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The recovery plan is a political gesture and a demonstration of solidarity. It also shows the usefulness of the European Union (EU), by increasing the borrowing capacity of the 27 Member States. Moreover, it gives the EU an unprecedented capacity for counter-cyclical action.

It is not, however, the panacea. Fundamentals and other EU instruments must now be prioritised in order to achieve a sustainably stronger, fairer, greener and more secure Europe. It is also necessary to absorb the cost of this plan and mitigate the dangers (overly domestically-orientated approaches, sterile expenditure, non-accountability, debt traps).

Indeed, the EU must first ensure sustainable growth for the benefit of all Member States (MS), their populations and businesses, thanks to the single market and a highly competitive AND social open market economy. In the light of the current crisis and the lag behind the US and Asia, social upheavals, environmental challenges and geopolitical tensions, I have identified the following five priorities:

1) Finally achieving the single market, while respecting the environment. Although the EU is half the size of the US and has a 40% greater population size, its trade in goods and services, and average per capita income are both 40% lower. Removing unnecessary barriers would substantially increase European GDP, in particular by setting off positive chains of events. For example, European SMEs are often smaller than they could be because they are restricted to their home market due to these barriers, which reduces their productivity. They could enjoy better growth, hire, pay and invest in R&D to a greater extent, self-finance, and spawn new market leaders.

2) European legislation that is more in-line with the principle of an open market economy where competition is unrestricted (notwithstanding its enshrinement in the treaties). It is a matter of creating regulations in the public interest only if and to the extent necessary, in an effective and ingenious manner. What is the point of a large market that is over- or under-regulated?

3) A modern supply-side policy, concentrating in particular on structural deficits. Its objective would be to facilitate and indeed encourage the activity of businesses, workers and investors by placing them in optimal conditions without taking their place or discharging them from accountability. With particular focus on R&D, finance, transport, energy, investment and employment. Europe has been lagging behind the US and Asia in terms of innovation for the past 20 years (where are the European Teslas, Alibabas and Samsungs?). The financial sector, which is a second engine for growth, is also declining dangerously and continues to prove vulnerable. The situation is urgent. The US has overtaken the EU in terms of GDP since 2015, with a much smaller population.

4) Too many Europeans are at risk of poverty (more than 20% of the population, i.e. more than 100 million people). The above proposals are likely to increase Europe's pre-Covid-19 GDP by 20% and improve the social situation. They will, however, probably not be enough. While the Juncker Plan exceeded its objective of "catalysing" private investment by 40%, the objective of lifting 20 million people out of poverty by 2020 has only been reached by 40%. Commissioner Nicolas Schmit's determined action in favour of the social market economy will therefore be crucial. In addition to the continued activation of an efficient labour market (in the EU, unemployment had fallen by 45% in 6 years), its efforts to combat homelessness and the establishment of a minimum hourly wage per Member State should bear fruit. However, more radical measures should not be ruled out. We must aim for an EU average unemployment rate of no more than 5% and an even lower level of poverty.

5) A more economically dynamic and socially just Europe will be better equipped to navigate the environmental transition and, beyond that, build its common defence. In particular, the compactness of Europe's territory, which allows for a more rational use of resources and better energy efficiency than in the US and Asia, should be exploited to make Europe the leader in environmentally-friendly companies. It is necessary to create synergy between the economy, social matters and the ecology.

The economic, social and environmental fundamentals, as well as the conditions under which market economy and the single market can function will need to be maintained and improved. The EU may make increasingly ambitious policy initiatives (well-designed industrial and trade strategies, a reasonably voluntarist monetary policy) and, if necessary, counter-cyclical measures. Provided that once the storm passes, it will be able to reduce the use of emergency mechanisms.

The above proposals are some of those described in a more balanced and detailed manner in a forthcoming essay, "Europe, a major asset to be put to (even) better use".


View the original in French here_

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Philippe-Emmanuel Partsch

Philippe-Emmanuel Partsch is the partner in charge of the EU Financial & Competition Law practice of Arendt & Medernach. He specialises in EU and Luxembourg competition law, regulatory aspects of mergers and acquisitions, State aid rules, EU banking and financial law, tax law, telecommunications, public procurement and environmental law. Philippe-Emmanuel advises a wide range of public and private clients, both nationally and internationally, on EU and competition law and sectoral regulation. He represents them before regulatory authorities and the EU and national courts. In addition, he is a member of several high-level Committees within the Luxembourg financial sector and of the Comité Fra...

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