The discussions held on Saturday and Sunday among eurozone finance ministers exposed fissures between one group of European governments that have lost almost all faith in the radical leftist-led government of Alexis Tsipras, Greece’s premier, a second group that contends it is time to cut Greece some slack and move on with another rescue programme, and a third group that straddles the first two.
Nevertheless, the important point is that impatience with the Syriza-dominated government in Athens is not so deep and universal that a consensus exists to prepare the ground for a Greek exit from the eurozone, with all its unpredictable economic, financial and geopolitical implications. In this respect the opposition of France and Italy, and of the European Commission, to such a step is proving to be decisive. Read more
With flashes of wit, much earnestness and a certain reluctance to go for the jugular of their opponents, four candidates for the European Commission presidency broke new ground on Monday night by holding a live televised debate designed to drum up public interest in the May 22-25 elections for the European parliament.
If social media are one measure of that interest, the debate may have worked. Halfway through the 90-minute programme, broadcast from the Dutch city of Maastricht, an organiser announced that 10,000 tweets a minute were coming in. The harder question to answer is whether any candidate did enough to convince potential voters that the elections will truly make a difference in a EU blighted by a long recession, mass unemployment and a squeezed welfare state.
Although the debate never turned nasty, Ska Keller, the Greens candidate, got in a sharp jab at Jean-Claude Juncker, the centre-right candidate, when she accused him of “presiding over a tax haven” during his time as prime minister of Luxembourg. An indignant Mr Juncker rejected the charge and managed later to slip in the image-softening remark that one reason why he favoured a EU-wide minimum wage was that he remembered his father’s tough life as a steelworker.
Guy Verhofstadt, a former Belgian prime minister who is the centrist, liberal candidate, turned his fire on José Manuel Barroso, the outgoing Commission president, saying Mr Barroso had never taken a decision without first flying to Berlin and Paris to get the green light. “The Commission needs to lead,” he thundered.
He also put Mr Juncker on the spot by challenging him to explain why his centre-right group still included Silvio Berlusconi, the former Italian prime minister, who caused outrage last weekend by suggesting Germans denied the existence of Nazi concentration camps. But Mr Juncker hit back with the succinct sentence: “I was sickened by the statements of Mr Berlusconi.” Read more
For better or worse, my time is up as Brussels bureau chief for the Financial Times, so this is my last post on this blog. My successor, Peter Spiegel, will arrive in September. I wish him, and all the readers and contributors to the Brussels Blog, the very best.
Leaving Brussels after three years feels rather like exiting an intensely gripping drama at the end of Act III instead of staying to the end. The fate of Polonius in Hamlet comes to mind. What was his sententious advice to his son? ”Neither a borrower nor a lender be/ For loan oft loses both itself and friend/ And borrowing dulls the edge of husbandry.” Now there’s something for Angela Merkel and George Papandreou to chew on.
In Brussels there are days when you feel the European Union is a magnificent creation, one of the most inspired experiments in mankind’s history. Then there are days when you feel disgusted by the pettiness, the short-sightedness, the incoherence of it all. As followers of this blog will know, I count myself a European in heart and soul and I desperately want the EU to succeed. Read more
Reforming the management of economic policy, primarily in the eurozone but also in the European Union as a whole, is without question one of Europe’s highest priorities. Few steps would do more to raise the EU’s credibility with the US, China and the rest of the world than concerted action to improve European economic performance and make the euro area function more efficiently as a unit. Much of this comes under the heading of “economic governance”. But the difficulty is that it is not always easy to figure out which Europeans are in charge of the process.
On Monday Herman Van Rompuy, the EU’s full-time president, chaired the latest meeting of a task force on economic governance that he was chosen last March to lead. The task force, consisting largely of EU finance ministers, came up with various sensible ideas on tightening sanctions (financial and non-financial) on countries that break European fiscal rules. Task force members also want to strengthen the monitoring of macroeconomic imbalances, such as the gap between large current account surpluses in Germany and deficits in southern Europe. Read more
Raising the retirement age and cutting back pension entitlements are possibly the most unpopular measures that any modern European government can take for the purpose of stabilising the public finances. From an individual’s point of view, the advantages seem remote or non-existent and the disadvantages all too immediate. From the point of view of a ruling political party seeking re-election, it’s much the same story. This explains why there is growing interest among European Union policymakers in the idea of “de-politicising” the pensions issue, by making certain changes to pension systems automatic and not subject to endless, acrimonious political struggles.
Take a Green Paper published today by the European Commission. A Green Paper is a document designed to stimulate public discussion, not make firm policy proposals, so the Commission steers a cautious path through the issues. Nonetheless, it observes in one passage: “A number of member-states have demonstrated that a promising policy option for strengthening the sustainability of pension systems is an automatic adjustment that increases the pensionable age in line with future gains in life expectancy.” Read more
Financial commentators, like financial markets, move in herds. Is the herd wrong about Greece?
The herd takes the view that Greece will sooner or later have to restructure its debt. According to herd thinking, the €110bn rescue plan arranged for Greece by its eurozone partners and the International Monetary Fund merely buys some time for the Greek government – and for its European bank creditors. The herd predicts a “haircut”, or loss, for Greek bondholders of 30 to 50 per cent of the face value of their bonds. All this is likely to happen towards the end of 2011 or in early 2012, says the herd. Read more
Since the start of this year, Europe’s financial crisis has been given many labels - a sovereign debt crisis, a banking sector crisis, a crisis of the euro itself. But rarely is it asked whether the European Union’s single market, which is the foundation stone of EU integration in the modern era, is under serious threat.
One person who has asked this question is Mario Monti, the distinguished former EU commissioner for the internal market and competition policy. In May he presented a report on how to reinvigorate the single market to Commission president José Manuel Barroso, who had commissioned it from him last year. It delivered a blunt message. Many Europeans – citizens as well as political leaders – looked at the single market with “suspicion, fear and sometimes open hostility”, Monti said. “The single market today is less popular than ever, while Europe needs it more than ever.” Read more
Turkey’s bid to join the European Union is expected to make a little progress today. I stress “a little”. In most respects, the cause of Turkish membership of the EU is in worse shape than at any time since EU governments recognised Turkey as an official candidate in 2004.
The progress, minimal though it is, takes the form of an agreement by the EU and Turkey to open formal talks on food security. This is one of the 35 chapters, or policy areas, that a country must complete before it can join the EU. It means that Turkey will have opened 13 chapters in total. Of these, however, only one chapter has been closed. If this is progress, the snail is king of the race track. Read more
The euro has fallen by almost 20 per cent against the dollar since last November, and the general view in Europe is that this is good news – indeed, one of the few pieces of good economic news to have come Europe’s way recently. The argument goes as follows: euro weakness = more European exports = higher European economic growth.
Unfortunately, the real world is not as simple as that. Inside the 16-nation eurozone, not every country benefits equally from the euro’s decline on foreign exchange markets. As Carsten Brzeski of ING bank explains, what matters is not so much bilateral exchange rates as real effective exchange rates. These take into account relative price developments and trade patterns, and their message for the eurozone is far from reassuring. Read more
After spending three days in Reykjavik and the northern town of Akureyri, just below the Arctic Circle, I am starting to get the feeling that Iceland’s entry into the European Union is anything but guaranteed. I have met government ministers and officials who are eager to steer their country into the EU. But I have met a fairly wide range of private sector businessmen, teachers, students and other Icelanders who are either flatly opposed or at best non-committed.
The most passionate opposition I’ve encountered has come from representatives of the powerful fisheries industry and the less powerful but politically influential agricultural lobby. Here’s what the manager of the national dairy farmers’ association said: “If we entered the EU, our tariffs would have to go. Our home market share would drop by 25 to 50 per cent. The number of farmers would drop by 60 to 70 per cent. EU membership would deal us a tremendous blow, there’s no doubt about it.” Read more
Will Iceland really join the European Union? I have come to Reykjavik in search of answers. In one sense, it’s the right time to be here: the skies are white for almost 24 hours a day at this time of year, appearing to throw light on everything. But in another sense this promises to be a frustrating trip - Iceland itself doesn’t seem to know if it wants to be in the EU or not.
The opinion polls are not good. After a long period in which a solid majority of about 60 per cent of Icelanders supported EU membership, things have turned upside down in recent months. Support for EU entry was estimated to be as low as 28 per cent in one recent survey, whilst opposition now runs at about 60 per cent. If Iceland is serious about joining the EU, it will have to hold a referendum, so these numbers matter. Right now, however, we are a long way from a referendum – at least two years, and perhaps longer. Much can change.
Enthusiasm for the EU was high when Iceland’s banking system and currency collapsed in 2008, prompting the introduction of a drastic austerity programme conducted under the beady eye of the International Monetary Fund. But Iceland’s dispute with the UK and the Netherlands over how to repay British and Dutch savers who lost their money in Icesave, the failed online Icelandic bank, has changed public opinion. Read more
There is a gulf separating Germany from France on how to cure the eurozone’s ills, and it does not bode well.
Germany identifies the eurozone’s chief problems as excessive budget deficits, weak fiscal rules and a general culture of over-spending in the region’s weaker countries. The remedy, say the Germans, lies in austerity measures, tougher punishments for rule-breakers and better housekeeping. Germany is so sure that it has got the answer right that it is introducing a €80bn programme of tax increases and spending cuts – not because the German economy desperately needs such measures, but because the government in Berlin wants to set an example to other eurozone states.
France knows the eurozone has a fiscal problem, but it disagrees with the German view that immediate and drastic austerity measures are essential. The French contend that, if budget hawks win the day, Europe’s fragile economic recovery will fade away and there may even be another recession (as Paul Krugman notes, an example often cited in support of this argument is the “Roosevelt recession” of 1937, when President Franklin D. Roosevelt, having just about dragged the US economy out of the Great Depression, inadvertently caused another economic downturn with a premature attempt to balance the budget). Read more
It was buried amid the excitement of the European Union’s summit in Brussels, but I’d like to draw your attention to a revealing report published on Thursday on the subject of European access to strategic raw materials. Prepared under the supervision of the European Commission, the report names 14 critical materials that Europe risks not having enough of in the future – with potentially far-reaching implications for Europe’s economic development, not to mention its defence and security. Read more
The European Union is nothing if not addicted to targets. Promises to achieve particular goals by specific dates are part and parcel of the EU’s daily business. Sometimes the objectives are met, sometimes they are not met, and sometimes it’s hard to tell either way. European monetary union, for example, was launched in 1999, but only after a two-year delay because a majority of member-states didn’t meet the criteria earlier in the decade (did Greece ever meet them?). Read more
Rumours are flying thick and fast that the troubles of Spain’s banking sector will require emergency attention at Thursday’s summit of European Union leaders in Brussels. But it appears highly improbable that Spain will ask for help from the emergency financial stabilisation fund that EU finance ministers agreed to set up last month. For one thing, the fund is not yet fully up and running. For another, the Spanish government is emphatically not shut out of credit markets – a point underlined this morning by the successful issuance of €5bn worth of short-term government bills.
Spain’s economic vulnerabilities are obvious, and the implications of a Spanish crisis for the rest of the eurozone are no less clear. French and German banks alone are exposed to some $450bn of Spanish debt, according to a report just published by the Bank for International Settlements.
But it is worth repeating that Spain is not Greece. The Greek crisis originated in decades of mismanagement of the public finances, plus an unhealthy culture of corruption and use of the state for political patronage. Although such practices are not unknown in Spain – and not unknown in the US, China and numerous other countries, for that matter – they have never attained Greek levels. Read more
One little-noticed side effect of the Greek debt crisis is that it is playing into the hands of those who oppose faster progress on enlarging the European Union. Western Balkan countries such as Albania, Croatia, Macedonia, Montenegro and Serbia are queuing up at the EU’s door, but only Croatia has any chance of membership in the next three years.
Among the reasons is that Greece, the first Balkan state to enter the EU (in 1981), has been exposed as a country that not only ran ruinous and reckless fiscal policies for many years, but deceived its partners with false data in order to join the eurozone at the start of this decade. Rightly or wrongly, some policymakers in EU national capitals argue that this unhappy experience demonstrates that, when it comes to public probity, Balkan states are just not to be trusted. Read more
A Polish priest who was murdered in 1984 by secret policemen working for the then ruling communist authorities was beatified last weekend by the Vatican, a step that puts him on course for eventual sainthood. The news meant a lot to me because, although I’m not Catholic, I came to know the priest well when I lived and worked in Warsaw as a young reporter in the 1980s.
His name was Jerzy Popieluszko, and he was famous throughout Poland for the anti-communist ”masses for the homeland” that he used to hold at his church, St Stanislaw Kostka, in the Warsaw suburb of Zoliborz. No Sunday evening was complete without a visit to the church to hear the singing of patriotic hymns and the voice of Popieluszko denouncing the latest injustices of the communist regime. Thousands upon thousands of Poles used to attend these masses, filling the streets all around the church. I and other Western reporters used to slip into the vestry to make sure we could hear every word of his sermons.
When I wrote stories about Popieluszko for my employers, the Reuters news agency, the editors would sometimes ask me to file a note for English-speaking readers giving guidance on how to pronounce his name. I came up with something like ” YEAH-zhy Pop-yeah-WHOOSH-koh”. Read more
The European Union’s fiscal rulebook, known as the stability and growth pact, has fallen into such discredit since the euro’s launch in 1999 that almost any change is likely to be an improvement. But are the reforms that EU finance ministers agreed in Luxembourg on Monday good enough? I have my doubts.
There are many flaws in the stability pact, but the essential problem is enforcement. How can outsiders compel a government, with sovereign control of its budget, to observe fiscal discipline? The pact contains a provision for imposing fines on countries that run up high budget deficits and ignore recommendations from other member-states and the European Commission to take corrective measures. Predictably, however, no country has ever paid a fine or has even been asked to pay a fine throughout the euro’s 11-year history. Governments have shrunk from punishing other governments because they know that the tables may one day be turned on themselves.
In any case, it has always seemed potty to slap fines on a country with a large deficit. The penalties would simply exacerbate the country’s budgetary difficulties. No wonder Romano Prodi, the former Commission president, once called the stability pact “stupid”. Read more
Slowly, too slowly perhaps, the eurozone is delivering its response to the collapse of market confidence triggered by the European sovereign debt crisis. An important step appears likely to be taken at a finance ministers’ meeting in Luxembourg on Monday. They are set to agree the terms on which a Special Purpose Vehicle will be able to borrow up to €440bn on the markets to help a eurozone member-state that is experiencing borrowing difficulties.
On the face of things, this initiative goes considerably further than the €110bn rescue package arranged last month for Greece. The Greek aid is based on bilateral loans from other governments in the 16-nation eurozone. But the SPV will be a self-contained entity, operating under Luxembourg law, that will issue bonds backed by member-state guarantees.
You could almost call them “common eurozone bonds” – except that, for political reasons, this is an all but unmentionable term. Opposition to common eurozone bonds is exceptionally strong in Germany, where the prevailing view is that such a measure would simply benefit wastrels like Greece and impose higher borrowing costs on countries that practise fiscal discipline – i.e., Germany itself. Nonetheless, the German government has taken an energetic role in designing the structure of the SPV. It is a big moment for Germany and one which shows that the German commitment to making a success of European monetary union is not to be underestimated. Read more
The European Union’s rotating presidency will pass on July 1 from Spain to Belgium, and then six months later from Belgium to Hungary. The direction of EU affairs will therefore soon be in the hands of a centre-right Hungarian government that has wasted little time, since its massive election victory in April, in asserting its patriotic – some would say ‘nationalist’ – credentials.
Policymakers in Brussels are anxiously watching this development. They recall the unhappy experience of the Czech Republic’s EU presidency in the first half of 2009. The last thing they want is another turbulent presidency run by one of the 10 central and eastern European countries that joined the EU in 2004-2007. It would give critics of EU enlargement even more ammunition to fight with. Read more