Rehn, left, with President José Manuel Barroso at Wednesday's press conference
It may have appeared that Olli Rehn, the EU’s economic chief, today was siding with Washington in the going transatlantic tussle over Germany’s current account surplus by launching an inquiry into whether the surplus was harming growth in the rest of Europe.
But Rehn went out of his way to make clear that he was no fan of the US Treasury department report that pushed the dispute into overdrive last month.
Speaking at a press conference announcing the European Commission’s decision to launch the “in-depth review” of Germany’s surplus, Rehn said the US Treasury’s report was “to my taste somewhat simplified and too straight forward”. Read more
Did tight-fisted budget policies in Germany help make the eurozone crisis deeper and more difficult for struggling bailout countries like Greece and Portugal?
That appears to be the conclusions of a study by a top European Commission economist that was published online Monday – but then quickly taken down by EU officials.
Our eagle-eyed friend and rival Nikos Chrysoloras, Brussels correspondent for the Greek daily Kathimerini, was able to download the report and note its findings before the link went dark (Nikos kindly provided Brussels Blog a copy, which we’ve posted here).
Shortly after being contacted by Brussels Blog, officials said they would republish the 28-page study, titled “Fiscal consolidation and spillovers in the Euro area periphery and core”, once a few charts were fixed. And as Brussels Blog was writing this post, it was indeed republished here.
Still, the paper’s day-long disappearance looks suspicious given the hard-hitting nature of its findings. For some, they may not be surprising. Many economists have argued that it was the simultaneous austerity undertaken by nearly all eurozone countries over the course of the crisis that pushed the bloc into a deeper recession than predicted, hitting Greece and other weak economies particularly hard.
But coming from the European Commission’s economic and financial affairs directorate – which was responsible for helping administer Greek and Portuguese bailouts as well as provide semi-mandatory policy advice to other eurozone economies – the criticism of Berlin is unexpected, to say the least. Read more
Greek prime minister Antonis Samaras, centre, holds a cabinet meeting this week.
Just how off track is Greece’s €172bn second bailout? When the FT reported that a new €3bn-€4bn financing gap had opened up in the programme, EU and International Monetary Fund officials went out of their way to insist there wasn’t a gap at all.
“There is no financial gap. The programme is fully financed for at least another year, so there is no problem, on the premise that we reach a final agreement on the review in July,” said Jeroen Dijsselbloem, the Dutch finance minister who chairs the eurogroup.
IMF spokesman Gerry Rice weighed in with a written statement: “If the review is concluded by the end of July 2013, as expected, no financing problems will arise because the program is financed till end-July 2014.”
Notice the caveats, however. Both Dijsselbleom and Rice say there won’t be a shortfall – as long as the IMF is able to distribute its next €1.8bn aid tranche before the end of July. Why? Because of the new financing gap, which means the Greek programme essentially runs out of money in July 2014. The IMF must have certainty that Greece is fully financed for 12 months or it can’t release its cash, so after July, it must suspend its payments. Read more
Prime minister Pedro Passos Coelho addresses the nation Sunday on Portugal's faltering bailout.
Although Cyprus has pushed its way back into the news, the main event at Friday’s meeting of eurozone finance ministers in Dublin is expected to be a decision on whether to give Ireland and Portugal more time to pay off their EU bailout loans.
We at Brussels Blog got our hands on the 12-page options paper prepared for the ministers by the so-called “troika” of international lenders – European Commission, European Central Bank and International Monetary Fund – and staff of the eurozone’s €440bn bailout fund, and have posted it here. The document contains five different options: extend the payment schedule a few months; by 2.5 years; 5 years; 10 years or more; or a compromise of 7 years.
As we reported earlier in the week, the debate is now centred on the document’s recommended option, the 7-year extension plan, though there are still reservations in Berlin about moving forward.
Beyond the options themselves, however, the document contains a very revealing analysis on the state of Portugal’s €78bn bailout, which has recently suffered some setbacks. As one official who will participate in Friday’s meeting put it, the topic of Portugal will be “more exciting than would have been a week ago”.
Although the document doesn’t address it directly, it makes clear that Portugal will have a very hard time avoiding a second bailout, since its financing needs in 2014 and 2015 – its first years after bailout funding runs out in July 2014 – will be substantially higher than they were during the pre-crisis period. Read more
Monti, right, and Hollande, centre, with Belgium's Elio Di Rupo during Day 1 of the summit
For all the pre-summit posturing over the eurozone’s increasingly controversial austerity-led crisis response, participants said the EU summit’s first-day session on Europe’s economy was a staid affair with almost no real debate over whether EU policy was on the wrong track.
Indeed, the summit’s communiqué, issued after the summit broke at about 10:30pm, was almost identical to early drafts circulated late last week, even though some predicted a tense discussion over its advocacy for more targeted government spending.
Instead, a different theme appeared to emerge from several leaders in the wake of the thumping taken by Mario Monti, the outgoing Italian prime minister who implemented many of the Brussels-recommended reforms, in last month’s elections: EU policies are still correct, they’re just taking longer than expected to produce results.
“The period Mario Monti was prime minister was a very brief one,” said Angela Merkel, the German chancellor, when asked of the lessons of the Italian vote. “Adopting reforms and the reforms taking effect, there’s a period of time for the benefits to be reaped.” Read more
Nicos Anastadiades, Cyprus' president, talks to reporters in Brussels ahead of the EU summit.
One of the first leaders to arrive at the pre-summit gatherings of centre-right leaders was Nicos Anastadiades. In brief remarks to reporters in English, he said he hoped a Cypriot bailout deal could be reached at a meeting of finance ministers Friday night.
“We’re doing our best to reach a fair solution and agreement,” he said. “I hope everyone is going to be fair.” Read more
Finland’s prime minister Jyrki Katainen is standing firm. As he arrived in Brussels on Thursday the 41-year-old centre-right leader made it clear Europe had to maintain the tough austerity course if it wanted to survive.
In a thinly veiled jibe at Nobel prize-winning economist Paul Krugman, who criticised the pro-austerity policies set by the European Commission’s economic chief and fellow Finn Olli Rehn, Katainen said that the debate around austerity versus growth might have academic value, but it has little value for common people.
“There are no shortcuts to creating new jobs and growth in a sustainable manner. Structural reforms might not bear fruit overnight, but are the best sustainable economic stimulus. Accumulating excessive debt is not,” said Katainen.
He added: “The future of our common currency can be guaranteed only if each member state keeps its fiscal house in order and takes the jointly agreed rules seriously.”
After the jump, you can find the Finnish leader’s full remarks: Read more
Germany's Angela Merkel at Thursday's cabinet meeting, where new budget targets were decided.
After last month’s tension-filled EU summit – an all-night affair to agree the EU’s €960bn seven-year budget – the two-day gathering beginning today is expected to pale by comparison to a considerable degree. “A bit boring is not a bad thing on this occasion,” said one senior diplomat involved in pre-summit negotiations.
Although Hungarian prime minister Victor Orbán is expected to address the international press today following his government’s controversial passage of constitutional amendments which critics claim may violate the rule of law, the only real issue that could potentially generate much heat inside the gathering is the ongoing austerity versus growth debate that has been swirling since last month’s Italian elections.
There has already been some shadow boxing on the issue between France’s François Hollande and Germany’s Angela Merkel ahead of the summit – with Hollande making the case for France to get a one-year pass on its EU deficit targets, while Merkel conspicuously announcing her own intention to get to a balanced budget a year earlier than required. Read more
Rehn's remarks in London last month appear to be the crux of the dispute with Krugman.
Just when you thought the war of words between Nobel prize-winning economist Paul Krugman and European Commission economic chief Olli Rehn had died down, the normally level-headed Finn has hit back at the Princeton academic in an interview with his home country’s largest newspaper, Helsingin Sanomat.
In the interview, Rehn in essence accuses Krugman of lying, insisting the economist criticised him for things he never actually said. “Krugman put words in my mouth that would be termed in the Finnish parliament a ‘modified truth’,” Rehn said in the interview. The newspaper helpfully notes that “modified truth” is the Finnish parliament’s polite terminology for lying.
Rehn also takes a little dig at Krugman’s use of Monty Python to defend himself. After a deluge of attacks from European Commission officials last week, Krugman noted he never made personal attacks on Rehn – only on his policies – writing: “I never asserted that Mr Rehn’s mother was a hamster and his father smelt of elderberries.”
To the uninitiated, the line is from a famous scene in Monty Python and the Holy Grail, where a French soldier played by John Cleese taunts King Arthur, played by the late Graham Chapman, with those very words.
“We should perhaps be grateful to Mr Krugman for his generosity in promising at least not to compare my recently-deceased mother to a hamster,” Rehn deadpanned in the interview. Read more
Rehn during last month's presentation of the Commission's winter economic forecasts.
Following yesterday’s barrage from the European Commission, Princeton economist Paul Krugman today ratcheted up his criticism of the way policy is made in Brussels, arguing that the attacks demonstrate EU officials are more “focused on defending their dignity from sharp-tongued economists” than on getting economic policy right.
Krugman’s latest fusillade, titled “Of Cockroaches and Commissioners”, notes that despite the occasionally personal nature of the attacks against him from the Berlaymont, he never made a personal attack on Olli Rehn, the Commission’s economic chief:
What you would never grasp from those outraged tweets is that all my criticisms have been substantive. I never asserted that Mr. Rehn’s mother was a hamster and his father smelt of elderberries; I pointed out that he has been promising good results from austerity for years, without changing his rhetoric a bit despite ever-rising unemployment, and that his response to studies suggesting larger adverse effects from austerity than he and his colleagues had allowed for was to complain that such studies undermine confidence.