Association of German Chambers of Industry and Commerce. Shaping the future of Europe

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1 Brussels, November Association of German Chambers of Industry and Commerce 2 Shaping the future of Europe I. Europe is facing major challenges This year in March, the European Union solemnly celebrated the 60th anniversary of the signing of the Treaty of Rome by the six founding member states. And there was reason enough to celebrate this event: we can look back on six decades of peace and prosperity in Europe. But an anniversary is not just an occasion to look back at everything that has been achieved; it is also an occasion to take stock of the major challenges facing Europe. This year on 1 March, the European Commission presented its White Paper on the Future of Europe: The way ahead. Its subtitle Reflections and scenarios for the EU27 by 2025 roughly describes the goals pursued by the EU Commission in its White Paper. In its own words, This White Paper is the European Commission s contribution to this new chapter of the European project. We want to launch a process in which Europe determines its own path. We want to map out the challenges and opportunities ahead of us and present how we can collectively choose to respond. It hoped for a broad debate across our continent in the months to come, including the European Parliament, national Parliaments, local and regional authorities, and civil society at large. This Commission initiative is to be welcomed. The German Chambers of Industry and Commerce (hereinafter the IHK organisation ) would like to contribute to the debate. In his 2017 State of the Union speech, Commission President Juncker outlined a series of initiatives that the Commission wanted to deliver over the next 16 months, stating that: Now is the time to chart the direction for the future. In his speech, - 1 -

2 Juncker went on to refer to the White Paper presented in March, with its five scenarios portraying what Europe could look like by In his words, these scenarios have been discussed, sometimes superficially, sometimes violently. They have been scrutinised and partly ripped apart. That is good they were conceived for exactly this purpose. I wanted to launch a process in which Europeans determined their own path and their own future. The future of Europe cannot be decided by decree. It has to be the result of democratic debate and, ultimately, broad consensus. In the meantime, French President Emmanuel Macron has joined in the debate, putting forward wideranging proposals for renewing the EU. II. The position of the IHK organisation Making the most of this call to take part in the debate, the IHK organisation considers it necessary to join in the already opened discussion. Kicked off on 11 October 2017, a series of events in IHKs offered companies the opportunity to take part in the debate, discussing topics in direct contact with representatives of EU institutions. The goods and services provided by companies, the employment created, and the income generated constitute a cornerstone of Europe s prosperity. But in order to support and maintain the international competitiveness of these companies, framework conditions are needed conditions enabling Europe to overcome the current challenges and promote long-term development. The DIHK is a strong supporter of the European Union and the Singe Market, two institutions that have been and always will be of great importance for German companies. In certain fields, for instance the securing of the EU s external borders, it is imperative that all states cooperate even more. In other fields, states must be able to move ahead at different speeds, as successfully practised in the Schengen Agreement. But in the legal provisions governing the Single Market provisions of major importance for companies such as product authorisation, there can be no different speeds. Companies must be able to rely on being able to operate both nationally and within the Single Market under the same rules. Furthermore, there are a number of policy fields where there is a question-mark over whether the EU is interpreting its competences too broadly, for instance in the harmonisation of insolvency legislation

3 In the view of the IHK organisation, the EU should be equipped with competences in those areas where companies can expect improved results through them and where the benefits of European solutions outweigh any disadvantages. The decisive criterion is the European value add! 1. Fundamental positions on globalisation Posing the question of Europe s role in the world, the EU Commission is addressing an important aspect for German companies. The Commission states that globalisation has a major positive impact on prosperity and economic growth throughout the world. At the same time, it does not deny that globalisation is confronting societies with new challenges. The DIHK expects the EU to move ahead in partnership with key global players, fighting for fair trade on the basis of rules applicable to all countries. In doing so, it is important that the EU, in all its international missions, remains aware of the challenges facing companies. The German trade and industry chamber network is well-positioned to support German companies, both nationally and internationally. The IHK organisation shares the view that globalisation needs shaping. The emphasis on European values is consistent and correct especially with regard to trade agreements. A clear division of competences between the EU and its Member States is rightly called for. This could be an opportunity for the EU to prove its ability to take action. At the same time, we agree with the Commission in its opinion that global challenges for example climate change can only be solved through global action. Similarly, in the view of the IHK organisation multilateral institutions like the World Trade Organisation or the International Monetary Fund should constitute the core for shaping future international cooperation. Open markets and the free movement of capital are prerequisites for growth and prosperity, whether in Germany, Europe or the whole world. This is especially relevant in view of the current discussion over foreign investments in key technologies. An open Europe is the best example for highlighting the benefits of an international division of labour. Free trade agreements must not be overloaded with non-trade-related provisions. Without such provisions, EU partners are much more willing to sign - 3 -

4 agreements, bringing companies and societies concrete benefits. Achieving progress in such important subjects as sustainability, protection of the environment or human rights should be left up to the corresponding international bodies. In disregard of the principle of subsidiarity, the EU emphasises its role in promoting foreign trade. But the EU should only take action in this field when a clear European value add can be achieved, and even them solely in conjunction with established structures, such as the network of German foreign trade chambers. What are the core tasks of the EU? The EU is called on to generate the right framework conditions and rules of play via ambitious free trade agreements, modern trade protection instruments and international investment agreements allowing companies to engage in foreign trade. This is very important for the SME sector in particular. The EU should contribute to international discussions and international bodies, assertively upholding its standards. 2. What are the next steps with regard to the Economic and Monetary Union? Ten years after the outbreak of the sovereign debt crisis, the Monetary Union remains unstable. Though all Eurozone economies were able to chalk up growth in 2016, many risks still exist, with the potential to explode. In the view of the DIHK, it is especially important for fiscal and economic policy (and liability for policy decisions) to be handled at the same level. When they are on separate levels, there is a threat of incorrect economic decisions, distributional conflicts and ultimately political tensions. The completion of the European Banking Union is important, also for the real economy s investment planning. The reduction of risks at national level must however take precedence over any communitarization of risks. Moreover, everything should be done to prevent credit institutes still having to be bailed out by taxpayers. They should therefore be forced to also start underpinning government bonds with equity in their balance sheets, thereby avoiding or at least reducing the financing discrimination experienced by SMEs. In the banking field, any over-regulation of healthy credit institutes should be avoided. The European Stability Mechanism (ESM) should be developed into a European Monetary Fund. This would have the advantage of making the granting of loans to EU - 4 -

5 Member States dependent on requirements for them to consolidate their budgets and implement structural reforms. The loans could then be used to boost the long-term competitiveness of the countries concerned. With its current expansionary monetary policy, the European Central Bank is basically just buying time, without being able to force countries to implement reforms. Any meaningful economic convergence of Eurozone countries needs to be based on a healthy and reliable level of investment. Instruments such as the European Fund for Strategic Investments (EFSI), aka the Juncker Plan, already exist. These could be complemented by a further investment credit facility within the EU budget. It would also make sense to couple the granting of such EU funding to compliance with convergence criteria and the implementation of reforms. Following the example of the USA, a rainy day fund covering asymmetrical shocks could also be considered. Eurozone states hit by a major crisis could receive emergency funding from such a fund, previously made available by all Eurozone states. The goal here would be to prevent cuts having to be made in public investment, thereby deepening a crisis. The proposed Investment Protection Scheme has the same intention. Such automatic stabilisers have one major advantage: they do not need any political decisions to be taken. But the rules must be clear and unambiguous. Eurobonds do not meet the criterion that respective governments are first and foremost themselves responsible for their own finances. The purpose of the proposed alternative, sovereign bond-backed securities (SBBS), would solely be to bundle and securitise the obligations of individual Member States for paying the interest on and repaying their state bonds. The big question however is whether such securitisations would be attractive for private investors. Moreover, the crisis resistance and incentive effect of SBBS are highly disputed. The DIHK is also critical of the proposal for a European Minister of Finance and a separate Eurozone budget. While a European Minister of Finance equipped with wideranging competences would be better able to push through necessary budget consolidation measures and economic reforms, the IHK organisation sees the danger of such a minister calling for additional revenues and then using these funds for redistributive purposes. The criteria for any such move remain completely unclear. No new parallel structure is needed, as the EU budget already has major redistributive - 5 -

6 components. Furthermore, a European Minister of Finance with his own budget rules would be able to overrule national budget rules. Additional redistributive mechanisms without conditioning can create the wrong incentives, leading to long-term unilateral transfers between Member States, potentially endangering EU cohesion. By contrast, additional investment funding in low-growth Member States is a way of stabilising the whole EU and in particular the Monetary Union in the long run thereby also helping the strong Member States. 3. Education at the core of the European social dimension The EU Commission stresses the need for educational and lifelong learning systems to be reformed and modernised, with the goal of securing the EU s international competitiveness and overcoming the challenges posed by changing work patterns due to digitalisation. In the view of the DIHK, education should be at the top of the EU s political agenda. High-quality general and vocational education and training, together with highly-skilled workers and managers, are a sine qua non for competitiveness and growth, but also for social peace in the EU. Enshrined in the EU Treaty, the EU competence extending and supporting national educational policies is both meaningful and necessary, generating a true educational and European value add. The best examples of this are the European educational programmes supporting young people in particular to gain learning and work experience in other EU Member States over the last 30 years. Companies also benefit from this. Developed over the past two decades, the educational cooperation between EU Member States should not only be continued, but even intensified, backed by jointly agreed educational goals, as this is a way to (a) put further political pressure on national educational reforms, and (b) to trigger competition between Member States in the field of educational policy. Great importance must be attached in this respect to involving companies, as this helps facilitate the transition from education to employment, while at the same time safeguarding the supply of skilled workers. The German apprenticeship system with Germany s EU-wide lowest youth unemployment rate as proof of the pudding serves as an excellent example. The EU Commission has since reacted to the criticism, - 6 -

7 adopting a proposal for a European Framework for Quality and Effective Apprenticeships on 5 October This sets the course in the right direction. Educational and employment policies must continue to be primarily decided, funded and implemented at national level, as the framework conditions and challenges faced differ greatly between countries and regions. In the context of its educational cooperation, the EU Commission should concentrate its content, policy and funding efforts on lower-priority areas, while at the same time pursuing them more efficiently. In the short term, priority should be given to adopting the European Framework for Quality and Effective Apprenticeships and the new EU educational programme for the post-2020 period with greater funding and less red tape for companies. 4. The post-brexit EU budget The EU Commission is discussing the consequences of Brexit for the EU budget, using as a basis the scenarios outlined in the White Paper on the Future of Europe. The Commission s goal is to show that Brexit and the fundamental decisions over the main EU policy fields have concrete effects on their future financing. The current EU multiannual financial framework totals 1,087 billion, constituting an annual budget of ca. 155 billion. As the UK was up to now a net payer, Brexit means that the EU annual budget will decrease by around 10 billion. In the view of the DIHK, the budget-restructuring measures favouring growth-related tasks must be unerringly continued. For instance, the expenditure earmarked for the next EU Framework Programme for Research and Innovation should be increased, as the current programme, Horizon 2020, has proved its worth in the eyes of the business community. At the same time, all individual support programmes should be reviewed, checking whether and to what extent they have contributed to boosting competitiveness in Europe. As co-financing through national funding is a way of boosting individual Member States programme identification and commitment, the DIHK supports an increase in national co-financing rates. EU budgetary management needs to be made simpler and more flexible, with more weight being attached to avoiding overlaps between programmes. Where necessary, any additional funding contributions should reflect a country s economic strength

8 Emerging burdens must be reported transparently. Competitiveness and long-term growth must not be weighed down by putting further burdens on companies. The major areas of EU budget expenditure continue to be agriculture (39%) and cohesion policy (34%). Despite recent increases, a much lower share (13%) is earmarked for competitiveness. Should the remaining (post-brexit) 27 Member States decide not to cut back expenditure on current tasks, Germany can expect to have to pay up to 8 billion a year more into the EU budget. By way of comparison: In 2015 Germany paid a total of 14.3 billion more into the EU budget than it received from the various Brussels funding programmes. Every increase in Germany s contribution burdens German companies and other taxpayers appreciably. The clearer the EU-27 defines its post-brexit goals and the clearer the resulting expenditure structure is defined, the easier it will be to take the subsequent decisions shaping the EU budget. The DIHK recommends (a) that spending cuts be agreed, (b) that budget-restructuring measures be adopted, and (c) that country contributions only be increased when the first two steps ((a) and (b)) are not enough to secure the adequate financing of the EU budget