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Quo Vadis, Europe?

Andreas Becker / padJanuary 22, 2015

The future of Europe has dominated the agenda in Davos. Debates revolved around two controversial issues: The European Central Bank's bond-buying program and the upcoming election in Greece.

Merkel in Davos 22.01.2015
Image: picture-alliance/epa/L. Gillieron

Every European politician in Davos knows to tread carefully when it comes to the European Central Bank. Whether German Chancellor Angela Merkel, her Finance Minister Wolfgang Schäuble, Italian Prime Minister Matteo Renzi, or his Finnish counterpart Alexander Stubb - all seemed to be reading from the same memo: "I have respect for the central bank's independence."

"Whatever they decide on quantitative easing today, we welcome with a smile," Finland's Stubb added shortly before the big announcement in Frankfurt.

But Merkel cautioned that the ECB's bond-buying program could lead to complacency. "Regardless of what the ECB does, it should not obscure the fact that the real growth impulses must come from conditions set by the politicians," she said.

She praised Italy and France for their renewed efforts to undertake drastic reforms. "I have to say: Finally. This is good news," Merkel said. "But we've lost a lot of time, and time is of the essence."

Toning it down in Davos

While the German government welcomed the European Commission's investment plan, which supports public-private partnerships to the tune of 300 billion euros, Berlin has long expressed worries that the ECB's decision to launch a large-scale bond-buying program would exceed its mandate and undermine eurozone member state's sovereignty.

Sigmar Gabriel
German Economics Minister Sigmar Gabriel thinks monetary policy alone won't create new growth in EuropeImage: Reuters/R. Sprich

"The ECB is hoping that this will help revive the European economy," German Vice Chancellor and Economics Minister Sigmar Gabriel told DW. "But I think that European politicians must not leave the task of stimulating growth and employment to the European Central Bank."

Considering that many European countries, especially in the north, have spent the past months rejecting the ECB's bond-buying policies, lawmakers remained remarkably mum here in Davos.

Instead many chose to stress fundamental reforms as the only way for Europe to exit the economic slump." Europe at the moment simply isn't competitive," Dutch Prime Minster Mark Rutte said, echoing Merkel's sentiment.

"My big worry is that we will slow down in Europe in terms of fiscal consolidation and reforms, while we have to step up."

Following Latvia's lead

There's hardly any other country in Europe, which has undergone such fundamental reforms as Latvia. In 2009, the bottom fell out of the Baltic country's economy: Industrial output saw a double-digit drop, while the unemployment rate shot up to 23 percent, joining the ranks of Spain or Greece.

Laimdota Straujuma
Latvian PM Straujuma has had a lot to say about how to kickstart an economyImage: Jonathan Nackstrand/AFP/Getty Images

However, Latvia managed to pull off a seemingly impossible comeback. Today, the country's economy is growing again and this year it became the 19th member to join the eurozone.

Prime Minister Laimdota Straujuma said Latvia's recipe for success boiled down to three things: "Speed of decisions. Ownership: Our reform was drafted in Latvia, it is our own reform. And solidarity: All parties sat in one room - trade unions, business, municipalities, coalition partners - and all of them signed the agreement on consolidation and structural reforms."

These three ingredients have been notably missing in countries like Greece, the absence of which provided fertile ground for populist parties and extremist movements. On Sunday (January 25), one such party, the radical-left Syriza, could win the national election. If it does, the party says, it will be the death knell of the current government's reforms.

No handouts for Greece

Many European leaders have been grappling with how to respond to such a scenario.

"The Finnish position is that we will deal with any democratically elected government that Greece has," said Finland's Prime Minister, but added "that it will be very difficult for us to forgive any loans or restructure debt at this particular moment."

But to rally support for meaningful reforms, politicians must do a better job of explaining to the public why it is so important, the European leaders gathered here in Davos agreed. Nothing captures this failure to communicate better than the controversial TTIP free-trade agreement between the EU and US, which Germany and other European governments have hailed as a unique opportunity to set new standards for international trade.

But few Europeans appear to share the excitement. Across the EU, tens of thousands of people have taken to the streets to protest against the political reforms, the austerity measures and TTIP. The dissatisfaction has also given new life to eurosceptic political parties.

Addressing the global elite gathered in Davos, German Economics Minister Gabriel warned of the dangers of losing touch with the public: "The things that political and business elites are discussing are very different from what the regular people on the street are talking about."