Europe must shape debate on global issues

Now that the Lisbon treaty is more or less in the bag, the mantra in Brussels is: focus on the European Union's interests and objectives and end the navel-gazing about institutional structures. But the evidence from a recent discussion about 'Exploiting Europe's Strong Potential - Governance Institutions and Policies', a paper from London's Royal Institute of International Affairs (Chatham House) suggests that it will be impossible for the EU to escape debate on how Europe's institutions go about their business, especially when it comes to issues like changing the terms on which a country can qualify for membership of the single currency.

Unsurprisingly perhaps, the discussion was governed by Chatham House rules, which is to say that the identity of the speakers cannot be revealed. But what a senior EU policymaker had to say was revealing of how far-reaching a debate is now under way about the Union's economic governance.

His first point, although obvious, is not sufficiently stressed. The world has changed dramatically since the single currency was launched almost a decade ago. Its architects then were not wondering about how the Union would cope with the emergence of China or India as global economic powers. Neither was there much focus on what impact EU enlargement might have on the single currency. The first version of the Lisbon Agenda of March 2000 focused on how to stop the EU falling further behind the then rampant US economy. Meanwhile, the big issue for the new eurozone was promoting the fiscal discipline needed to underpin the single currency, especially through the Stability and Growth Pact.

Things are changing. Top economists have long recognised that the Maastricht criteria, aimed at promoting stability, were simply not designed to cope with the challenges posed by promoting economic convergence among an EU of 27 states with a wide range of institutional structures and income levels.

Finding a formula for welcoming some of the enlargement countries into the eurozone is going to require a different interpretation of some of the criteria laid down for the pioneer EU11. Their economies are just so different. A country such as Denmark does not need a eurozone waiting-room like ERMII (the exchange rate mechanism). In economic policy terms, it is virtually a eurozone member already. Do not be surprised therefore if, before too long, EU officials, without proposing changes to the Union's treaties, come up with suggestions for reinterpreting the Maastricht criteria to make them more appropriate to the economies of fast-developing east European countries.

Then there is the Eurogroup - the eurozone's finance ministers. It needs to play a bigger role in overseeing and monitoring structural reforms among its members and the way that economic policy in one country can affect its neighbours. Germany's 3% value-added tax increase in January 2007 was, apparently, not discussed by the Eurogroup, even though such a move by so big a country was likely to have a spillover effect for its neighbours. The Chatham House paper says that the eurozone needs to pay more attention to such spillovers and to the single currency's exchange rate, something which would require deeper co-operation between the Eurogroup and the European Central Bank (ECB).

One of the Eurogroup's strengths, as our insider pointed out, is that it is a small and cohesive group which can debate issues thoroughly. But it needs to develop a eurozone consciousness such as the governing council of the ECB has already achieved. Instead of finance ministers turning up to defend or promote their narrow national interests, they need to look more often at the bigger picture.

From this observer's perspective, a good place to start would be financial market regulation. In the wake of the subprime catastrophe, as well as central bankers and regulators, the finance ministers (and clearly the non-eurozone UK has to be involved in some way) have got to get their heads around the complex challenges that the EU faces here. But they must do so from a European perspective, not just from the perspective of Paris, Frankfurt, Rome, or London.

And like the ECB, the finance ministers of the eurozone and more broadly the EU must also devote more time to thinking about how they communicate the Union's views publicly. It is simply not good enough to moan privately about how the Americans are succeeding too often at framing the global economic policy debate.

Questionable concepts promoted by the US, such as the idea that a Chinese 'savings glut' is at the root of global economic imbalances, or, now, that inflation should take a back-seat and the EU should participate in a new 'locomotive' style global fiscal stimulus, need to be challenged - politely but authoritatively. This is a role that the ECB, as a member of the central bankers' club, is often ill-placed to undertake.

Europe's top political economic policymakers must do more to shape the debate on global issues. Until they do, the still untapped potential for intellectual leadership offered to them by their countries' role in managing the second most important currency in the world, will continue to be wasted.

• Stewart Fleming is a freelance journalist based in Brussels.

Now that the Lisbon treaty is more or less in the bag, the mantra in Brussels is: focus on the European Union's interests and objectives and end the navel-gazing about institutional structures. But the evidence from a recent discussion about 'Exploiting Europe's Strong Potential - Governance Institutions and Policies', a paper from London's Royal Institute of International Affairs (Chatham House) suggests that it will be impossible for the EU to escape debate on how Europe's institutions go about their business, especially when it comes to issues like changing the terms on which a country can qualify for membership of the single currency.