PARIS, Sept 4 The incoming European Commission should act immediately to boost investment in Europe and work for a new EU treaty permitting closer integration of the euro zone and looser ties with non-euro states like Britain, a leading think-tank said on Thursday.
In a series of memos addressed to the new heads of the European Union executive, the European Council of EU leaders and the European Parliament, the Bruegel economic research institute called for urgent action to revive growth through investment and liberalising energy, capital markets and the digital economy.
Despite widespread reluctance in Europe to risk renegotiating the bloc's governing treaty, with the risk of losing referendums, the authors said institutional reform was essential to stabilise the single currency.
"It would be a severe mistake to wait for the next crisis to reopen the discussion," Bruegel director Guntram Wolff and senior fellow Andre Sapir said in the keynote memo, to be presented at a news conference in Brussels on Thursday.
The incoming European Commission, due to be unveiled by president-elect Jean-Claude Juncker next week and take office in November, must put forward a credible growth strategy in time for its first EU summit in December, and start implementing it by mid-2015, the authors said.
That programme should be based on deeper global trade, more openness to immigration, improved education systems and a better functioning internal market to improve the investment climate.
The German and Belgian economists called for measures to improve demand, including a boost to public investment in education and infrastructure by EU powerhouse Germany, as well as supply-side reforms, notably in France and Italy, to modernise labour markets and social policies.
They urged the new Commission to reject "unwarranted" efforts by countries such as France to subordinate EU competition policy to industrial policy goals to encourage the emergence of "European champions".
While much of their economic policy advice resembles plans already in the works in the outgoing European Commission, their call for a far-reaching treaty reform may encounter resistance from EU leaders chastened by this year's big Eurosceptical vote in pan-European parliamentary elections.
Treaty change is essential, they contend, to create a fiscal union in the euro area with a common financial backstop for the EU's nascent banking union, common unemployment insurance and labour market policies and a finance minister empowered to veto national budgets that breach EU rules.
It would also enable the creation of a new, more limited "second tier" membership status for Britain and other countries which would participate in the single market but not share all other EU policies, the authors said.
"A result of treaty reform could be that the UK stops participating in the EU budget, while remaining in the single market for goods, services and capital, and ideally also labour," they said, arguing that Britain should be given minority rights but not allowed to block steps to strengthen the single market.
British Prime Minister David Cameron has called for a renegotiation of EU membership terms and promised to put the results to an in/out referendum in 2017 if he wins re-election next year.
The report also called for a streamlining of the way the European Commission works to reduce bureaucracy, curb unnecessary regulation and review the pay and benefits of EU staff to counter negative public perceptions. (Writing by Paul Taylor; Editing by Dominic Evans)