Regime change? The European economy to 2030 by John Springford
“Europe will be forged in crises, and will be the sum of the solutions adopted for those crises.” Five years before Jean Monnet wrote those words in 1976, Richard Nixon had suspended the convertibility of the US dollar into gold, bringing an end to the Bretton Woods system of fixed exchange rates. The breakdown of Bretton Woods led to currency instability in Western Europe, which in turn curbed trade and investment. Monnet was writing as the 1970s oil price shocks pushed up inflation. Europe’s weakly contested goods and labour markets, which were still fairly closed to foreign competition, made Western Europe’s economies slow to adjust to shocks. The EU’s current economic regime is the sum of the solutions adopted after the 1970s crises. The European Economic Community established the Exchange Rate Mechanism in 1979, which first reintroduced a managed exchange rate regime in Europe, and culminated in the single currency. The 1986 Single European Act sought to raise trade and investment through common rules and tougher enforcement, thereby making the European economy more efficient. After a decade of putting out the fires of the Great Recession of 2008-09, the euro crisis of 2010-12, and the migration crisis, which blew up in 2015, it is the right time to ask: what regime does the European economy need by 2030? Europe’s economy is finally recovering, with the EU as a whole now growing in line with precrisis rates. Investment has picked up strongly,
raising hopes that a decade of disappointing productivity growth might finally be over. But, after the present bounceback, the European economy looks set to grow more slowly than it did before 2008 – thanks to an ageing society and the scars of the crisis. Meanwhile, big economic changes are afoot. The next phase of globalisation, driven by digital technology, will see services become more tradable across borders. German technicians may soon be able to fix machinery in China remotely, using telerobotics, for example. Automation and artificial intelligence may help to drive up productivity growth but will also displace some workers. And if history is any guide, there will be two more recessions in the next decade – yet the eurozone still lacks the counter-cyclical tools needed to rapidly stabilise its economy.