated by other means.
At the core of the above outline for a new policy to resolve the European debt crisis, and the resultant lack of unified thinking, is the tenet that the interests of citizens should be elevated (far) above those of governments and ‘special interest’ groups. Citizens have to be given central importance again; at least, more importance than banks. Europe will only have a future again when citizens can clearly see that future in front of them and when they can have faith that they will be better off in it. Then the flywheel will be turning once again in the right direction.
The measures proposed above are not exhaustive, nor can they be at this stage. For example, it is better to consider the problem of homes and mortgages, which is afflicting every member state, at the European level than at the member state level. Literally everywhere in Europe, with the possible exception of Germany, a surplus of (over-expensive) houses, offices and industrial units has arisen – even in the Netherlands. This problem is comparable in complexity to the European milk lake some decades ago, but it can be resolved. In the short term, one might consider obliging mortgage lenders in Europe to renew mortgage contracts unchanged when they reach their expiry date – through a temporary prohibition of interest rate rises, for example – in the anticipation of structural solutions. Here, too, the core concept is that measures must be taken from the perspective of the consumer rather than that of the bankers.
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