EUCO challenge: growth despite budget balancing

We already looked at the summary offered by the European Council. Since I enjoy the luxury of being able to blog about yesterday's news, I'll try to discuss what EUCO said about economic growth, competitiveness and jobs.

The conclusions of the European Council are available in all 23 official EU languages: in English: European Council 1/2 March 2012 (EUCO 4/12).

After the clear summary, the conclusions start with part I. Economic policy (paragraphs 1-24) and II. International summits (paragraphs 25-28).

Since our leaders do not want to ”burden” us with helpful links or references to the relevant documents, the process of reading becomes slow, even if we only want to hint at the existing official positions.


Stability and consolidation

The first paragraph lays the foundation. I understand financial stability as both a banking sector in working order and as tolerable borrowing costs for governments and enterprises. Fiscal consolidation means smaller budget deficits:

1. The European Union is taking all necessary measures to put Europe back on the path to growth and jobs. This requires a two-pronged approach, covering both measures to ensure financial stability and fiscal consolidation and action to foster growth, competitiveness and employment.

We enter a politically charged area. If deficits are cut, the hovercraft sinks to the ground. It lands on those who have received money from public coffers in some form, including the poor, which in turn slows the rest of the economy.

It may be socially understandable and politically tempting to protest, but do the protestors have real alternatives?

I would like to think there are, but I am afraid I do not see much possibilities this time around.

Between October 2008 and December 2010 the EU member states poured 10.5% of GDP as aid into the financial sector, but problems remain in the banking sector.

Many of the EU governments have no money to spare, and their borrowing is prohibitively expensive.


Alert Mechanism Report (AMR)

Naturally, some can dismiss the EU Commission is part of the same conspiracy as I am, but take the time to read the first Alert Mechanism Report 14.2.2012 COM(2012) 68, which offers a broader view of macroeconomic imbalances than mere budget deficits. (The AMR is available in 22 languages.)


Right or wrong?

Although the first report of its kind, I find the AMR ”family portrait” disturbing as well as essentially convincing, against the background of a clear loss of competitiveness and exports for the EU as a whole.

If we return to the pub discussion level, I would not expect a majority of the EUCO members to be ideologically driven enough to want to slash budgets and gain impopularity just for the fun of it.

At the same time, they have made their own game harder: regaining competitiveness and returning to economic growth, despite efforts to diminish public deficits.

Cold comfort for the jobless, but in my humble opinion, EUCO has made the right basic choice.

What can be done in these circumstances?



Ralf Grahn
speaker on EU affairs, especially digital policy and law

P.S. Between the global issues and the national level, with a tenuous hold on democracy, the European Union institutions and the eurozone coteries shape our future. At the same time we see a European online public sphere emerging. Grahnlaw (recently ranked fourth among political blogs in Finland), Grahnblawg (in Swedish) and Eurooppaoikeus (in Finnish) are among the more than 900 euroblogs aggregated by multilingual Bloggingportal.eu. Are you following the debates which matter for your future? Is your blog already listed on Bloggingportal?

Finland: budget disciplinarian seeing red

In the world of intergovernmental EU economic and eurozone politics, Finland is seen as one of the disciplinarian hawks alongside Germany, Austria and the Netherlands.

However, the return path to sustainable public finances is slow and difficult.

Yesterday evening, the Finnish ”six-pack” government agreed on its budget proposal for next year, after only a day of cross-party talks.

The 2012 budget of Finland promises to be EUR 7.1 billion in the red, which is 13.6 per cent of total central government expenditure amounting to EUR 52.3 billion.

The government points out that the projected 2011 central government deficit is EUR 8.2 billion, so the deficit decreases by more than a billion in absolute terms in 2012. The improved balance is based on expenditure cuts as well as increased revenue through economic growth and higher taxes.

The government plans to shrink the deficit at a measured pace until the end of the electoral period, both in absolute terms and relative to GDP.

Next year the government debt of AAA-rated Finland will grow to EUR 89 billion, but about 44 per cent of GDP is still unusually low in the European Union and the eurozone.

Source:

Ministry of Finance (Finland), press release 14 September 2011: Government budget proposal for 2012, key figures in the spending limits decision and Finland's economic outlook



Ralf Grahn

EU: Excessive government deficits Ia

We look at the European Community (European Union): How much union is there in the economic union?

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As a prelude, Article 2 of the Treaty establishing the European Community (TEC) reminds us that ‘The Community shall have as its task, by establishing a common market and an economic and monetary union … ‘.

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Article 4 TEC presents the guiding principles for the economic and monetary union (EMU), in the latest consolidated version of the treaties, Official Journal of the European Union (OJ) 29.12.2006 C 321 E/45─46):

Article 4 TEC

1. For the purposes set out in Article 2, the activities of the Member States and the Community shall include, as provided in this Treaty and in accordance with the timetable set out therein, the adoption of an economic policy which is based on the close coordination of Member States' economic policies, on the internal market and on the definition of common objectives, and conducted in accordance with the principle of an open market economy with free competition.

2. Concurrently with the foregoing, and as provided in this Treaty and in accordance with the timetable and the procedures set out therein, these activities shall include the irrevocable fixing of exchange rates leading to the introduction of a single currency, the ecu, and the definition and conduct of a single monetary policy and exchange-rate policy the primary objective of both of which shall be to maintain price stability and, without prejudice to this objective, to support the general economic policies in the Community, in accordance with the principle of an open market economy with free competition.

3. These activities of the Member States and the Community shall entail compliance with the following guiding principles: stable prices, sound public finances and monetary conditions and a sustainable balance of payments.

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For the purposes of this series of post we draw attention especially to close coordination of member states’ economic policies, stable prices and sound public finances.

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We remember the introductory Article 98 TEC on the conduct of member states’ economic policies. According to Article 99 TEC these economic policies are a matter of common concern, and the member states have undertaken to coordinate their economic policies.

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Then we have the more detailed treaty provisions on excessive government deficits. The main steps of the procedures are choreographed in Article 104 TEC (ex Article 104c).

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Perhaps it is easier to get an overview, if we start by presenting a bare outline of Article 104 TEC:

(1) Avoidance of excessive government deficits.
(2) Monitoring of budgetary discipline based on reference values and other circumstances: 1) deficit / GDP and 2) debt / GDP.
(3) Commission report on unfulfilment.
(4) Article 114 Committee (Monetary and Financial Committee) opinion.
(5) Commission opinion to the Council.
(6) Council decision, by qualified majority, on existence of excessive deficit.
(7) Council recommendations to the member state.
(8) Making Council recommendations public.
(9) Council notice if member state persists.
(10) Paragraphs 1 to 9 non-justiciable.
(11) Council measures against persisting member state.
(12) Abrogating measures when situation corrected.
(13) Two thirds majority for Council decisions on recommendations, publishing, notice, measures and abrogation.
(14) Implementation in Protocol on the excessive deficit procedure, replacing provisions and detailed rules.

Article 104 TEC follows in the next post.


Ralf Grahn