Chydenius Seminar: The EU must regain its credibility
During the last three years, the Chydenius Foundation has organised in Kokkola an annual Free-Trade Seminar, which has become a prominent discussion forum in Finland. In 2011 seminar, introductions were given by Finnish Finance Minister Jutta Urpilainen, Governor of the Bank of Finland Erkki Liikanen as well as NIB President Johnny Åkerholm.

The seminar took place on the 16th of July in Kokkola, Finland. Mr Åkerholm, President of the Nordic Investment Bank, urged the European Union to regain its credibility. He offered his view on the causes and consequences of what he called "the evident crumbling of the economic and political foundation of the Union."

NIB President Johnny Åkerholm: Four conclusions on crises

According to Åkerholm, the economic situation in Europe is, despite the decisions made regarding Greece, more critical than it has ever been since the Second World War. While in 2008, the public sector still had sufficient resources both for supporting demand and bolstering the funding system, it is today the very root of the problem, and there are very few cards left to play.

The EU project is beneficial for Europe and absolutely essential for Finland. This is why we should be concerned about the evident crumbling of the economic and political foundation of the Union.

We can draw four different conclusions from the EU"s operations so far.

- First of all, the EU placed itself in an all but impossible situation by assuming responsibility for the management of the Greek debt, when it had no means by which to do so.

- Secondly, creating the necessary means in the midst of a crisis has in fact increased uncertainty rather than decreased it. However, having taken the first step, the EU was left with no other option but to press ahead.

- Thirdly, managing acute crises while maintaining the principle of transparency is not practical. Public debate in 27 parliaments has unfortunately only made matters worse. Opinions aimed at political supporters were also heard by investors, loud and clear. And yet, the basic rules of democracy must naturally be observed. The conclusion therefore is that such actions cannot be successfully taken within the framework of the current structure.

- And finally, the EU has been forced to breach its own rules and agreements when dealing with the crisis. This has undermined the credibility of the EU.

NIB President Johnny Åkerholm: Four tasks for Europe

According to Åkerholm, the EU has both immediate and long-term problems to solve. The most pressing one of these is to stop the financial crisis. This will not happen by endlessly increasing the amount of money involved. So what should be done?

- The first precondition for solving the EU"s financial crisis is that the heavily indebted countries must adopt a feasible plan for stabilising their financing needs. The more feasible the programme, the more time there will be to implement it. This is something that these countries must do for themselves. The role of EU partners is to create opportunities for the necessary adjustment. The debate should therefore rather focus on defining the set of required measures. The aim is to regain confidence in the economic policies adopted by the Member States, so that these countries can return to the sphere of normal financing.

- The second challenge for the EU is to create credible growth prospects. In reality, the EU has very few tools to do this, as all of the central instruments are held by the Member States. Therefore the division of labour and responsibilities between the EU and its Member States should be clarified.

- The third precondition is about to be realised, as soon as the permanent crisis management mechanism is in place. After this, it should be possible to manage acute crises without public controversy.

- The fourth precondition is a hard one to fulfil. The joint management of a crisis requires a substantially deeper harmonisation of economic policies than currently is the case. Tax payers cannot be expected to carry the responsibility for problems in other Member States, if they have no power over the decisions that led to the crisis in the first place. The operating model of the EU is not on stable ground until certain equilibrium between responsibility and co-operation has been achieved.

Åkerholm"s message was that the EU must rebuild its credibility. This will take time, and it will not be realistic until the EU learns how to abide by its own agreements. It is of utmost importance that, among other assurances, the new permanent financing mechanism is used only as has been agreed, that is, to manage severe crises only. The mechanism must not be employed to smooth out the effects on interest rates when investors react to economic policies that they find lacking in credibility.