Europe Today: From Great Crises and Great Visions

Europe is not in a condition to think about great visions. It is busy with solving its debt crisis. One great discussion is if Eurobonds could or should be part of the solution. The European Commissioner for Economic and Financial Affairs, Olli Rehn, spoke last week at the EU summit for a deeper integration as a precondition of a launch of such Eurobonds. With this he hit the nail on the head: Deeper integration. It is often said that Europe growths through crises. The idea is that during crises Europe is compelled to find steps leading towards a deeper integration which are necessary for its continued existence.

                                                          

But is this only possible through crises? No. It is also possible through visions. A vision can be seen as a positive connoted motivation-factor for activities leading to more integration. Visions in this sense are the contrary of crises which are negative connoted motivation-factors. In contrast, a deeper integration is not a vision as such. It is more an objective behind the scene, which only can be ‘sold’ with difficulty because of its missing emotionality and concrete associations.

Europe's missing of a vision is also often said to be a disadvantage in the competition with other powerful regions such as China, North America, South Asia, Brasil etc. Emerging markets like India or China all have generally the vision of an economic catch up. Although this is quite a down-to-earth vision its implementation is a big challenge confirming the character of a vision as an imagined ideal (end-)state far away from an actual state.

But what could be a vision for Europe? Why not an economy integrated in a comprehensive ecologically sustainable recycling-system? On the one hand we have today in many countries in Europe different recycling-systems. A simple example are PET- and glass-bottles recycling-systems. But on the other hand we still have many products and processes using too many resources. For example there are still products made after the strategy of planned obsolescence (products with intentionally integrated weaknesses with the aim to reduce their life-time and to bring people to buy earlier new ones. It is also looked that reparations are no options).

Planned obsolescence is a resource-intensive (the product-turnover is very high) one-way strategy (many ‘dead’ products are landing on uncontrolled disposal sites in Western Africa or elsewhere in the third world). The strategy is legitimized by the argument that it secures a lot of workplaces and a prosperous economy. In a time where we know that resources are scarce linear one-way strategies aren’t options. In the long run there is no other way than to fit all economical processes into a sustainable recycle-system that has the form of a circle where all resources – from address-notes on paper to zinc carbon batteries – can circulate several or even endless times. Thus, the aim of an economy completely (and not only partly) integrated in a comprehensive recycling-system could be a vision for Europe.

By searching for economic, technical and political ways to implement the necessary steps to achieve these aims Europe would have the necessary challenges buttressing its integration. The vision, if taken seriously, would need creative and innovative ideas and would create workplaces. It probably also could be an example for emerging markets which may soon have caught up to the West and then are looking for new meaningful, pragmatic and future-leading visions. There are many possible visions for economically developed regions and countries. The mere protection of what has been achieved or the solving of serious (homemade) crises aren’t visions. Arguments that Europe can’t find a new vision because it is sluggish and replete are cheap and helpless justifications: If Europe wants to prosper and to stay one of the important regions in the world there is only one way: Europe needs a vision.

Claude Meier

Gaining a Common Good through Relinquishing Sovereignty

In the first decades after World War II the Aussenpolitik (foreign policy) from the Federal Republic of Germany (FRG) was embossed by the strategy of gain of sovereignty through a relinquishment of sovereignty: By integrating itself more into the West through concessions to the West-Allies and abandoning thereby national options, the FRG gained more scope for negotiations and an opening via the East. The gained scope used for contacts and negotiations with the Soviet Union finally led to the reunion of Germany.

When one looks at the problems of the European Union (EU) of today in general (e.g. migration, democracy deficit) and the debt crisis in particular the question of relinquishing sovereignty for gaining scope and options is at least as actual as it was in the mentioned decades. The potential gain of today would be a common good in the form of more stable, elaborate and sustainable (financial) institutions in the EU.

The text of the fiscal compact of the EU which has been completed on 30.01.12 was a step in this direction. It requires participating countries to implement a debt brake on the national level to achieve budgets that are generally in balance or surplus. In case of non-compliance sanctions are scheduled. Hence, the aim of the compact is to achieve more fiscal discipline in the participating countries. But the financial compact is often criticized referring its enforceability as well as altogether being to less to solve the debt issue sustainably.

Therefore, it is often stated, a transfer union would be necessary. Overall, this would mean that EU member-states launch common state bonds (Eurobonds) and that transfer payments from countries with balanced budgets to such with imbalanced ones have to be established. But if this really would be a more sustainable solution, why then aren’t Germany as well as other countries not willing to do this by now?

Probably because of the risks that relatively solid EU member-states would be liable for the debts of such threatened by insolvency? Maybe yes, but – and this is decisive – the problem behind the scene is deeper: Ideas like the transfer union – as well as potentially sustainable solutions in other policy fields (e.g. security policy, democracy deficit) – require a transfer of sovereignty from the single EU member-states to Brussels. The single countries are enormous struggling with that. This is understandable: Nobody likes to relinquish scope, power and independence in decision-making. But the gain of the transfer could be a common good in the form of an appropriate institutional design that guarantees stable finances and a healthy European currency. Both are preconditions and set up options for a prosperous European economy. In the picture of the well known prisoner’s dilemma this public good would be the collective optimum, the best solution for all states together. In contrast, preserving and/or even maximizing the available sovereignty for a single EU member-state would mean maximizing the individual gain on the cost of the collective one.

The example of the young FRG showed that shifting some scope from a less important field (crusty national options) to a more important one let one achieve even visionary aims. The only option for Europe today is a deeper integration and coordination what demands relinquishing national sovereignty. This does not at all mean that EU member-states have to give up all their sovereignty. But, solely by relinquishing the hurting, yet necessary part, can Europe come to inner stability. The single EU member-states would have gained the scope and institutional design they need for a prosperous national economy in an interdependent Europe and a globalised world.

Claude Meier

 Rating Agencies Challenged

The methodology of the rating agency Standard & Poor is increasingly being questioned after its recent extensive downgrading of the credit worthiness of diverse European countries (see http://www.bbc.co.uk/news/business-16082759). The European Union is even considering creating a European rating agency in order to break the monopoly of the American rating agencies (see http://www.spiegel.de/international/europe/0,1518,773549,00.html). With this, the EU suggests that the methodology of a rating agency is also culturally influenced.

This reminds me of an experience that I made in 1995 in the setting of the first worldwide roundtable talks pertaining to stakeholder relationships, which were organized by Shell in the wake of the “Brent Spar” event and the conviction of Ken Saro Wiwa in Nigeria (see Sachs, Rühli, Kern 2009). During these round-tables, the question was addressed in considerable depth as to what the future of reporting to stakeholders should look like for a firm. The challenge was to come up with a method which does not simply show the financial results of a company, but also takes account of the social and ecological dimensions. It was discovered that the specific expectations for such reporting was strongly dependent on the cultural background of the involved parties. The discussion participants had two basic approaches: transparency of the business operations and the trust in those who carry out these business operations. 

These roundtables revealed that the transparency of indicators which could be measured was most central in the United States. This approach was denominated as a “show me” culture. In Asia, on the other hand, stakeholders regarded trust as the most important indicator, which led to the designation of a “trust me” culture. In Europe, again, stakeholders sought to find a balance between trust and transparency, which some called a “tell me” culture. The result was that the respective cultural background of each participant had a significant effect on the choice of rating criteria.

One can thus reasonably assume that the “show me” culture was most salient with the three largest American rating agencies. The limitations of this approach are however becoming evident: a one-sided focus on quantifiable transparency will not assist us to overcome the current crisis of trust. For this the rating agencies will require evaluation methods which indicate how a broader perspective of trust can be developed (see also Sachs, Rühli, 2011, chapter 5). If the creation of a European rating agency is the solution is currently being debated. In any case, it is clear that rating agencies are having their methodologies challenged.

Sybille Sachs