Exiting crisis requires investment in Europe’s regions and cities
By Martin Schulz and Mercedes Bresso (*) | Tuesday 26 June 2012
With every passing day, the serious crisis besetting Europe seems to be undermining more and more the process of European integration and the various forms of solidarity arising from that process. We are coming to the conclusion that to ensure a sustainable route out of the economic and financial crisis, a fresh European compromise needs to be negotiated. This compromise would require greater political integration of the EU, including an obligation on member states to adopt greater fiscal rigour, and would also mean shifting our continent towards a model of sustainable development, giving more prominence to innovation, employment and social justice.
Against this backdrop, we firmly believe that the regions and cities have a crucial role to play. Not overly burdened by debt, they are both the drivers of public investment and the guarantors of solidarity mechanisms on the ground. Local and regional authorities are behind two-thirds of European public investment and are thus well placed to prepare the ground for making the environmental transition and revitalising the industries of the 21st century.
However, for some four years now, the crisis has been jeopardising local governments’ investment capacity, in three different ways. Firstly, the necessary fiscal adjustments in our individual countries have often led governments to cut appropriations to local and regional authorities. Facing much demand from communities experiencing increasing difficulties – the latest EU statistics show that 40% of people out of work have been unemployed for over a year and that 110 million people are at risk of poverty or social exclusion – now more than ever they must continue to ensure the smooth functioning of public services. In the absence of alternative resources originating directly from the productive sector, local investment thus fell by over 7% in 2010 and this trend continued in 2011.
Secondly, some member states – the so-called net contributors – wish to cut the EU budget by some €100 billion over seven years. This argument seems somewhat skewed given the colossal sums that have been disbursed to bail out the banks since 2008 and in light of the fact that the overall EU budget, which is essentially an investment budget, barely amounts to more than 1% of EU GNI. That is also why we are strongly calling for new own resources to be rapidly established, such as a financial transaction tax.
Finally, the new Treaty on Stability, Coordination and Governance, which is too much intergovernmental for us, should soon come into force. Undoubtedly, this will impose long-term austerity on the EU, which will weigh on refinancing conditions for local and regional authorities and encourage a return to centralisation in most member states.
If Europe is to get back on the path to growth, by combating youth unemployment and enabling companies, particularly SMEs, to restore their competitiveness within global competition, it is vital to re-prioritise investment in the regions. It alone holds the key to exiting the crisis. Indeed, to cut our carbon emissions and our energy consumption, to make our buildings and transport more resource-efficient, as set out in the Copenhagen Declaration of March 2012, it is primarily in the cities that we must act, by investing in the modernisation of existing facilities. Improving our living environment and access to efficient public services for all, in both deprived areas and in rural or outlying areas, also involves long-term public investment in the fields of education, health and information.
Experience shows that job creation is only possible if the training available is in sync with the local or regional labour market, in other words if the socio-economic players, along with local and regional authorities, can count on sustained financial support from the EU and the member states.
This forward-looking investment also concerns major projects, particularly in the area of infrastructure. Such investment can help stem the haemorrhaging of Europe’s industrial jobs and restore a competitive development framework in our regions, connecting them beyond national borders and thus laying the foundations of a new competitiveness at international level. These policies in support of industry and the new innovative services will pave the way for making the environmental transition that will enable us to place the EU at the top of the value chain of international trade. While the existence of suitable EU legislation is essential, it is really at the local and regional levels – through wisely used funding – that a favourable climate for the long-term development of businesses can be created. In establishing or maintaining strong synergies between research centres, companies and universities, local and regional authorities hold the key to preventing relocation, stimulating innovation and fostering the emergence of new products and services that will subsequently create quality jobs.
However, this virtuous circle will only come about in the context of multilevel governance, which restores the primacy of decision making to the political authorities and enables the goals we have set ourselves to be achieved more effectively, in the context of permanent negotiation around joint strategies framed at EU level.
The EU long ago devised the instrument that enables the effective cooperation at a lower cost of all levels of governance for socio-economic development. This instrument is cohesion policy. The European Parliament, the Commission and the Council set out a strategy and common goals to cover a seven-year period; this framework is then customised to the various regions by the member states during a negotiation process involving the cities and regions. The security provided by multiannual funding is conducive to long-term investment. Through financing from the European Investment Bank, which is much talked about these days, it is already introducing new innovative instruments. Backed up by project bonds, this policy truly has the potential to lead Europe towards another model of development that is smarter, more solidarity-based and more sustainable.
We are therefore calling for a veritable paradigm shift: for a recovery policy giving local and regional authorities their rightful place, with due regard to the requirements of fiscal consolidation. While member states have a responsibility to streamline their expenditure, they must not, however, mortgage our future, and the EU must achieve the goals it has set under the ‘Europe 2020’ strategy. Without the regions and cities, these goals will come to nothing. Conversely, we are firmly convinced that by bringing to the table their grassroots knowledge, expertise, creativity and dynamism, the regions and cities will get Europe back on the path to sustainable growth. n
Martin Schulz is president of the European Parliament and Mercedes Bresso is president of the EU Committee of the Regions