The sudden and untimely death of Tommaso Padoa-Schioppa, just before Christmas, robs Europe one it’s most articulate and lucid voices. The former Minister of Finance in the Prodi government, and one of the architects of monetary union, was a shrewd commentator of the European scene. Writing in December for Notre Europe, the Paris think tank, founded by Jacques Delors, which he chaired, he talked of ‘the hurricane which had attacked the sovereign debt of the Euroland economies’ having as its real target the euro, rather than the debt of particular member states.

In his view the best means of defending the Euro was attack; complete the reform of economic governance, pursue fiscal union, seize on the review of the own resources system this year with new sources of finance for the EU’s budget from taxing financial transactions and carbon emissions; and finance Europe-wide infrastructure improvements by Eurobonds.

He was deeply critical of the pursuit of austerity as an end in itself. Responsible public finances needed in his view to go hand-in-hand with strong measures to combat unemployment, and harnessing the catalytic effect of the EU budget to this effect.

Such thinking is of course anathema to orthodox leaderships in Berlin, London and many national capitals. And it may be too heady a brew for the European Commission which has been reluctant to show leadership ever since the financial crisis broke in the autumn of 2008.

But the truth of the matter is that the political authorities in the member states and in Brussels have consistently underestimated the nature and scale of the challenge to Europe’s economic sovereignty posed by the crisis. At every stage the European Council, EcoFin and the Commission have been behind the curve. Measures taken in May, October and December 2010 might have stemmed the crisis had they each been taken two, three or six months earlier. But the consistent delay and sometimes the quality of the decisions has rarely provided more than a brief respite before the next onslaught from the speculators.

Had the market movements been rational, had they been based on a cool analysis of the measures taken nationally and the support from the IMF and the EU then we might have been spared the prolongation of the attack.

But other factors are at play. At its heart is a political calculation. Parts of the market believe that there is insufficient political will to defend the euro in its current form; and that it will either be split into hard or soft euros, or there will be defections or expulsions, or it will simply collapse. Most observers still believe that they are wrong; that the political consequences of a collapse or even a refoundation of the euro would be unthinkable, that the dislocation caused by even one member state dropping out could itself provoke a new financial crisis and with it a slide into a new recession. And imagine how Europe would have coped with the banking crisis and the economic downturn with a return to the monetary roller-coaster days of the 1980s.

But these irrational market calculations can still do untold harm particularly if the predatory gaze of speculators now focuses on larger Euroland countries where the scale of any bailout, would severely test the existing mechanism, temporary or permanent. The surest response to this would be for the European institutions to persevere with measures to strengthen the governance of the euro, to take the lead in G20 negotiations on global action to achieve a financial and monetary stability, and to start a wider European discussion about new resources to finance both the budget and new economic instruments to underpin economic and social union.

For part of the collateral damage to the EU wreaked by the sovereign debt crisis has been to put Europe’s institutions on the back foot. The European Council meetings, for example, have been dominated by reactive damage limitation exercises, taking measures, often ‘too little and too late’ in answer to the last week’s crises rather than in developing a positive agenda to strengthen growth and competitiveness, and to enhance the political potential of the new foreign policy structures.

The Commission should take its courage in both hands and put imaginative proposals for new own resources on the table when it tables its final options later in the year. It should also accelerate its work on the Internal Market Act programme as the most credible contribution it can make to Europe 2020.

And the Parliament should steel itself to fight the real battle which is over the future objectives for EU spending (the multiannual financial framework) and the means for their financing, rather than expending its energies in skirmishes over annual budgets.

Because unanimity in Council is required for most of these decisions, any reform will be an uphill task and will take time. Nonetheless some decisions on economic governance have been taken in 2010- the ‘European semester’ for example- which would have been taboo just twelve months earlier. And if this wider agenda is not even proposed, market sceptics will be comforted in their doubts about the quality of Europe’s ambition.

The incoming Hungarian presidency is surely right to talk of the need for a more confident tone from Brussels rather than the defeatist language too often heard in the last six months. But this is not just a question of communicating better. The substantial debate must now be started. To paraphrase Roy Jenkins, it is time for Europe to leave its winter quarters- and to start the fight back.

Julian Priestley
Waterloo, 6 January 2011