Mario Monti (2010): A new strategy for the single market

We are on the reform trail.

The free movement of goods, persons, services and capital and the comprehensive prohibition of all discrimination on grounds of nationality, are means to achieve a highly competitive social market economy. The internal market, which now consists of 31 countries with a total population of 515 million, is often (aspirationally) called the single market.

When we want to study the development of the internal market during this decade, the obvious time to start is Europe Day 2010 and the document to read is the study by professor Mario Monti: A new strategy for the single market at the service of Europe’s economy and society (9 May 2010; 107 pages).

Rereading Monti’s report brought back the image of the  “historic compromise” he wanted to forge among dedicated market proponents and reticent players (here from page 9):

The new comprehensive strategy outlined above should be seen as a "package deal", in which Member States with the different cultural traditions, concerns and political preferences could each find elements of appeal important enough to justify some concessions, relative to their past positions.

In particular, Member States with a tradition as social market economies could be more prepared to a new commitment on fully embracing competition and the single market, including a plan with deadlines on putting in place the single market in areas where it is still lacking, if Member States in the Anglo-saxon tradition show readiness to address some social concerns through targeted measures, including forms of tax coordination and cooperation, while there is no need to pursue tax harmonisation as such.

The magic treaty formula of a highly competitive social market economy was evoked already in the mission letter by José Manuel Barroso, the president of the European Commission.

Monti sketched opportunities for dynamic reform and remedies for social concerns at a strategic level, not only general enough but also penned finely enough to remain astonishingly fresh today.

Since the  margins available for budgetary stimuli were very limited, Monti reminded all actors that making the single market more efficient was Europe's best endogenous source of growth and job creation.

While summing up his proposals, Monti recalled that the member states had made the bold decision to share the same currency (page 107):

That requires, at the very least, a high degree of sharing effectively a single, integrated, flexible market, a prerequisite for an optimum currency area and a vector for improvements in productivity and competitiveness.

Finally, he called for the single market to be placed as a key item on the agenda of economic government, “the latest expression of the EU’s ambition to control its economic fate”.  

Ralf Grahn  

Spiegel Online International on eurozone crisis

It is annoying not to know if the joint, but divided Twin Peaks proposal is intended to bless us with a new ”economic government” (gouvernement économique FR) or just enhanced ”economic governance” (wirtschaftliche Steuerung DE) of the euro area.

Even if the key concept has proved slippery, I tried to evaluate the Franco-German proposals in the blog post Merkel-Sarkozy letter: My reading, part of an extended series about the euro crisis (Eurokrisen).

Let us compare notes with Spiegel Online International, about what the German chancellor Angela Merkel and the French president Nicolas Sarkozy proposed to Herman Van Rompuy, the president of the European Council invited to come up with concrete proposals by October.


Spiegel Online International

In the aftermath of the Paris summit, Stefan Kaiser on Spiegel Online International spoke about ”true economic government”, but found the exact meaning unclear. He interviewed professor Henrik Enderlein, who saw the proposal as an attempt to sideline Jean-Claude Juncker (the chairman of the informal Euro Group): What Will a European Economic Government Entail (17 August 2011).

The following day, German media comments harvested by Spiegel Online International were unclear about the contents and unsure of how helpful the proposals would be: 'Merkel-Sarkozy Plan Already On Shaky Footing' (18 August 2011).

Spiegel Online International looked at the state of the German coalition government: Will Merkel's Coalition Hinder Euro Rescue? (18 August 2011). The FDP welcomed the rejection of euro bonds, the introduction of a debt brake, greater competitiveness and stability. However, economic government or offering ”Brussels” more powers, tangled the nerves of many among the government parties.

If Merkel's coalition partners lap up the debt-brake, the plan is triggering massive resistance in southern eurozone countries. Stefan Simons and Carsten Volkery report in Spiegel Online that the difficulties to enact balanced-budget amendments start at home for president Sarkozy. Debt-brakes have been in place since the Maastricht Treaty, to what effect? See: The Great Debt Brake Swindle (18 August 2011).

For a quick overview, I recommend the Graphics Gallery about the global debt crisis offered by Der Spiegel, 18 slides including eurozone and US federal deficit figures.

Spiegel Online International takes a step back to gain a wider view of the European project. Roland Nelles contrasts the passion of ”The Federalist Papers” with the failure of citizens to engage for a better Europe: How to Get Europeans to Care about Europe (19 August 2011). The current

... intransparent, technocratic policymaking among leaders generates exactly the kind of dangerous Europe-fatigue that is helping the populist idiots win support.

***

The Paris summit taught us more about the limits of our current political leaders, than about the real challenges.

In my view, without real powers and real democracy at European level, our continent will remain ill equipped to enhance the security and the prosperity of its citizens in a volatile world.

With Dylan Thomas: Do not go gentle into that good night.

Follow the discussion about the future of Europe and the eurozone on Bloggingportal.eu, an important part of the European public sphere.



Ralf Grahn

Eurozone ”economic government” lost in translation?

Did the (Twin Peaks) ”economic government” for the eurozone get lost in translation?

For the blog post Eurozone: Our new ”economic government” I watched the video of the press conference at the Élysée Palace, in Paris. Based on what I heard and saw, I stated the novelty:

Both leaders describe their proposals as ”economic government” (gouvernement économique, Wirtschaftsregierung).

Since ”economic government” has been used mainly by the French, whereas others have usually spoken about ”economic governance”, I corroborated this novelty by referring to the German press release 'Deutschland und Frankreich für europäische Wirtschaftsregierung', although the link now leads to another press release headlined 'Deutschland und Frankreich für starken Euro', which seems to have airbrushed ”europäische Wirtschaftsregierung” by replacing it with ”starken Euro” (which, incidentally, is another cup of tea).

I did not see ”Wirtschafsregierung” in the text, either, so a minor act in Ministry of Truth style seems to have taken place at the German chancellor's office.


Transcripts

In the blog post Merkel and Sarkozy: Eurozone letter to Van Rompuy, I referred to the French version of the press conference text:

According to the Élysée version, president Sarkozy refers to the letter to Van Rompuy with the joint proposal for

...un véritable gouvernement économique de la zone euro. Ce gouvernement économique sera constitué du Conseil des chefs d'Etat et de gouvernement.

In the German transcript only Sarkozy's second ”gouvernement économique” is preserved as ”Wirtschaftsregierung”:

...eine wirtschaftspolitische Steuerung der Eurozone vorzusehen. Diese Wirtschaftsregierung besteht aus den Staats- und Regierungschefs.

According to the two transcripts (and part translations), chancellor Merkel does not use the term ”Wirtschaftsregierung”, so the the use of term seems to rest on the airbrushed press release.


Letter to Van Rompuy

As I noted and wondered in the blog post Merkel and Sarkozy letter: My reading, the different ”original” language versions of the joint letter to Herman Van Rompuy employ different terms.

French:

- des réunions régulières des Chefs d'État et de Governement de la zone euro : ces sommets se tiendront deux fois par an si nécessaire des sessions extraordinaires seront convoquées. Ces sommets constitueront la pierre angulaire du nouveau gouvernement économique de la zone euro.

German:

- Regelmässige Treffen der Staats- und Regierungschefs des Euro-Währungsgebiets: Diese Treffen werden zweimal pro Jahr und wenn nötig zu außerordentlichen Sitzungen einberufen und dienen als Eckpfeiler der verbesserten wirtschaftlichen Steuerung des Euro-Währungsgebiets.

English is hardly the source language, but the target language:

- Regular meetings of the euro area Heads of State and Government: these meetings will be convened twice a year and when necessary in extraordinary session to act as the cornerstone of the enhanced economic governance of the euro area.

Conclusions?

Grandiloquent to speak about ”economic government” to begin with, given the substance and lack of real democratic legitimacy of the proposals, although heads of state or government, more easily than outside observers, might perceive railroading the other EU institutions and eurozone arrangements on a permanent basis as part of their higher calling.

We have a joint letter, but which version should president Van Rompuy and the rest of us read with regard to the crucial term?

Has ”economic government” reverted to ”economic governance” outside France and the French language?

To set the record straight, could the Ministry of Truth (Berlin branch office) offer guidance?

***

On multilingual Bloggingportal.eu you find the new posts from 839 euroblogs, including on the debt and economic crises in the eurozone.



Ralf Grahn

Merkel-Sarkozy letter: My reading

In the blog post Merkel and Sarkozy: Eurozone letter to Van Rompuy you find links to the letter on two websites in three languages, as well as transcripts of the press conference and some press releases.

Here is a link to the letter in English, as posted on the presidential Élysée web portal.

A few lines into the text, we start to wonder when the French and German leaders were last updated about growth figures and events on the financial markets and stock exchanges, as well as sentiments:

In the last months, the Heads of State and Government of the euro area have taken all the necessary measures in order to preserve the stability of the economic and monetary union.

Merkel and Sarkozy refer to paragraph 16 of the declaration of heads of state or governement of the euro area and EU institutions (my addition, based on original) of 21 July 2011, which said:

16. We invite the President of the European Council, in close consultation with the President of the Commission and the President of the Eurogroup, to make concrete proposals by October on how to improve working methods and enhance crisis management in the euro area.

In other words, the declaration referred to recognised institutional players, without inciting member state activism, although the letter somehow leaves the reader with such an impression.

We should be grateful for every effective and democratic proposal to stop the worsening slide. Let us quit nit-picking in order to look at how France and Germany propose to strenghten further the governance of the euro area, in line with existing treaties.


Eurozone governance

Whereas the leaders spoke about ”economic government” in both French and German at the press conference, the letter more humbly refers to enhanced ”economic governance” of the euro area.

However, the French version uses ”gouvernement économique” whereas the German version resembles the English translation. Strange, when speaking about key concepts.

The Twin Peaks solution of two annual summits could hardly be more intergovernmental, although only the regularity and the special chairman are new in this ongoing coup d'état.

Having just wanted to set their leading role in concrete, the wish to reinforce the eurogroup of finance ministers sounds as reassuring as the first pronouncement about human rights following a military coup.

The leaders must doubt the analytical capacities of the Commission, the ECB and the IMF, since the new European Stability Mechanism ESM should be equipped with ”complementing” analytical capacities in particular as regards debt and capital markets analysis. No prizes for guessing if transparency and accountability would decrease, or the ”unseen hand” of political remote control from the zone's main capitals increase.

Market reactions have shown that the proposals are seen as ineffective, but the more I think about them, the more I find them harmful as well.


Constitutional debt-brake

Merkel and Sarkozy propose a mandatory constitutional debt-brake for every euro area country. Germany already has one, and Sarkozy is trying to rally support for an internal balanced budget rule in France.

The member states are already internationally bound by the Stability and Growth Pact (1997), but how many of them are willingly going to enshrine such a rigid and permanent rule internally?

Although I am a firm supporter of sustainable public finances, hard and fast rules make bad law.

What happens when one or more euro area parliaments refuse to obey the diktat?

It sounds pompous, but essentially the euro area states have politically agreed to the Ecofin recommendations, so they should carry them out:

All Member States of the euro area should confirm without delay their resolve to swiftly implement the European recommendations for fiscal consolidation and structural reforms, especially as regards labour-market, competition in services and pensions policy, and adapt appropriately their draft budget.

The leaders sent a signal on coordination of direct taxes, but the required unanimity for meaningful common rules remains as elusive as ever.

Macro-economic conditionality seems to be targeted at the weaker economies with potentially greater problems to master their public finances as well.

Euro area legislation (Article 136 TFEU) could give the Franco-German aspirations a shot in the arm.


Financial Transaction Tax

We can expect a joint proposal on a Financial Transaction Tax, also known as a Tobin Tax or Robin Hood Tax.

The United Kingdom has rejected it before seeing the proposals (Commission one included), so eurozone Ireland has been content to require an EU-wide tax. Merkel's coalition partner FDP has sent the same kind of signals.

The European public favours a tax on financial transactions, but without fiscal and political union this remains just another example of the limits of intergovernmental deal-making.

***

All in all, the Franco-German proposals would enhance the influence of the heads of state or government (of the biggest eurozone states) at the expense of the other EU institutions, without solving the fundamental problems of the euro area: lack of robust institutions and democratic legitimacy at European level.

How about the confidence factor?

BBC News tells us that European stock markets continued to fall today.



Ralf Grahn

Eurozone leaders talk and shares fall

This afternoon BBC Business News reports that Shares fall in Europe and US as confidence drops (18 August 2011).

Why are the markets so ungrateful after chancellor Angela Merkel and president Nicolas Sarkozy promised the eurozone ”economic government”, consisting of two annual summits for heads of state or government in the euro area, as well as constitutionally enshrined debt-brakes?

Perhaps the commentariat could give us a few clues.

Ambrose Evans-Pritchard's Telegraph blog post In defence of PIGS (17 August 2011) named the non-decisions succinctly:

No eurobonds, no fiscal union, no boost to the EFSF rescue fund, no change of policy on the ECB’s mandate. Zilch.

The LabourList post by Jon Worth argues that it is better to save the Euro and the EU through fiscal integration than provoke the mother of all financial crises: The Eurozone predicament is undesirable, not unexplainable (16 August 2011).

Professor Karl Whelan argues on the IIEA blog that it is certainly unlikely that a continent-wide campaign to pass rigid fiscal rules that run counter to textbook macroeconomic principles will do much to boost the Euro’s popularity: The Merkozy Summit – Bad Politics, Bad Economics (17 August 2011).

Vihar Geogiev writes on European Union Law that this proposal will not solve the urgent problems of the eurozone. Any further dodging of the eurobond issue will only add damage to the eurozone economy. The proposals on ”economic government” stay within the logic of intergovernmentalism, which is a recipe for failure: Dissecting the New Franco-German Proposal for the Eurozone (17 August 2011).

***

While effective and democratic European level solutions remain officially banned, remember to check old and new comments on Bloggingportal.eu about the continuing eurozone descent.



Ralf Grahn

Merkel and Sarkozy: Eurozone letter to Van Rompuy

Yesterday morning the primary sources about our new ”economic government” were limited to video of the Élysée press conference and the press release from German chancellor's office.

Since then, we have more official materials about the proposed Twin Peaks ”economic government” of the euro area. The website of president Nicolas Sarkozy has posted the text of the press conference, with chancellor Merkel's remarks translated into French.

On this page you can choose the joint letter from Merkel and Sarkozy to Herman Van Rompuy, the president of the European Council, in French, English and German, which makes the proposals available in a more finely chiseled form.

The German chancellor's office offers a report of the summit: Deutschland und Frankreich für starken Euro. There is also a shorter English version: Germany and France in favour of European economic governance.

The press conference has been transcribed and the French parts translated into German: Pressekonferenz von Bundeskanzlerin Merkel und dem französischen Staatspräsidenten Sarkozy.

The letter to Van Rompuy can be found here as well: Gemeinsamer Deutsch-Französischer Brief an EU-Ratspräsident Herman Van Rompuy.

The same page offers links to the letter in English and French.

***

Yesterday I wrote three blog entries about the the summit between Merkel and Sarkozy, including interesting media reports and comments: Eurozone: Our new ”economic government”, Eurozone Twin Peaks ”economic government” in media and Eurobonds and eurozone reform rebound despite Merkel-Sarkozy summit.



Ralf Grahn

Eurobonds and eurozone reform rebound despite Merkel-Sarkozy summit

Chancellor Angela Merkel and president Nicolas Sarkozy can hardly have imagined that the issues of eurobonds and profound euro area reform would disappear, only because they swept them under the carpet yesterday.

After the official statements by Merkel and Sarkozy and my reactions to the proposed eurozone ”economic government”, we made a first tour of European media reactions to the Franco-German proposals.

Blogs and mainstream media contribute to our understanding of the challenges for the euro area and the European Union, beyond yesterday's announcements.


Protesilaos Stavrou

According to Protesilaos Stavrou, eurobonds are necessary, but first the European banking system needs to be cured and sovereign debt restructured: The eurobond is the only way forward – But under what conditions? (16 August 2011).


Jan Seifert

Jan Seifert invited readers to an intelligent discussion about how the eurobonds need to be constructed in order to contribute to solving the public debt crisis: How Eurobonds are the way forward (16 August 2011).


Pietro De Matteis

According to Pietro De Matteis, on the Europe Today blog (Ideas on Europe), it has become increasingly evident that there is no other durable solution for the European economy(ies) than to move towards further fiscal and budgetary integration: The Eurozone Council: are we a step closer to a European Government? (17 August 2011).


WSJ Europe

The Wall Street Journal Europe concludes that Merkel's and Sarkozy's eurozone plans stopped short of more fundamental steps toward refashioning the area into a federal entity that would issue its own debt, disappointing investors hungry for a more radical solution to the euro-zone crisis: Franco-German Proposal Disappoints (17 August 2011).


NZZ Online

Chancellor Angela Merkel has repeatedly changed course during the eurozone crisis, belatedly and too little at a time, say some. Have her initial positions been tactically aimed at reigning in profligate countries, or have later changes been signs of weakness? The coalition parties CDU-CSU and FDP are baffled. Almost paradoxically the opposition Greens and SDP are prepared to support more radical eurozone reforms, despite popular resistance, NZZ Online reports: Wenig Vertrauen in die Führung (17 August 2011).


Fabien Cazenave

Fabien Cazenave, on the Fabien l'Européen blog, writes that the summit offered stronger political signals than he had expected. He seems to think that the Ecofin Council will be marginalised, whereas I have understood that the heads of state or government want to overshadow the informal Euro Group. Anyway, the tenor of the proposals is intergovernmental, and Herman Van Rompuy will remain the captive of their decisions and non-decisions.

Are all the euro area countries really going to ratify the ”Golden Rule” of balanced budgets within a year? An EU-wide Tobin tax on financial transactions would need unaniomous approval (which could usher in an autonomous European Union budget), but do we really see the United Kingdom accepting that? The common tax rate for French and German businesses is the good news from the meeting, but we have to wait for the detailed proposals.

Cazenave ends his post by discussing some French reactions, as well as the need for parliamentary democracy: Réunion Merkel-Sarkozy : des propositions fortes, mais sont-elles les bonnes ? (17 August 2011).


Beyond Brussels

The daily digest of Beyond Brussels records that: Sarkozy-Merkel meeting failed on the markets (17 August 2011).



Ralf Grahn

Eurozone: Our new ”economic government”

The German chancellor Angela Merkel and the French president Nicolas Sarkozy, who met in Paris yesterday 16 August, propose no eurobonds or treaty changes in the forseeable future.

They are going to enhance economic growth, improve competitiveness and combat public debt by asking for two eurozone summits annually, to be chaired by a person nominated for two and a half years. They propose the current president of the European Council, Herman Van Rompuy as the chair of these summits.

Consequently the informal Euro Group, already eclipsed by eurozone summits 'ad hoc', would permanantly move even farther outside the limelight.

Public debt is the hard core of their proposals. The Stability and Growth Pact (SGP) should be strengthened by introducing a ”Golden Rule” of budget balance (Schuldenbremse) as a constitutional rule in every member state of the euro area, within a year.

Internationally, France and Germany want to impose a tax on financial transactions.

Both leaders describe their proposals as ”economic government” (gouvernement économique, Wirtschaftsregierung).

Merkel and Sarkozy did not even begin to address the lack of democratic legitimacy of their intergovernmental ”government”, or the absence of public support for its maze of treaty provisions, secondary legislation, intergovernmental coordination and peer pressure, political declarations and international agreements.

Can we expect the financial and stock markets to regain confidence?

President Sarkozy does not envision any new increase in the capacity of the European Financial Stability Facility EFSF to intervene.



See:

Zone euro : conférence de presse franco-allemande (video 48:29 min)

Deutschland und Frankreich für europäische Wirtschaftsregierung (Artikel, 16 August 2011), which refers back to the old communiqué 7 August 2011:

Deutsch-französisches Kommuniqué zur aktuellen Situation in der Euro-Zone (7 August 2011), about implementing the decisions by the eurozone summit 21 July 2011 and welcoming recent measures by the governments of Italy and Spain.

***

Bilaterally, in the spirit of the Franco-German Elysée Treaty the two countries continue efforts to harmonise their fiscal and economic policies aiming for greater convergence. They have set their sights on uniform tax rates for corporations, with detailed proposals due by 2013.



Ralf Grahn

European Financial Stability Facility EFSF

Monday, 7 June 2010 the finance ministers of the eurozone countries, meeting in Luxembourg, issued a press release on the establishment of the € 440 billion European Financial Stability Facility (EFSF), which is meant to defend the stability of the euro area.

Here is a link to the press release from the Euro Group and the text in full, with a few explanatory notes inserted:



Terms of reference of the Eurogroup European Financial Stability Facility (Luxembourg, 7 June 2010)

In line with the decisions taken on 9 May within the framework of the Ecofin Council to safeguard financial stability in Europe, Ministers have established the European Financial Stability Facility as a limited liability company under Luxembourg law (Société Anonyme). To this end, they have agreed on the Articles of Association of the EFSF and on the Framework Agreement between euro area Member States and the EFSF.

The objective of the EFSF is to collect funds and provide loans in conjunction with the IMF [International Monetary Fund] to cover the financing needs of euro area Member States in difficulty, subject to strict policy conditionality. Euro area Member States will provide guarantees for EFSF issuance up to a total of € 440 billion on a pro rata basis [proportionately].

While the EFSF has been incorporated with Luxembourg as its sole shareholder to expedite its creation, all Member States of the euro area reconfirm their commitment to enter the capital of the EFSF as soon as possible. National legal procedures to participate in the Facility are well on track. The shareholding of each Member State in the EFSF will correspond to its respective share in the paid-up capital of the ECB [European Central Bank].

The obligation of euro-area Member States to issue guarantees for the EFSF debt instruments will enter into force as soon as a critical mass of Member States, representing 90% of shareholding, has completed the relevant national parliamentary procedures. The European Financial Stability Mechanism [See: Council Regulation (EU) No 407/2010 of 11 May 2010 establishing a European financial stabilisation mechanism; OJEU 12.5.2010 L 118/1] managed by the Commission is already available to cover urgent financing needs, if necessary.

Ministers have agreed on a number of measures to ensure the best possible credit quality and rating for the debt instruments issued by EFSF, such as a 120% guarantee of each Member State's pro rata share for each individual bond issue and the constitution, when loans are made, of a cash reserve to provide an additional cushion or cash buffer for the operation of the EFSF. Member States have agreed that other mechanisms would be adopted if needed to further enhance the creditworthiness of the bonds or debt securities issued by the EFSF.

Ministers have also agreed to nominate their Eurogroup Working Group member (full or alternate) as director in the EFSF board to ensure close coordination between EFSF and the Eurogroup. A CEO will be appointed shortly.

The EIB [European Investment Bank] has confirmed its willingness to provide treasury management services and administrative support to the EFSF through a service level contract.

Ministers have also confirmed that the Commission is tasked to support, together with the EIB, the setting up of the EFSF and to contribute to its functioning. The Commission will ensure consistency between EFSF operations and other operations of assistance to euro area Member States. The Commission, in liaison with the ECB. is also tasked to negotiate the policy conditions attached to any loans provided by the EFSF and to assess compliance with these conditions.

Openness?

Every sign of progress in the stabilisation of the euro area is to be welcomed. The finance ministers have agreed on the name of the Special Purpose Vehicle, which has become the European Financial Stability Facility (EFSF), on its establishment, its Articles of Association and on an undisclosed Framework Agreement, as well as some practical management measures.

However, we have been promised a European Union which functions according to certain standards of government and governance (Article 1 TEU):

This Treaty marks a new stage in the process of creating an ever closer union among the peoples of Europe, in which decisions are taken as openly as possible and as closely as possible to the citizen.

The founding values of the EU include freedom, democracy and the rule of law (Article 2 TEU).

How does this government by press releases after the fact by an unofficial group of finance ministers fulfil the standards of democratic and transparent government?




Ralf Grahn

EU: Stability programme France

France has traditionally called for strong eurozone governance or even government, but good practices start at home. Have they?

The latest EU Council opinion on the French stability programme spells out the need for corrective action.




For some background remarks on economic policy coordination, you can read the blog post EU: Useful stability and convergence programmes? (3 June 2010).


Stability programme France

The Council’s assessment of the French stability programme has been published in the Official Journal of the European Union (OJEU):



COUNCIL OPINION on the updated stability programme of France, 2009-2013; OJEU 29.5.2010 C 140/6



The Council examination on 26 April 2010 of the updated stability programme of France, which covers the period 2009 to 2013, began with the following general remarks:

Economic activity in France lost its dynamism in the course of 2008 and declined sharply in the fourth quarter and in the first quarter of 2009. From the second quarter of 2009, it picked up again, supported by stimulus measures in France and in neighbouring countries. One prominent challenge for economic policy is the situation of public finances. Specifically, since 2002 the deficit in France has been either above or close to the 3 % of GDP threshold, mainly a reflection of insufficient consolidation efforts. In this context, France was under an excessive deficit procedure between 2002 and 2007, and received a policy advice from the Commission in May 2008. Following the notification of a deficit above the 3 % of GDP threshold in 2008, a new excessive deficit procedure was launched in February 2009, which foresees the correction of the excessive deficit by 2013. Other challenges include addressing the supply-side weaknesses which lead to insufficient external competitiveness, as well as increasing labour utilisation.

Council recommendation


After a detailed assessment and also in the light of the recommendation under Article 126 TFEU of 2 December 2009, the Council invited France to:

(i) use, throughout the programme period, windfalls related to an improvement of the macro-economic and fiscal outlook, as well as the implementation of all envisaged tax measures to accelerate the deficit reduction and the decline of the gross debt ratio back towards the 60 % of GDP reference value;

(ii) stand ready to adopt further consolidation measures, in case risks related to the fact that the macroeconomic scenario of the programme is more favourable than the scenario underpinning the Article 126(7) Recommendation materialise, and further specify the measures necessary to ensure an average annual fiscal effort of above 1 % of GDP over the period 2010-2013 and to achieve a correction of the excessive deficit by 2013;

(iii) ensure that the budgetary framework is reinforced, in particular on the expenditure side, and effectively supports the achievement of the outlined medium-term fiscal plans at all sub-government levels, as planned by the French government.

France is also invited to provide more information on the broad measures underpinning the envisaged consolidation in the outer years of the programme, at the latest in the EDP [excessive deficit procedure] chapters of the forthcoming stability programme updates.

The financial crisis, the economic downturn and the subsequent battering of member states’ budgets have led to a new culture of crisis summits, not only for the European Union as a whole, but significantly for the eurozone.

There is need for a critical evaluation of how much the unofficial summits of the eurozone leaders and the unofficial Euro Group have achieved in terms of sustainable solutions. This culture of more or less chaotic “government by communiqés” seems to have led to deteriorating standards of transparency.

What would be achieved by more intergovernmental arrangements outside the treaty framework, if that is what “economic government” in the euro area means?

France has a long history of trying to create Europe in its own image, but the country has traditionally been short on accepting sustainable institutional underpinnings for its ambitions for Europe.

The EU already has the Stability and Growth Pact. Leading by example would be a good start for France, ahead of credible European level economic government.




Ralf Grahn