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EU economic chief Pierre Moscovici, right, with Portugal's new finance minister in Lisbon
There’s been a rare spate of good economic news for the eurozone recently, with Eurostat announcing last week that the currency union’s gross domestic product had finally returned to pre-crisis levels and was growing at a 0.6 per cent quarterly clip – enough to outpace the US or the UK so far this year. But growth remains uneven across the 19-member bloc, and the first quarter’s performance remains meagre by historical standards. As a result, it will likely not be enough to help eurozone countries currently finding it difficult to get their debt and deficit levels back under EU budget ceilings.
Those countries sparring with Brussels over such budget targets – France, Italy, Spain and Portugal – will be in the spotlight today when the European Commission issues its new economic forecasts, which will include predictions on whether any of them are making progress towards getting their deficits below the 3 per cent of GDP threshold or – in the case of Italy, which is already below the deficit ceiling – are cutting their debt piles fast enough.
Denmark's Margrethe Vestager, center, with her counterparts in Copenhagen this weekend.
Following our story Saturday and subsequent blog post on two confidential economic analyses prepared for European finance ministers in Copenhagen which paint a less-than-confident picture of the eurozone crisis, we here at Brussels Blog have received multiple requests for more on their contents. 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
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
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’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
With all eyes on Europe’s last-ditch efforts to save the eurozone from collapse, it is hardly surprising that a thoughtful, 46-page report on the European Union’s long-term future has gone almost completely unnoticed. But the study, commissioned by EU heads of state and government in 2007 and published last weekend, is worth taking a look at.
It was written by a group of 12 experts led by Felipe González, the former Spanish premier, and including Mario Monti, the distinguished former EU commissioner, Jorma Ollila, chairman of Finland’s Nokia mobile phone company, and Lech Walesa, the ex-Polish president and hero of the opposition Solidarity movement in communist times. There was a good mix of northern, southern, western and eastern Europe on the panel.
They begin with a disturbing observation: “Our findings are neither reassuring to the Union nor to our citizens: a global economic crisis; states coming to the rescue of banks; ageing populations threatening the competitiveness of our economies and the sustainability of our social models; downward pressure on costs and wages; the challenges of climate change and increasing energy dependence; and the eastward shift in the global distribution of production and savings. And on top of this, the threats of terrorism, organised crime and the proliferation of weapons of mass destruction hang over us.” Read more
The European Union needs to raise its economic growth potential – on that, at least, the bloc’s 27 member-states and the European Commission agree. Otherwise Europe risks a speedy descent into relative economic decline, and its cherished “social model” – combining a liberal market economy with cradle-to-grave public services – will be increasingly unaffordable. Will the Commission’s latest proposals, published last week under the title “Europe 2020: A European strategy for smart, sustainable and inclusive growth”, do the trick? Read more
The most important speech delivered in Europe last week came from Herman Van Rompuy, the European Union’s full-time president. It had real depth and did not try to conceal the EU’s problems behind a mask of unconvincing optimism.
The speech addressed how to strengthen Europe’s role in a world in which the Old Continent appears in danger of slipping into faster relative decline unless it gets its act together. The speech had much to say about economic policy, but it was the foreign policy content that was more original. This was Van Rompuy’s first detailed exposition of his views on the subject. Read more
An unambiguous message of solidarity among eurozone states will come from Thursday’s European Union summit in Brussels, but it is still unclear if this will translate into a specific financial rescue plan for Greece. Debate among governments is continuing. However, expectations in financial markets have been raised so high over the past 24 hours, what with European Central Bank president Jean-Claude Trichet flying in for the summit from Sydney and officials in Berlin hinting at a German-led rescue, that it would be risky for the EU leaders not to commit themselves to some sort of initiative.
There are various possibilities: bilateral loans from Germany and France, with perhaps Italy and the Netherlands chipping in; an International Monetary Fund-style standby facility, organised among the 16 eurozone countries; or an EU-wide loan, involving a show of support from all 27 member-states. It is quite likely that the IMF will be asked to continue providing Greece with expert technical advice, but I don’t think the eurozone countries will go further and call on IMF financial resources. Apart from anything else, there is a fear that the US may raise objections on the grounds that the IMF’s firepower should be reserved for fighting emergencies not in prosperous Europe but in other, more disadvantaged financial hotspots. Read more
Europe’s leaders are getting radical. On Thursday the presidents, prime ministers and chancellors of the European Union will meet for a day of economic policy discussions in Brussels – but not in their normal location, the marble-and-glass Council of Ministers building, famous for its charmless, disinfected atmosphere and its 24km of headache-inducing corridors. No, this time they will get together in a nearby building called the Bibliothèque Solvay, which is a pleasant old library rented out for dinners and receptions.
The switch of location was the brainwave of Herman Van Rompuy, the EU’s first full-time president, who thought it would encourage a more creative, informal exchange of views. He has introduced another innovation: each leader is to be restricted to just one adviser at the talks. This isn’t a problem for countries with leaders who are masters of economic policy detail. But others are less happy about the arrangement. It is whispered that the Italians are swallowing especially hard, wondering what on earth Prime Minister Silvio Berlusconi will say once he’s on his own. Read more
Greece’s fiscal emergency is a most mystifying crisis. At one level, it is the most serious test of the eurozone’s unity since the launch of the euro in 1999. Unless correctly handled, the problem with Greece’s public finances could shake the foundations of Europe’s monetary union.
At another level, however, Greece itself seems to be getting off remarkably lightly. Germany suffered a 5 per cent slump in gross domestic product last year; Greece is expected to have suffered a fall of about 1.1 per cent. Spain has a 19 per cent unemployment rate; Greece’s rate is only 9 per cent. The Irish government is imposing extreme austerity measures on its citizens to protect Ireland’s eurozone membership; Greece’s government is, so far, doing nothing of the sort. No wonder Greece’s 15 eurozone partners, the European Commission and the European Central Bank are furious with the political classes in Athens. Read more
How many days can a Spanish kite stay in the air? About four, to judge from the speed with which Germany and the UK have shot down a proposal from José Luis Rodríguez Zapatero, Spain’s prime minister, to introduce binding mechanisms to enforce economic reform in the European Union.
The short lifespan of Zapatero’s brainwave, which he unveiled last Thursday in Madrid, is hardly surprising. Not that it’s an especially bad idea – in principle. Deep in their hearts, most European policymakers know the EU would benefit from closer fiscal and economic policy co-ordination, particularly in the eurozone. They also know that the lesson from the EU’s ill-starred Lisbon agenda, which notoriously set out – and failed - to turn the bloc into the world’s most competitive economy by 2010, is that it was all too easy for governments to pay lip service to reform without doing much about it in practice (except for the virtuous Nordic countries). Read more
Buried in this month’s “Annual Report on the Euro Area 2009″ from the European Commission is some absorbing material on competitiveness in the eurozone. Some countries, above all Germany, Europe’s export champion, have consistently outshone others in terms of business competitiveness since the euro’s launch in 1999. The result has been the accumulation of large current account deficits in countries such as Cyprus, Greece, Portugal and Spain – but also in Ireland, Malta, Slovakia and Slovenia.
As the Commission says, in impeccably understated language: “The build-up of large external liabilities has increased exposure to financial shocks… In the current downturn, financial markets have become more responsive to the net external financial asset position for the euro area countries. Even if to a large extent the net external position is related to the private sector, the public sector can be affected by private sector debt in the form of potential bail-outs and other fiscal implications.” Read more