Saturday 3 March 2012

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 Are you following the debates which matter for your future? Is your blog already listed on Bloggingportal?


  1. Were you referring to this post in your previous comment reply?

    The entire assumption of EU leaders is that the euro system is untouchable no matter how much it kills jobs and growth.

    You claim there is simply "no money to spare" yet eurozone debt and deficits (average around 85% and 6% of GDP respectively) are significantly less than those in the U.S. and Japan (

    Yet, these countries can still borrow at extremely low rates, because they have central banks worthy of the name. Because we do not, at German behest, our bond spreads need to be reduced (if it is at all possible) by job & growth-killing spending cuts/tax hikes instead of smart monetary policy.

    Also note, eurozone debt-to-GDP was actually declining with the recovery last year until the ECB let bond spreads in the eurozone reach unsustainable levels last summer:

    So no, I reject EU leaders' assertion unemployment and poverty today are due to some unchangeable law of nature that uniquely afflicts the European continent. It is the product of the economic laws we established with the eurozone and we had better recognize it.

    To then hear EU leaders prattle on about doing "everything possible" for jobs & growth while refusing to even mention the biggest self-inflicted obstacle to it... It's enough to make one want to vomit.

  2. @CJWilly

    I agree with you with regard to the lower borrowing rates for the USA and Japan.

    Their currency has a sovereign and lender of last resort.

    Since we do not have a democratic eurozone or EU, with sufficient powers, our leaders have not done "everything".

    They have not yet introduce eurobonds as an intermediate step.

    But I have not seen any concerted and credible effort from politicians on the left to change the fundamentals, so I discussed the options in the context we are in.

    I have seen politicians on the left doing opposition politics, but I have not really seen credible alternatives from them.


Due deluge of spam comments no more comments are accepted.

Note: only a member of this blog may post a comment.