Martin Wolf refers me to this new paper by Paul De Grauwe, The Governance of a Fragile Europe. It very well argued and, I think, entirely convincing. Unless something is done, the prognosis for the eurozone is not good. Here is the abstract: Read more
European Union leaders agreed to set up a permanent bail-out mechanism for troubled eurozone economies after 2013. Lex’s John Authers and Vincent Boland discuss whether the measures can solve the problems facing the eurozone. Read more
The pre-summit caucuses of leaders in their party groupings have begun, and one of the surprise guests at the centre-right European Peoples’ Party meeting is Pedro Passos Coelho, the head of Portugal’s opposition Social Democrats and the country’s likely next prime minister. Read more
If you’re a European policymaker and you’ve become exhausted by the idea of austerity, then you might consider a new report by Charles Roxburgh of the McKinsey Global Institute.
The report, “Beyond Austerity: A path to economic growth and renewal in Europe”, is an attempt to skip past the discussion about how drastically governments should slash spending to look at ways they can stoke growth. It coincides with a growing complaint among some Brussels diplomats that months of economic crisis fire-fighting have caused the EU to neglect policies that create jobs.
On the job-creation front, Europe’s record is actually better than many people might suspect. Between 1995 and 2008, the European Union generated slightly more jobs than the US – 23.9m to 20.5m. (For statistical reasons, the study only includes the 15 countries that were EU members before its 2004 enlargement).
“There’s quite a good story on job growth,” Mr Roxburgh said. “The flipside is in productivity.” Read more
The European Commission, the EU’s executive branch, on Wednesday formally kicked off what is now known as the “European Semester” – a new six-month process of reviewing national budgets and reform programmes to make sure the countries are getting their fiscal acts in order.
The Commission considers the process so important to pulling the continent out of the current crisis that it organised a day-long conference in Brussels to discuss its role in the post-crisis world.
But at the first panel of the day, two of the most influential economists in town – Marco Buti, the powerful head of the Commission’s economic and financial affairs directorate, and Daniel Gros, director of the respected Centre for European Policy Studies – got into a heated tussle over whether the whole process was just one big waste of time.
Gros played the skunk at the garden party, saying that all the attention being paid to the European Semester – essentially another round of austerity recommendations – was taking time and energy away from the real task at hand: fending off the bond market’s attack on one eurozone country after another. Read more
By Jo Johnson, British MP and former editor of the FT’s Lex column
As it’s prediction season, here goes… My crystal ball, for what it is worth, foretells political and economic union between France and Germany, perhaps within the next 12-24 months. Europe needs a gamechanger, one that creates an insurmountable firebreak against the speculators. Crises have historically been the motor of European integration and a full union, much like the panicky one Britain offered France in June 1940, might look tempting. It would provide for joint organs of defence, foreign, financial and economic policies, finally fulfilling the founding fathers’ dream of “ever closer union”. Read more
The opening feature of any EU summit is the gathering of heads of government at their partisan caucuses. These days none is more important than the European People’s Party, the right-wing EU coalition that includes Angela Merkel, Nicolas Sarkozy and Silvio Berlusconi. Read more
George Soros thinks that all of Europe is becoming fiscally Germanic, and he’s not happy about it.
The famed financier and philanthropist was in Brussels Tuesday to discuss the plight of Europe’s Roma population, which made headlines last month when France began deporting large groups of Roma back to Eastern Europe.
But he took some time during a lunch with a small group of journalists to criticise Germany’s insistence on fiscal austerity, which he believes is being imposed continent-wide through Berlin’s influence over the EU’s economic institutions.
“They have emerged as the hegemon of euro-land, who set the policy for euro-land; they write the operating instructions for the new common fiscal policy,” Mr Soros said. “Europe, because of the fiscal rectitude imposed by Germany, faces I think a prolonged period of economic stagnation, conceivably decline.” Read more
Timothy Geithner, the US treasury secretary, made headlines Wednesday after he warned of the potential for a currency war – or, to be more precise, a “competitive non-appreciation” – if China did not allow the renminbi to appreciate more freely.
What was less noticed in his address was some equally tough talk for Europe, where he seems to see a danger of continent-wide austerity measures stifling the nascent global economic rebound. Read more
Three days of summitry between EU and Asian leaders wraps up Wednesday in Brussels with the only “deliverable” – diplo-speak for a concrete achievement – of the entire event: the signing of a free trade agreement between the EU and South Korea.
But frequently, these international talkfests are more interesting for the atmospherics than any deals that are struck, and this week the mood has been more telling than most. Read more
Brussels got a welcome burst of colour today as tens of thousands of trade unionists converged on its boulevards to express outrage at planned public spending cuts. 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
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
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
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