Diego Lopez Garrido on EU Economic Policy

On Thursday October 13, Diego Lopez Garrido, who is Secretary of State for the EU of the government of Spain, came to Washington College of Law to discuss Europe’s management of the current economic crisis. He began his address by explaining first and foremost that the EU is aware that the way they manage the crisis has implications beyond just Europe. He is certain, though, that it will not tear up the Eurozone and that the European Union will come out of this crisis stronger than before and with a better system. Beginning with a bit of history about the Euro and the roots of the current debt crisis, he explained how the Euro was successful at first – jobs increased, inflation decreased to two percent – but this didn’t last. However, the EU acted in a coordinated way to resolve the crisis. On December 12, 2008 the European recovery plan passed. Its goals were to ensure that smart investments would be made, and to restore economic growth through the creation of jobs. But Mr. Lopez Garrido called this plan “too optimistic and shortsighted.” Shortly after, in 2010 the EU then had to rescue Greece by means of bilateral loans. After that Ireland and Portugal had to be bailed out too, and the situation began to spiral out of control.

In May 2010, the European Financial Stability Facility, or EFSF, reserve was agreed upon by the seventeen European Union members as a temporary mechanism for assisting members in times of financial hardship. It will expire June 30, 2013 to be substituted for a permanent mechanism, which would provide financial security and intervene into debts. Mr. Lopez Garrido stated that the EU has decided on a new economic system to prevent crisis in the future. It consists of two tracks – one is an immediate policy designed to prevent any more damage, and the second concentrates on improving economic coordination in the EU as a whole. In building this new structure, there are three main “pillars.” The first one is about restructuring what he called “the financial market architecture,” or reforming regulations. The EU has created financial market authorities to regulate the framework of the economic policies between governments. He emphasized that the problems before were mainly of distrust and unwillingness to cooperate between countries. Pillar number two involves a new program called the “European semester,” a system that will enforce economic policy coordination between the European states, which, as Garrido put it, will “tackle the absence of a real economic monetary union.” Without this kind of system, the EU is vulnerable when it comes to the economy. Finally, the third pillar has to do with financial discipline. It deals with debt, sanctions, and the strengthening of surveillance of microeconomics.

Lopez Garrido is confident that these new steps and plans “clearly prove Europe’s capacity” to act against the crisis. However, the EU has to decide about a globally comprehensive package – simply put, that they “have to tackle all the problems at the same time.” He discussed three main issues that are still unsolved. The most pressing is finding an effective solution to the Greek crisis, particularly one that does not include Greece leaving the EU. He said that the other countries are fully committed to the Euro as a single currency, and to keeping Greece in the EU. Secondly, they need to enhance the EFSF to use new financial tools in order to help European and global financial institutions. Finally, he stated that “recapitalization must be taken care of” at the next European council meeting. In addition, the European Union “needs to combine fiscal consolidation measures” with economic growth and stimulus measures.

At the upcoming sixth G20 summit in Cannes, France, the EU will need to adopt an “ambitious approach” to solving the crisis. They will have to approve an ambitious action plan in order to respond to the challenges they are facing. Lopez Garrido stressed that the key to turning around the crisis lies in economic growth and job creation. He also recognized, though, that this isn’t the only factor. He agrees with Obama’s position that spending needs to be decreased, but that alone is not enough to solve the crisis and compensation for this must be made through other means that the governments can find, such as taxes on the highest incomes. He touched on the importance of “progressive taxation” on the wealthiest. He stated that Western countries in the last 25 years have slowly let taxes fall by the wayside in terms of gaining federal income, that “taxes are the natural way for the government to get money.”

Overall, Mr. Lopez Garrido seemed to recap his emphasis on a more closely integrated Europe and international coordination by mentioning that the situation brings to mind an old poster for the Marshall Plan with the slogan “Whatever the weather, we must move together.” He expressed that European identity is based on their shared history and shared values of democracy, liberty and respect for laws. Since the U.S. most closely shares these values, the management of the crisis should be a collaboration of the U.S. and Europe. In closing, he said that mainly there is work to be done on two fronts: resolving present situations and promoting growth for a stronger economy in the future.