Towards the end of last year, in one of my contributions, I had posed the question as to whether the EU needs to reinvent itself. My conclusion was that the EU does need to reinvent itself to become once more a vibrant economy.

It is interesting to note that the Italian Prime Minister, Matteo Renzi, stated at the European Parliament this week that either the EU makes some fundamental changes or it will become the laggard in the global economy. The thrust of his speech was the need for greater flexibility to create opportunities for economic growth.

This opens up an economic debate which is very fundamental in nature. It also links in with the debate that there has been in the EU following the deadly shootings in Paris last week. In the wake of those attacks there were many (not in Malta, thankfully) who asked for a retrenchment. They wanted the EU to close in on itself and erect a fortress to keep out persons whom they consider as undesirable, reflecting very much a siege mentality.

The government was considering revising up its forecast for 2015 GDP growth

This reaction could be judged to be a political one. However, once a siege mentality sets in, it is easy to take the same approach when it comes to economic policymaking. As a country we know something about this as we experienced it in the 1970s. If one tries to keep out undesirable people, it would then be very easy to impose trade barriers and seek to become autarchic. Once one takes on an autarchic approach, it would be easy to impose rules and regulations that would render the economy very inflexible.

This is where the economic debate and the political debate merge. Political openness and economic liberalisation (not necessarily liberalism) must be promoted together. I do not believe that it is possible to have a society that is politically open, while adopting economic rules that seek to restrict flexibility rather than increase it. The more restrictions of an economic nature one imposes, the less politically open society is likely to be.

In his speech to the European Parliament, Renzi did say he does not believe in a ‘Fortress Europe’ and a ‘Europe of states’, but in a ‘Europe of the peoples’. However, such political thought must be followed up by more flexibility on the economic front. The evident reference is to the restrictions imposed by the EU on the budgets of the member states and to the German opposition to the European Central Bank to buy sovereign bonds to enhance bank liquidity.

On both these fronts, progress seems to be registered. The European Court of Justice has expressed an opinion that the ECB decision to buy sovereign bonds does not infringe its statute book or any of the EU treaties. This opinion opens the way for the ECB to implement its decision, which has always been opposed by members of the German government. There is also the propensity of the European Commission to allow some flexibility in the way the three per cent deficit to GDP ratio is calculated.

However, more flexibility on the economic front should go beyond these two elements. There needs to be a stop to the efforts made by some countries to achieve fiscal harmonisation in the eurozone. If the EU were to impose a common regime in relation to tax, it would remove any flexibility that member states have to adjust their tax system to take account of local realities.

The same flexibility that France is asking for in relation to the calculation of the fiscal deficit needs to be allowed also on tax matters.

The message that needs to be emphasised is that less economic rigidities – and not more economic rigidities – will get the EU out of the economic crisis. The centralisation process that has occurred within the EU in the last decades was useful in some respects, but harmful in others.

This proves the point even more that the EU needs to reinvent itself. The dog wags the tail and not the other way round. From an economic perspective, this means that systems and regulations need to be subject to the good of the people and not be the masters of the people. To live up to its vocation of subsidiarity, the EU needs to allow for more flexibility in economic policymaking among its member states in recognition of local realities, while not losing its vocation of solidarity.