Recent economic data points to the seeds of an economic recovery in the European Union. However, significant risks remain and bold policies are still needed. There are three central risks.
- Competitiveness adjustment is incomplete, casting doubt on the sustainability of public debt.
- Banking remains unstable and fragmented along national lines, resulting in unfavorable financial conditions, which further erode growth, job creation and competitiveness.
- Rising unemployment, especially among the young, is inequitable, unjust and politically risky.
Germany has a central role to play in addressing these risks. The new German government should work on three priorities:
- Domestic economic policy should be more supportive of growth and adjustment, with higher public investment, a greater role for high-value added services, and more supportive immigration policy.
- Germany should support a meaningful banking union with a centralised resolution mechanism requiring a transfer of sovereignty to Europe for all countries including Germany.
- The establishment of a private investment initiative combined with a European Youth Education Fund and labour market reforms should be promoted.
Building on these priorities, a significant deepening of the euro area is needed, with a genuine transfer of sovereignty, stronger institutions and democratically legitimate decision-making structures in areas of common policy.