Monthly Archives: juni 2012

Skattepolitik för jobb

Skriver på Newsmill tillsammans med mina borgerliga utskottskolleger om skattepolitik för bättre möjligheter till jobb för den som invandrat. Läs artikeln här.

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Tal i Tallinn: Politiska reformer måste ingå i krisbekämpningen

När den ekonomiska krisen i Europa debatteras är det ofrånkomligt att den mesta uppmärksamheten handlar om systemfrågor på europeisk nivå. Men all politik är lokal, och all krisbekämpning kräver i slutänden beslutsamt agerande inom varje berört land.

Då behöver inte bara den ekonomiska krisen hanteras, utan också förtroendekrisen för politiken. Kort sagt: politiker måste visa att de förtjänar sina väljares förtroende.

I måndags (alltså den 4 juni) hade jag förmånen att vara en av huvudtalarna vid seminariet ”Fiscal and monetary policy in Estonia and the EU: Challenges and future scenarios” på handelshögskolan i Tallinn, och jag fick då möjlighet att tala över framtida reformstrategier på nationell nivå i krisens spår. Seminariet ordnades av den estniska liberala tankesmedjan Liberalismi Akadeemia, och bland övriga talare fanns den estniske finansministern Jürgen Ligi och Lettlands förre premiärminister Ivars Godmanis, numera ledamot i Europaparlamentet. Här nedan ser du Godmanis (till vänster) och mig (till höger) tillsammans med en av seminariedeltagarna.

Här återger jag också slutversionen av manuset till mitt anförande.

The crisis and beyond: National reforms in the European economic landscape

In one of his most charming legends, the ancient Greek writer Herodotus, justly called the father of history, tells us about Arion. Arion was a renowned musician and poet who boarded a ship in today’s Taranto in southern Italy in order to cross the sea to Greece, only to discover that the shipmates were bandits who had conspired to seize his money and belongings and throw him into the sea to a certain death. When they had captured him and were about to throw him into the waves, however, Arion begged for and was granted a last chance to perform one of his songs. Standing on the deck he chanted his lyrical dithyrambs until a school of dolphins gathered around the ship in admiration of his song, and still chanting he stepped overboard, fell among the dolphins and was safely carried ashore by one of them.

I think that the Greeks of today have had more than their fair share of condescending innuendos by way of the all-too-common allusions to the Greek economy as an ancient Greek tragedy or the like, so my reason for bringing up this legend is not to taunt today’s Greece.

My point is exactly the opposite. Obviously this legend is an expression of admiration for the power of poetry; but it also is a powerful illustration of the human longing that, no matter how great the distress and how extreme the danger, there will always turn out to be an unexpected way to escape into safety.

This is a psychological mechanism that is deeply rooted within us all. We must recognize it as part of the human condition. But that does not imply that it should be believed.

We see this today, in the ongoing debate of how to extricate Europe – or I might say the industrialized Western world as a whole – from the ongoing debt crisis. There is no lack of people at least in Western Europe saying that austerity measures are counterproductive, and that fiscal stabilization has gone too far.

But in reality there will not be dolphins magically turning out to save us. The Western economy is indeed in dire trouble, and we are sailing in deep and dangerous waters that are largely uncharted. Never before in peacetime have the major economies of Europe faced such an acute financial crisis while at the same time being so heavily indebted. The public debt in the euro area is rapidly approaching the aggregated GDP, and countries such as Italy and, of course, Greece are already well above that limit.

In this presentation I will speak from my position as a Swedish liberal strongly in support of the European project. It should also be stressed that this project must be open for Europe as a whole; further cooperation with eastern European countries should be supported. The idea of Europe is not based on isolation – it is based on openness and integration. Therefore, although most of the examples given are taken from within the EU, I hope the policy recommendations I will present in my speech will be relevant also for those countries which are currently not EU members. Naturally, these recommendations will be determined by an analysis of the causes of the economic crisis.

To this I will return later on, but firstly, allow me to say that we must be frank and outspoken about what is at stake. This is no ordinary economic downturn, and if we fail to respond to the challenge, more may be lost than can now be imagined.

This is not only about an intermediate loss in GDP growth, or an unwanted increase in unemployment. Our capacity to deal with the crisis will also determine the political and social future of the continent in which we all live.

The deeper the crisis, the harder the strains on society; for the consequences of an economic crisis are not felt evenly. While it is a fact that more austerity measures will be needed in some countries, it is also a fact that the economic consequences for many individuals deprived of their jobs or their social benefits have been brutal. If the economic crisis is handled improperly, the entire social fabric of Europe may be unraveled.

This will also put extreme pressure on the political system. Citizens in a democracy have a right to expect that their elected officials do not jeopardize their own future, and that the macroeconomic decisions do not bring down disaster upon their heads. The fact that the white-hot anger shown by so many people in Greece is largely misdirected does not mean that it is not justified; quite the opposite is the case, since the Greek people actually have been cheated by a political class that manipulated the figures and hided the truth until it was too late. The political consequences of this are potentially disastrous, for Europe suffers not only from large public deficits; it also suffers from a deficit in trust from the voters to the elected officials. Democracy depends on the constant support and commitment of its citizens, and that support and commitment has to be founded on trust. When the economic crisis in a country creates desperation and a feeling of betrayal among large numbers of citizens, this makes the crisis political as well.

Politically, the future of the European project itself is also at stake. European integration is not an end in itself; it is an answer to the horrors of the European experience that we all share and whose disastrous effects are still present among the nations of Europe, in the east and in the west. And the defining feature of the European project is interdependence: never more should a European country be abandoned by its neighbors in the hour of distress, and never more should a European country have the scope of action to embark on dangerous projects fully on its own. Large and economically strong countries can always manage on their own; small and economically weak countries cannot. Therefore, the biggest losers in case of a failure of the European project will be the small countries.

Furthermore, the political effects of the European crisis will be felt also outside Europe itself. What is at stake is also the international standing of the liberal model of society, combining full political freedom with an open and free market economy. Anyone in this room knows that the liberal European society cannot be taken for granted to be a role model. It has to be defined, explained, its values of openness, tolerance and civil liberties defended. One thing liberal Europeans cannot afford to be is to be arrogant, and the peaceful struggle for democracy and political freedom is an ongoing struggle in our continent as well in others.

Let me be clear about this: authoritarian rulers in any country should not be given the opportunity to suggest to their people that the choice between democracy and authoritarianism is the choice between on the one hand a debt-ridden Europe and America in constant economic turmoil and on the other hand a China, or why not a Russia, with strong economic growth figures and current accounts bursting with fresh capital.

˜- – –

Before turning to the policy recommendations for the future, allow me to address the issue of the background to the crisis. This is especially important as the enemies of liberalism, to the left as well as to the right, to a large extent use the present economic crisis as proof that the liberal economic and political model is so inherently flawed that it must be rejected.

To any observer, it is obvious that the economic turmoil in Europe does not have one single cause; neither can the situation in Europe be seen as an isolated case, unaffected by the global economy. Instead, we see a number of factors, working jointly as well as independently, and in combination these factors have affected the different nations of Europe quite differently. We do not have one economic crisis in Europe, but many.

Firstly, it must be recognized that we live through the sixth year of the financial turmoil caused by the sub-prime crisis in the United States. The near-collapse of the financial markets of the largest economy of the world caused an economic slump of a scale that humankind has not experienced since the Great Depression of the 1930s, and the debt crisis of Europe is directly connected to the emergency measures taken to prevent a complete breakdown of the financial system, a breakdown that would have caused nearly unimaginable damage to the real economy.

Much has been said about the American government’s role for causing the sub-prime crisis by pushing for American banks to finance home loans also to those households that, in essence, didn’t have the economic strength to bear the cost of such a loan. But that was not the sole cause of the sub-prime crisis; the other major factor was that the banks financed those loans by creating new and innovative financial instruments that, in their turn, were financed by other financial institutes, and so on. A set of financial chains was thereby created where the institutions providing the capital were unable to discern the risks connected to the loans in the other end of the chain.

Lack of risk transparency made it impossible for the financial markets to properly assess the risks of their investments, a lesson that was brought down dramatically by the demise of Lehman Brothers. Lack of transparency is also one major reason for rejecting eurobonds as a way of dealing with the public debt crisis; the very idea is to muddle the view for the financial markets regarding the level of risks for lending to a specific country.

Also, the financial markets themselves have been portrayed as perpetrators of the crime, as the main cause for the current crisis. As I have just mentioned, it is obvious that the financial markets in some ways added to the upbuilding of the crisis by refinancing loans without proper risk assessment. Humans make mistakes and bad investment decisions will always be made regardless of the economic system, but it can be justifiably claimed that the legal framework for the financial markets were insufficient.

On the other hand, this does not mean that the financial markets themselves caused the crisis. It is not the fault of the financial market that the interest rate for long-term government bonds has exploded for some European countries, since that reflects a very real risk for a government bankruptcy; if anything, the financial market may be blamed for not recognizing that risk earlier on, thus providing cheap loans to countries whose citizens were kept in the dark about the actual economic situation of their country.

The very idea of a single European currency system is also targeted as the cause of the crisis. But if that were the case, the countries within the euro zone would have fared much more badly than their counterparts outside of the euro, and the effects of the crisis would also have been felt pretty much the same in the whole of the euro zone.

None of this is the case. Within the euro zone we have stable economies like Germany, Finland and the Netherlands as well as countries in deep turmoil like Greece, Portugal and Spain; the euro-country Estonia and the non-euro country Latvia both took a hard blow but are now both well on the way to recovery; outside of the euro zone Poland fares relatively well while the United Kingdom is still reeling from the blow it received during the worst phase of the crisis; and the tiny republic of Iceland has suffered dramatically from a domestic banking speculation crisis that in its suddenness and severity was not unlike the real estate crises of Latvia and Spain.

At the same time, it must also be recognized that the euro system was created with intrinsic weaknesses. The story of the euro is the story of ongoing repairs in an engine already in motion; the present stability measures should have been there already from the start. In order to function, a monetary union must be combined with either a strong macroeconomic framework in order to ensure a common fiscal and budgetary discipline among the member states, or full economic union in which the general budget decisions are taken on the European level; any of these will do, but one of them has to be chosen.

The choice between these two alternatives is mainly political and not economic. As for myself, I prefer the macroeconomic framework because the decision-making power within that framework is left with the member states, and it is always easier for the voters to influence the economic policy on the national level than on the European level.

But it is always easy to criticize decisions in hindsight. Yes, the euro system was badly flawed when it was introduced; but the decision to introduce the common currency cannot be taken out of the historical circumstances. The purpose of the European currency is political as well as economic: with a common currency, the fate of a country is tied to the fate of its neighbors. At the time of German unification, the introduction of the euro was the political proof that no longer should any major European country turn its back on its neighbors; the future of the continent was based on democracy and interdependence.

The sub-prime crisis in the United States and the global financial crisis caused by it, lack of transparency within the financial market, domestic speculation bubbles in some countries, inherent flaws in the euro system: all of these contributed to the economic upheaval we see today. But the fact that some European countries, within the euro zone as well as outside of it, have gone through the last few years relatively unscathed proves that these factors, even if combined, do not give the full answer. We also have to pay attention to the ongoing cost crisis in some countries, caused by uncompetitive economies in combination with systematically underbalanced government budgets. This stresses the need for continued structural reforms on the national level.

The situation in Greece is sadly enough a dramatic illustration of the importance of competitiveness. Let me here only dwell upon one single aspect, namely labor costs. With rising GDP it comes naturally that the labor costs also will increase, as some of the economic growth is turned into wages, in turn boosting private consumption. But let us compare the unit labor costs in Greece with those in another major character in the European drama, Germany. Since the introduction of the euro in 1999, the unit labor costs in Germany have pretty much shadowed the GDP (plus 10 percent and 19 percent respectively), as has also the development of private consumption. In Greece, on the other hand, despite the crisis measures in the past few years, unit labor costs have still risen much quicker than in Germany, and much quicker than the development of the Greek GDP would suggest (plus 28 percent and 13 percent respectively).

This would not be a great problem if the Greek economy had other competitive advantages. Unfortunately, that is not the case.

The same pattern is shown even more dramatically if we expand the period of time to the beginning of the 1990s. The Greek and German GDPs have actually risen almost exactly as much from 1991 to the prognosis for 2013 (plus 34 percent in both cases); the difference lies in how the unit labor costs have developed. While the unit labor costs in Germany have risen with 26 percent, the costs in Greece have risen with 136 percent.

˜- – –

The present situation in Europe is therefore quite multifaceted, and all countries must be analyzed for themselves. But one thing is for sure: the process towards fiscal consolidation must be continued, and austerity measures are part of the parcel.

It was the right decision to act quickly and decisively when the American financial crisis spread to Europe, puncturing the speculation bubbles in some countries. But saving the financial system of Europe from collapsing lead to severe strains in the public finances, and brought some countries dangerously close to the brink themselves.

Today in Europe, especially following Monsieur Hollande’s victory in the French presidential elections, much of the present debate is based on the assumption that Europe would have a choice between ‘austerity’ and ‘growth,’ Monsieur Hollande presumably on the side of growth. This debate is not only bewildering – who does not want economic growth? – but what is worse, it is also misleading. I happily agree that Germany and some other countries have a scope of action that enables them to follow a slightly more expansionist policy, but for Europe as a whole, this is not the case. You simply cannot expand out of an economic crisis where the national debt quickly approaches, or even exceeds, the national GDP, or when you must tackle a domestic cost crisis.

At this point, may I take the liberty of introducing my own country, Sweden, as a cautionary tale of how not to do. At the beginning of the 1970s Sweden was regarded as the third richest country in the world (taken as GDP per capita), and my country could look back at nearly one hundred years of uninterrupted growth. Then, by two decades of almost systematic mismanagement, things went wrong, and in the early 1990s Sweden ranked among the lower half of Western European countries in terms of economic standard and went through its own home-made depression.

In Sweden, the global economic downturn caused by the first oil crisis in 1973 was compensated by a strongly expansionist policy, financed by a dramatic increase in wage taxes which in its turn caused a cost crisis striking heavily at the competitiveness of Swedish businesses. As a remedy, the currency was devalued five times between 1976 and 1982, boosting exports but also inflation. The high inflation rate led to high wage and cost increases, again eroding the competitiveness of the export-oriented Swedish industry; this created a new cost crisis which exploded at the same time as the domestic loan-generated bubble in housing prices collapsed in the early 1990s.

At that time, Sweden was forced to abandon the fixed currency rate, but that alone did not bring the economy out of the crisis; if so, the string of devaluations in the 1970s would have done the same. Instead, it was a combination of austerity measures, bringing government expenditures and incomes in balance through tax hikes as well as cost-cuts, the long-term stabilization of the pension system, a number of liberalization and deregulation measures, and bringing inflation and wage increases down to a competitive level that brought Sweden out of the crisis. From the beginning of the acute crisis to the end of the austerity measures it took nearly a decade, and major structural reforms were needed.

˜- – –

What, then, should be the course of Europe for the time ahead of us? I will leave all measures aside which demand coordinated action on the European level. Instead I will concentrate on such reforms that can be made on a national level, by countries within as well as outside of the European Union. And there are a number of measures that can be, and should be, taken on the national level.

Let me stress that my policy recommendations are made under the assumption that the acute phase of the crisis is behind us. In an acute phase, it is inevitable that the main focus is on short-time measures. But now when we hopefully have a little more time, let us make sure that the policy choices we make are sustainable also on a long-term basis. If so, they will not only help us to bring European countries out of the crisis; they will also lay the ground for a more competitive European economy and a stronger economic development in the future.

First of all, the stabilization of public expenditures needs to be continued. This is also relevant in those countries where the public deficit is under control or even where the public finances show a surplus.

On top of the agenda in all countries should be a sustainable old-age pension system. The sheer magnitude of the pension system makes it impossible for a country to have long-term stability in public finances without a stable pension system. The construction of the pension system should be left to the discretion of each country, but three major requisites should be met.

One: The system should be fully financed, that is, the level of the pensions should be linked to the level of payments into the system. Mechanisms of delay can be included in order to avoid excessive volatility from year to year, but such mechanisms should not only compensate sudden deficits but also prevent instant consumption of sudden surpluses in the system.

Two: The system should be robust in the face of demographic change, that is, the encouraging fact that we live longer, and the even more encouraging fact that the added years for most people are years of vitality and health. With this demographic development in mind, it is obvious that the construction of the pension system, in one way or another, should be linked to the average life-span.

Three: Both for demographic and for macroeconomic reasons, the pension system should always encourage people to stay in work. If you work a year longer before retiring it should always pay; if you stay two years longer the pension increase should be even more substantial.

Given these three requisites, the pension reform introduced by the Italian government under Mr. Monti deserves praise; on the other hand, the election campaign promises made by Monsieur Hollande to lower the age of retirement should give everyone nightmares, for such a job-killing and financially irresponsible reform is exactly what France does not need.

– – -˜

Turning from pensions, serious attention should also be paid to the other social security systems. However, such reforms have to be made carefully. In many countries the social security system is chronically underfinanced; on the other hand, it provides the means of existence for those individuals who are economically the weakest – in many cases, people who have no economic margins at all. Also, a well functioning social security system can provide macroeconomic stability since they are countercyclical; in times of recession they keep up the power of purchase, and in boom times they cool the economy since, in those periods, the mandatory contributions to the social security system are greater than the payments. My tentative conclusion, therefore, is that social security reform if possible – for some countries, like Greece, do not have that choice – should be postponed until the time when unemployment has started to diminish.

From social security to taxation. There is an obvious risk that tax hikes in the middle of an economic crisis can hamper the economic recovery. However, dogmatically rejecting all kinds of tax raises is both intellectually and economically an untenable position. The main challenge is to put the taxes where they provide the least potential damage to economic development, and to make tax reform part of a parcel that contributes to greater general trust in the economy.

The psychological factor of trust is crucial to any reform strategy; if the general public as well as investors feel assured that the measures taken will promote long-term economic recovery, the consolidation measures will have less negative side effects in terms of consumption and investment.

Bearing this in mind, it is important that tax reforms should be beneficial for the investment climate of the country, and that tax reforms should provide incentives to work. Raising consumption taxes is generally less risky than increasing labor-wage taxes or corporate taxes.

Taken as a whole, the austerity measures in the European Union have been divided evenly between cuts in expenditure and tax raises. Of the tax hikes, slightly more than half has been provided by the increase of consumption takes. This, I think, is fully defensible; more disconcerting is the composition of the other half of the tax raises. It turns out that nearly one-third of the total amount of tax raises is made up from increases on labor taxes, and one-sixth from increases on corporate taxes, whereas the mandatory contributions to social security systems do not contribute at all. As a general pattern this is rather worrisome. When it comes to the business and investment climate, the nations of Europe do not only compete with other European countries; we are all aware about the dramatically growing competitiveness of China and other Asian nations as well as developing nations on other continents. The tax level is of course only one factor among many contributing to the business climate, but the risk that tax rises on the corporate sector will impede the economic recovery cannot be disregarded.

Also, every effort should be made in order to encourage work-force participation, and tax hikes on labor wages work in the opposite direction. Furthermore there is an obvious risk that rising income tax would put a severe strain on precisely those households that live without any economic margins, both low-income households and those middle-class households with in many countries today are burdened by excessive housing loans taken during the heydays of the previous decade.

In those countries where the social security system (including the pension system) is chronically underfinanced, raising the contributions to the system needs to be considered as well as lowering the payments from the system. But as I mentioned earlier, if you have the scope of action to do so, it is strongly advisable to postpone such reforms until the economic recovery is under way.

Since it is preferable that the tax bases are as broad as possible, a potential source for greater taxes in many countries has been, and will continue to be, the value added tax (VAT). Not only are the negative side effects on the economy relatively small, the tax is also comparatively hard – please note the adverb ‘comparatively’ – to manipulate for tax-evasion purposes.

As many as 16 of the 27 countries in the European Union have increased or are expected to increase the VAT rate since the outbreak of the global financial crisis. A VAT reform would not necessarily mean an increase in the general VAT level in a country; it could also mean cutting down on the number of exceptions where a lower VAT is charged. Another way to expand the incomes from the VAT is to broaden the tax base. For instance, banking and insurance services are VAT exempt in most countries, and in my own country a VAT on cinema tickets was introduced as late as in 1996. In Denmark, entrance fees to zoo gardens are still VAT exempt; please do not ask be to explain the political or social arguments for such an exemption.

Therefore, countries in need of fiscal stabilization can consider increasing the VAT revenues not only by raising the main tax level by also by decreasing the number of exceptions or by broadening the tax base itself; and taken as a whole the VAT is not as harmful to the economic climate of a country as many other taxes.

There are some other taxes that can be taken into consideration, although their contribution to the public budgets as a whole is rather marginal. For health reasons as well as fiscal ones, tax hikes on alcohol and tobacco could well be considered; the main challenge is to balance the need for taxes with the increased risk for smuggling from neighboring countries. Also, close attention should be paid to the area of green taxes, such as energy taxation or a tax on carbon dioxide emissions.

˜- – –

I have spoken at length about possible tax reforms; but fiscal consolidation, although necessary, will not be enough to promote economic recovery and sustainable growth in Europe. A number of structural reforms also need to be addressed, and I will mention two of them: increasing freedom of competition through deregulation, and promoting mobility on the labor market. On these two areas, substantial efforts need to be made, and I will shortly return to each of these two issues.

But let me first of all acknowledge that such measures will be controversial, and they will come under attack. But one needs to make a distinction between the various foundations for criticism. The social aspects of such reforms, especially the effects on the poorest, must be considered closely; for it is entirely understandable that people who have adjusted their lives according to the framework of society will be gravely worried if that framework is changed. That kind of concerns is entirely justified, and those people who are most directly affected by structural reforms need to be ensured that negative side-effects of the transition are minimized.

On the other hand, let us not be naïve: there is also another kind of reform resistance coming from those companies and individuals who have a strong vested interest in the present system, and who care more about their own profits than about the detrimental effects for other individuals, the general economy or society as a whole.

We all know that every kind of reform effort will be resisted by the insiders, by those who benefit from the unreformed system. And there is a strong outsider-insider conflict underlying the two issues of increasing economic competition and increasing mobility on the labor market. And as a principle, the liberal position in that conflict should be to support the outsider.

Why is that so? It is due to the basic liberal principle that economic as well as political freedom is not something that should be reserved for the privileged ones. Those who already are influential and economically strong, those who already have the proper connections, can thrive also in a close and tightly regulated economy; as a matter of fact, they often have enough influence to customize the regulations in order to maximize their strength of their own position and to keep competition away. Those who benefit the most from the opening of the markets and the easing of regulations are the outsiders, often small and new businesses without support from the established networks.

Well-prepared deregulations help the outsiders and decrease the power of old networks and established privileges. For instance: Our cause should not be to protect the interests of the established taxi company that has paid hundreds of thousands of euros to get one of the few taxi licenses available; our cause should be to open up the taxi market and let the outsiders in – allow new, small companies to establish themselves.

From the anti-liberal left, you sometimes hear the claim that the demise of the Greek economy proves that economic liberalism is dead. I find this claim particularly intriguing, for if anything, the Greek economy suffers from lack of liberal reforms; in fact, it remains one of the most tightly regulated and bureaucratized countries on the European continent.

If closed markets and tight regulations were the key to economic growth, Greece would be a paradise. Sadly, it is not; and the main losers are the poor people, for paradoxically, Greece also boasts of being the home country of some of the richest people in Europe.

Extreme wealth among the rich and lack of faith in the future for the poor: this is what you can expect from a closed economy where corruption and connections, not competition and competence, are the keys to success.

– – -˜

When it comes to the labor market, I will only stress one crucial factor: labor migration, which has to be recognized as an opportunity, and not as a threat. This includes migration with countries outside of the European Union. Labor migration, temporary or permanent, has always been crucial for economic development; and from the liberal perspective, the right of the individual to seek a better future in another country should always be defended as part of the basic freedoms.

Therefore, liberal politicians have a special obligation to defend labor migration and to make a stand against the anti-immigration or openly xenophobic propaganda that is rampant in today’s Europe.

European countries within the European Union also have an obligation not to close the gates to labor immigration from eastern European countries and other nations outside of the Union. Liberalization of labor immigration rules can be decided on the national level; as part of the reform agenda for the Liberal-Conservative coalition government that took over in Sweden in 2006, labor immigration rules were reformed to make Sweden the perhaps most open country in Europe to labor immigration from countries outside of the EU. The effects have been mainly beneficial; for even when the general level of unemployment is high, there will always be areas on the labor market where there is a shortage of skilled workers and where labor immigration can widen bottlenecks and promote economic development.

But there is also a social dimension to labor migration that should not be neglected. For many labor migrants, working in another country is the result of a very tough choice where you have to sacrifice a lot: the daily contact with your children or the rest of your family, your connections on your local labor market and so on. Much of this is outside the political sphere and should remain so, but there is one area where political action can provide greater security for labor migrants, and that is in area of social security. When the national social security systems have long qualification periods and at the same time are quick in cutting off benefits to people to migrate abroad, the aggregated effect is that migrants are left without protection in their home country as well as in the new country. Those who have a strong private economy solve this through private insurance policies, but the poorer ones are left to fend for themselves.

I am a strong supporter of the social security systems to remain a national issue and not an issue for the European Union; but on the national level, much can be made to adapt the systems to the situation of labor migrants, thereby encouraging a much-needed mobility.

As mentioned, labor migration should include countries outside of the EU. I am proud that in the spring of 2008 my own party colleague, Cecilia Malmström, then Minister for European Affairs within the Swedish government, together with the Polish government took initiative to the Eastern partnership in order to promote trade and freedom of travel with the countries in Eastern Europe and Southern Caucasus, linking progress in these areas to the extent of democratic development.

Let me also take this opportunity to add that the Liberal Party of Sweden is firmly committed to the principle that all countries in Europe, including the countries within the Eastern Partnership as well as Turkey, should have the right to become members of the European Union at their own wish as soon as the Copenhagen Criteria regarding economic, legal and democratic reforms are fulfilled. The European Union must never become a closed club for its present members; and with the Lisbon Treaty in place, the constitutional framework for further expansion of the Union is now in place.

˜- – –

Finally a few words about legal, political and social reforms, for I am convinced that a credible reform strategy for the economy needs to be connected to a wider agenda for political reform.

First of all, trust needs to be restored not only among the market players, but also among the citizens. To put it another way: the citizens of Europe demand good reasons to trust their elected officials and the authorities. For individuals in many countries, the times ahead mean higher taxes and cuts in benefits and a long transition period before the positive effects show. Without basic trust for the political system the voters cannot be expected to happily part with their money and give it into the hands of politicians.

Anti-corruption measures are very important in order to establish trust in the legal and economic system, but they are also crucial for the success of the economic stabilization strategy. Quite understandably, tax evasion and corruption go hand in hand; why pay taxes if the money anyway is squandered by corrupt officials?

Also, corruption in itself places a heavy burden on private households as well as companies; for example, according to a study by Transparency International in 2010, the average Greek household paid more than 1,300 euros per year in bribes for public services such as speeding up the issue of driving licenses or passports, or getting admitted to public hospitals. And to make matters worse, bribes to private sector services such as banks, lawyers or doctors were even higher, nearly 1,700 euros per year.

Not only legal action against corruption as such is needed, but also a legal framework in order to ensure independent scrutiny of the actions of officials and authorities. Also in this context, the importance of free media, freedom of information, and the right of access to public documents is vital. The right of individuals and of the media to have access to government files (with some exceptions, such as military secrets) is one of the keys to ensuring the legal rights of the individual, and also a key to establishing trust for the administrative system. To put it clearly: the only way to make sure that I am taxed properly and according to the same principles as my neighbor is to look into the tax books; the only way to ensure that my application for a building permit is treated according to the same standards as the application of the large corporation is to have the right to compare the files. Freedom of information, one of the main principles of political liberalism, also serves to bring light and fresh air into the closed, oxygen-free dens of bureaucratic corruption.

Also, not only the people at the bottom rung of the ladder should be held responsible for their decisions, but also the people at the top. I find it highly questionable that although it is a criminal offence for a private individual to willfully present an incorrect tax statement to the revenue authorities, and it is a criminal offence for a company to manipulate the books, it is actually not a criminal offence to willfully forge the national accounts of an entire state and thereby bring the country onto the road to disaster – as was the case for Greece.

Greece would not have been allowed into the euro zone if their national accounts had not been manipulated. I am not calling for retroactive legislation as it would go against the basic principles of law, but it would be a sign of health for the future if stronger legal measures also could be taken against this particularly harmful form of economic manipulation.

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In this long list of austerity measures, cut-downs and tax hikes, is there no room for reforms that would mean long-term expenditure expansion? Yes, there is. If we really wish to create a basis for stronger economic growth in Europe, we should not only look for measures that promote investment and job demand, we should also pay attention to all measures that make it easier for people to enter into the labor market. In this context I would like to highlight the issue of child care.

When societal norms – which in themselves must be challenged – put the major responsibility of the care of children on the women in the family, lack of publicly funded child care facilities simply make it impossible for women to work.

First and foremost this undermines the individual freedom of women; but it also is a waste of resources. Women stand for almost 60 percent of all university degrees taken in the European Union, but only 60 percent of women in working age are in fact employed. In several countries the figure is less than 50 percent; in Malta, not even 40 percent of women take part in the labor market.

According to a study made at the University of Umeå in northern Sweden, the aggregated GDP of the European Union would increase by no less than 27 percent if women participated in the labor market to the same degree as men do today. To put it bluntly: gender equality is not only a matter of individual freedom, it is also hard economics. Europe simply cannot afford to refer women to the role of being the best educated housewives of the world. Providing stable public funding of child care facilities would be one of the most efficient ways of enabling more people to contribute to the economy and increase the level of individual freedom regardless of gender.

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Europe faces tough challenges, but in the end of the day, I am optimistic. Times of crisis also provide opportunities for liberal reforms, political as well as economical, that would strengthen the European society and increase the opportunities for individuals. And on the other side of the crisis, Europe’s potential is huge. Among the many things that have been learned during the global economic crisis since 2007, one major lesson has been the importance of joint and decisive action by the European states. Much can be done and should be done on the national level, but European integration and political and economic cooperation among the nations of Europe is not part of the problem – it is part of the solution.

Thank you.

Uppdaterat: Åke Wredén skriver om detta på sin blogg.

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