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Europe: A Leaning

Tower of Babel
GERHARD SCHRDER AND JACQUES DELORS
MARIANO RAJOY

NIALL FERGUSON AND

PIERPAOLO BARBIERI

EUROPE 2025

FRANOIS HOLLANDE
PARIS The

eurozone today has become a leaning Tower of Babel. The sovereign

debt crisis and the high social costs of austerity have severely weakened its foundation. Whether this tottering edifice designed to thread diversity through the
needle eye of a single currency finally collapses and falls, or is able to right itself,
will depend on re-founding a European narrative for the 21st century.
The project of European unity was born out of the fear of war, which devastated the continent twice in the 20th century, and the promise of prosperity.
Precisely because of the last few decades of step-by-step integration, war is no
longer a danger and thus has lost its force as the compelling raison detre of
unity. On the other hand, if, as the current situation suggests, integration means
more pain than gain, the lost generation of youth facing a jobless future can be
forgiven for asking why Europe?
At the recent town hall meeting organized in Paris by the Berggruen
Institute, French President Franois Hollande called for a new narrative for
Europe that would appeal to the post-crisis generation of today as the postwar narrative appealed to the generation that founded the European Union.
Jacques Attali, the former top aide to Franois Mitterrand and mentor to
Hollande, told the students of Sciences Po, where the town hall meeting was
held: Young people today are faced with three options if the current eurocrisis
is not resolved leaving Europe, staying in Europe without hope or going into
politics and starting a revolution.
As Attalis comment suggests, the despair of youth today is destroying their
faith in the promise of Europe, as we see with the success of the left-populist
blogger-comedian Beppe Grillo in Italy. At the same time, right-wing movements
across Europe from the True Finns to the neo-fascist Golden Dawn in Greece
yearn for the days before globalization, Muslim immigration, gay marriage and
the Growth and Stability Pact.
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The great danger is that the despair and alienation over the failure of Europe
to deliver a future for its next generation will conjoin with the backward-looking,
reactionary right in one great anti-European eruption. That would finally bring the
historical project of European integration crashing to the ground.
In this context, pro-Europeans need to heed a truth of the human condition
that Charles de Gaulle fully understood: Identity is rooted in the nation that is,
belonging to a unique way of life; what Johann Gottfried Herder called volksgeist. Papering over this truth with a currency managed (or mismanaged) by
distant bureaucrats with functional acronyms in Brussels only suppressed this
reality, not diminished it.
Unless de Gaulles certain idea of France and its equivalent in other nations
is replaced with an a certain idea of Europe, the whole thing will shatter into
shards of a once-vibrant dream.
The challenge for pro-Europeans is not to dismiss national sentiment, but
seek to forge a common identity that leaves plenty of room for diversity while delivering opportunity and security through a strong but limited European government.
At the Berggruen Institute meeting in Paris, students from Sciences Po, the
London School of Economics and the Hertie School of Governance in Berlin proposed a narrative for their post-crisis generation founded in freedom and solidarity. The European identity for their generation, they argued, would be bound
up with the founding idea of European civilization the universality of reason
and the free individual combined with a social model that doesnt let fellow citizens fall into the cracks as Europe faces the competitive winds of globalization.
It remains to be seen if such a narrative is convincing. Many fear that the
2014 European Parliament elections will become a platform that will give full
voice to the nationalist and populist anti-European backlash. Perhaps such an
eventuality ought to be welcomed, not feared, because it would force a strong
redefinition of the pro-European identity in the face of an existential challenge.
When al-Qaeda took down the Twin Towers in New York in 2001, Samuel
Huntington, the Harvard theorist who wrote The Clash of Civilizations, argued that
the attacks had given back to the West its common identity. The same dynamic
will take place if the European idea is thoroughly challenged in 2014.
Whether or not a certain idea of Europe triumphs, however, will be determined by how quickly and effectively the present European leaders and institutions
stem the current crisis. The announcement in Paris of a concerted offensive
against youth unemployment by the French, German, Spanish and Italian governments is a propitious start.

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What matters now is whether they will deliver hope through concrete action
instead of more empty promises between now and the 2014 election. The fate of
Europe is in their hands.

At Europe, Les prochaines tapes, a town hall meeting in Paris on May 28


sponsored by the Berggruen Institute on Governance and Sciences Po, European
leaders called for urgent action to respond to the crisis of youth unemployment.
There are nearly 6 million young people under the age of 25 without jobs today.
Addressing the gathering, French President Franois Hollande called for an
offensive against youth unemployment, saying we need to act quickly. In this
battle time is the decisive factor. Prime Minister Mariano Rajoy of Spain,
where youth unemployment is the highest in Europe, called for action now
without delay.
Also participating in the gathering were German Finance Minister Wolfgang
Schable, French Finance Minister Pierre Moscovici, German Labor Minister Ursula
von der Leyen, French Labor Minister Michel Sapin and the Italian Labor Minister
Enrico Giovannini. Werner Hoyer, president of the European Investment Bank, and
Martin Schulz, president of the European Parliament, were also present.
Other participants in the meeting included elder statesmen and former leaders such as Jacques Delors, Felipe Gonzalez, Franois Fillon and Mario Monti
along with student delegations from Sciences Po, the London School of
Economics and the Hertie School in Berlin.
The centerpiece of the event was the launch of a growth initiative for
Europe drafted by the German and French labor ministries in conjunction with
the Berggruen Institute.
Ursula von der Leyen outlined the three main elements of the plan:
Financing for small and medium enterprises (SME) across Europe through a
combination of 70 billion made available at favorable rates by the European
Investment Bank (EIB); 16 billion in committed, but undispursed, EU structural funds; and 6 billion dedicated by the EU to targeted to fight youth
unemployment.
Several participants of the meeting called for frontloading the 6 billion
to be spent immediately. Prime Minister Rajoy called for a further 30 billion
in capitalization for the EIB to fight youth unemployment.
A dual-track training program for certification in schools and on-the-job
training so that new jobs are sustainable and workers are properly skilled;
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Enhancing labor mobility by extending the EUs Erasmus


Program for higher education that allows students to
study anywhere in Europe to include vocational training
Erasmus for all.

EIB President Werner Hoyer committed the bank to this initiative as a key way not only to fight youth unemployment, but to

Spanish Prime Minister Mariano Rajoy.

prevent further fragmentation of European financial markets


which have made credit scarce for SME, which produce most
new jobs.
After the morning session at Sciences Po, the labor and
finance ministers met at the Elysee Palace with President
Hollande to chart the path forward for this initiative. Ursula
von der Leyen laid out a roadmap for implementation that
will include a summit of all European labor ministers and

French President Franois Hollande.

Heads of public employment services in Berlin, hosted by


Chancellor Merkel and EU Commission President Barosso, to
finalize the initiative and present it with a single European
voice at the G-20 Summit in St. Petersburg in September.
She also called on the private sector to step up to their
responsibility and take part in this urgent initiative. To be
effective, the German labor minister said, any jobs created
must be demand driven.

German Labor Minister


Ursula von der Leyen and
Finance Minister Wofgang Schable.

The goal is to mobilize the available sources of funding


and link them with effective labor market policy measures. Governments cannot
guarantee jobs, only the private sector can create jobs. But the states can conserve and improve young peoples employability. And they can provide European
funding for small and medium enterprises to promote growth and employment.

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Europes Feeble War on Unemployment


NIALL FERGUSON

is Laurence A. Tisch Professor of History at Harvard and is author

mosts recently of The Great Degeneration: How Institutions Decay and Economies Die.
PIERPAOLO BARBIERI is an Ernest May Fellow at the Harvard Kennedy School. His
book, Hitlers Shadow Empire: The Nazis and the Spanish Civil War will be published this fall.
paris European leaders have declared war on youth unemployment. At a meeting
we attended in Paris organized by the Berggruen Institute on Governance, President
Franois Hollande of France called on his fellow EU leaders to act urgently to
address the problem. Germanys finance minister, Wolfgang Schable, warned of an
impending catastrophe that risks losing the battle for European unity. Italys labor
minister, Enrico Giovannini, added, We have to rescue an entire generation of young
people. Only a few days ago, his boss, the newish Italian prime minister, Enrico
Letta, declared he wanted to make the European summit that begins on June 28 about
the fight against youth unemployment.
The crisis is real. According to a recent report by the International Labor
Organization, the youth unemployment rate in France is now above 23 percent. In
Italy it is 34 percent. Conditions in Greece, Portugal and Spain are even worse.
In countries like Spain and
Ireland, bubbles in construction tempted many young people to drop out of the educational system. Few who did so
now stand much chance of getting a job. More generally, high
youth unemployment across
the periphery reflects the old
rule: last in, first out.

Moreover, alarmingly high proportions of unemployed young people have been out
of work for more than six months.
True, the official Eurostat figures overstate the problem by excluding students
from the work force. Still, even the more realistic figures for NEETs (young people
not in employment, education or training) are pretty grim. In Italy and Greece, more
than a fifth of the working age population are in that category.
In countries like Spain and Ireland, bubbles in construction tempted many young
people to drop out of the educational system. Few who did so now stand much
chance of getting a job. More generally, high youth unemployment across the periphery reflects the old rule: last in, first out.
Yet the plans that were under discussion in Paris strike us as grossly inadequate.
Even more worrying, they risk distracting EU leaders from what really needs to be
done to revive the European economy.
On the positive side, Germanys labor minister, Ursula von der Leyen, introduced a promising German-Spanish plan to begin training young workers in languages
in other words, German. This may be a small step, but any increase in labor mobility in the two-speed euro zone is a step in the right direction. An Erasmus program
for jobs and apprenticeships is another reasonable idea.
Less convincing is the plan to use the European Investment Bank to fight youth

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unemployment. European governments have recently recapitalized the EIB with an


infusion of 10 billion, but obviously not all the new funding will be deployed to
fight youth unemployment. Not even close, if we consider the EIBs development
projects around the world and the desire to maintain its AAA credit rating. As with
the EUs so-called structural funds (used for infrastructure and convergence programs in less-developed member states), EIB loans are subject to a variety of tests
and funding requirements; it takes time and much effort to deploy the capital. That
is why the EIBs head, Werner Hoyer, warned against arousing expectations completely over the horizon.
Total bank lending in Europe is no less than 79 trillion and is structurally far
more important to business funding than bank lending in the United States. In both
Spain and Italy, total bank lending exceeds 2 trillion each. Even if state-owned development banks like the German government-owned KfW marginally top up the EIB
funds, the total increment would amount to a drop in the bucketwe estimate around
0.06 percent of European GDP Yet total credit and domestic bank credit to nonfinancial corporations in the peripheral economies declined by 137 billion between the
end of 2010 and the third quarter of 2012, equivalent to 1.1 percent of European
Union GDP. According to new data from Confindustria, small and medium-sized
enterprises in Italy saw their credit lines cut by more than 27 percent in 2012.
So the various schemes so far unveiled look depressingly like the Hollande
growth agenda that never really was. They also seem like a great way to avoid talking about the structural reforms that so much of Europenot least Francereally
needs. Hollande had no sooner declared war on youth unemployment than he was dismissing European Commission calls for necessary reforms in France. These include
lowering employers social security contributions, reversing last years hike in the
minimum wage and reforming the unemployment benefit system to ensure adequate
incentives to work. Anyone serious about reducing youth unemployment in France

Hollande had no sooner


declared war on youth
unemployment than he
was dismissing European

would do all three (and whole lot more) tomorrow.


Everyone knows 2013 is a key election year in Germany. A youth unemployment
action plan allows Merkel not to appear isolated at the approaching EU summit,

Commission calls for


necessary reforms in France.

which helps deflect recent criticism from her domestic opponents. But what really
matters is not a few billion euros worth of job creation schemes. What matters is to
accelerate the move to banking union, as the European Central Bank has been urging.
Banking regulation may not be the most voter-friendly topic. Yet the reality is that
the best way to create employment in the periphery is by ending the fragmentation of
the financial system that continues to plague Europe. As long as Greek, Portuguese,
Spanish or Italian entrepreneurs need to pay a premium of between 4 and 6 percent
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above what their German counterparts pay on bank loans, how can they possibly start
new businesses? The European Central Banks small and medium business survey last
month confirmed that credit conditions continue to differ significantly across euro
area countries. Monetary transmission mechanisms are still broken.
A faster implementation of a common supervisory framework for European banks
under the ECB is indispensable. Even better would be to agree on the other pillars of
The real war they should be
waging is for a functioning
credit system. If they dont
hurry up, young Europeans
may be the ones to declare war
on their dithering leaders.

banking union: an EUtemplate for national legislation on banking resolution with federalized banking recapitalization plans and a path to common EU deposit insurance.
A year ago, a marathon EU summit led to an initial agreement on federalized
bank recapitalizations and banking union. The former has since been redefined and the
latter has yet to be implemented. The latest Franco-German agreement on Friday
only agreed to further postpone the necessary decisions.
Unfortunately, the recent easing of financial conditions in the sovereign bond
markets has taken the pressure off Europes politicians; even the usually cautious
German finance minister has ventured to suggest that the worst is over.
Yet the most recent IMF Global Financial Stability Report points to a future
widening of spreads, even in the absence of negative political news. If that happens,
Europes leaders will rue having squandered the tranquil interlude of early 2013. The
real war they should be waging is for a functioning credit system. If they dont hurry
up, young Europeans may be the ones to declare waron their dithering leaders.

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