Where Now for European Social Democracy? - Policy Network

ROGER LIDDLE 67France and Germany to ignore Stability Pact rules may have beeneconomically sensible in its own terms. On the other hand, it has calledinto question the viability of co-ordinated fiscal discipline at Europeanlevel, never mind the more ambitious notions that some economicexperts harbour for a carefully-tuned balance between fiscal andmonetary policy within the eurozone, if growth prospects are to bemaximised.If Lisbon’s goals are to be realised, Europe must adopt a revised setof fiscal rules that will facilitate public investments that raise longtermgrowth potential. Social democrats need to open up a new debateabout the composition of public spending; we need to considerwhether ‘knowledge investments’ should be treated in a different wayfrom transfers and other types of public expenditure, as conventionallyaccounted-for capital investment is treated under the Golden Rule.This debate is easier to have at European level than it is for anynational government unilaterally to change its fiscal rules.Other instruments can be deployed at European level tocomplement national action in improving growth potential. A reformedEuropean budget should serve as a catalyst for Lisbon-type reforms.The political problem is that any significant expansion of the Europeanbudget for these laudable aims would require an increase in the overallsize of the EU budget, unless existing policies, principally the CAP, arereformed. It is intolerable that, even with the CAP reforms that havebeen agreed, agriculture will still consume roughly 40 per cent of thetotal European budget when fewer than five per cent of the EUpopulation are farmers, and most of the money goes to richer farmersat that. No one is suggesting that agriculture spending can be slashedovernight. But social democrats should campaign for CAP spending tobe put on a clear, degressive path. The need to re-start the Doha tradetalks provides the political opportunity.However, releasing funds from agriculture is not in itself ajustification for European budget spending on other purposes. A keyprior question has to be answered. What are the ‘public goods’ thatcan only be achieved at European level by spending through aEuropean budget? Social democrats need to bring intellectual rigour tothe case for European tax and spend.