Tag Archives: Jean-Claude Trichet

No countries for old ideas

Illustration in linocut by Manos Symeonakis

Brussels – There’s a homeless man who sits with his back against the wall of Gare du Nord railway station in Brussels and begs for money. He chooses a spot near the station’s side exit, where few people pass. It also rains a lot in the Belgian capital, so he doesn’t look like a happy man. But by the end of Friday, when European Union leaders will have finished negotiating on new, stricter budget rules for member states just a couple of kilometers from where the beggar sits, they could make him look like the happiest guy in town.

Such has been the intensity of disagreement over how to take economic governance up a notch in the 27-nation bloc that there will be a lot of fraught faces in Brussels this week. Of course, if a deal is reached, the smiles will break out – until people start questioning the implications of what has been agreed.

The negotiations leading up to the summit, which began on Thursday, have been overshadowed by events on October 17: Just as a task force of EU finance ministers led by European Council President Herman Van Rompuy and assisted by the head of the European Central Bank, Jean-Claude Trichet, was putting the finishing touches to proposals designed to stop member states like Greece from overspending, Germany and France decided they would save everyone the trouble and decide on the final scheme on their behalf.

The task force had come up with a system of issuing sanctions against countries that violate the 3 percent of gross domestic product (GDP) limit on their public deficits and the 60 percent of GDP limit on debt, as set out in the EU’s Stability and Growth Pact. Countries that fail to conform would face the prospect of being fined. Both the ECB and the European Monetary Affairs Commissioner Olli Rehn had wanted this process to be semi-automatic, in other words not to be open to political interpretation or manipulation.

Before the mechanism – which for now will only apply to countries that use the euro – was even properly conceived, German Chancellor Angela Merkel and French President Nicolas Sarkozy announced they had agreed on a different method. In a two-way compromise, Merkel agreed that a qualified majority of eurozone governments would be required to start disciplinary action (including political sanctions such as withdrawal of a state’s voting rights) and that a permanent emergency fund should be created for members that can’t balance their books, while Sarkozy conceded that any changes to budget rules should be included in an amended EU treaty.

The Franco-German power play prompted dismay – Trichet insisted a footnote be added to the final version of the proposals stating that he did not agree with all of them – and horror – Luxembourg’s Foreign Minister Jean Asselborn accused the French and Germans of dragging the EU back into the 19th century with the idea of removing members’ voting rights: “You are threatening states, threatening peoples, humiliating them.”

Rehn, meanwhile, insisted in Brussels on Tuesday that he would push up to the last minute for the sanctions process to be free of political intervention and disagreed openly with the prospect of denying offending members the right to vote, which he said is “not in line with the idea of an ever-closer Union.”

The Finn was speaking at the launch of a new system for monitoring the performance of eurozone economies. Dubbed the Euro Monitor 2010, the report compiled by the Lisbon Council think-tank and the Allianz financial services provider uses a range of 15 indicators in four key categories – fiscal sustainability; competitiveness and domestic demand; jobs, productivity and resource efficiency; and private and foreign debt – to evaluate performance rather than just fiscal measurements. The idea is that the Euro Monitor would provide a better early warning system of failing economies and would be a more comprehensive way of monitoring and encouraging balanced growth in the member states.

Given that he’s had more numbers thrown at him this year than a bingo hall announcer, perhaps Rehn, who expressed his support for such an analytical tool, could be excused for missing the irony of the occasion. He may well favor a more rounded approach to assessing economic progress but the measures due to be approved this week use purely fiscal indicators as their totem poles. Even though the EU is more acutely aware of its failings thanks to Greece’s spectacular implosion, the Union is about to commit to a form of “reinforced economic governance” that is predicated on the same terms that have underpinned eurozone economies for the last decade and which failed to prevent the current mess in which many member states find themselves. It uses the same debt and deficit limits that were consistently violated, not only by rulebreaker Greece but by rulemakers France and Germany as well.

Also, the proposed mechanism pounces on failure rather than encouraging success. It threatens to punish member states that fail to comply with somewhat arbitrary fiscal limits but does not suggest how they can drive their economies to stay clear of trouble. It proposes sanctions when there is no evidence that financial penalties bring states into line. Greece, for example, was the first EU country to ever be fined for an offense – for the operation of an illegal trash dump on Crete – in July 2000. It spent the following 10 years amassing fines for breaching EU environmental legislation. At the end of the decade, Greece still had one of the worst environmental records in the Union. It had neither reformed nor conformed as a result of the fines.

There is a deeper problem, though, with the proposals. They show the EU to be running short of ideas at a most crucial juncture: When countries across Europe, from Greece to Britain and Ireland to Portugal, are taking the austerity hatchet to their troubled economies, there seems to be no attempt to develop a more sophisticated and nuanced economic model to deal with the challenges of the 21st century. Europe appears to have accepted the cost-cutting, tax-hiking philosophy of the International Monetary Fund without question.

This undermines the Union much more than any disagreements or backroom politics. The EU was once about breaking through the waves; its budget proposals are only about staying afloat. The measures reek of bleakness and there is nothing there to inspire the Union’s 500 million inhabitants. As John Rentoul, a commentator for the British daily The Independent, wrote in the wake of his government’s drastic spending cuts: “This isn’t about economics – as ever, that can be argued either way – it is about a strategy for the country.” Or in this case, the Union, and there doesn’t seem to be one.

Whatever is finally agreed this week, EU leaders will not be able to escape the fact that they are talking one language — that of debt, deficit, austerity, limits and sanctions – when many of their people would like to hear them speak another – that of jobs, security, prospects, fairness and quality of life. Even the homeless man in the street would be able to tell them that avoiding financial bankruptcy does not prevent you from being morally bankrupt, balancing your budget does not mean you have an equal society and reducing your deficit does not preclude you from being short of ideas.

This commentary was written by Nick Malkoutzis and was published in Athens Plus on October 29, 2010.

Unbelievable? Not anymore

Illustration by Manos Symeonakis

Brussels – The British indie dance band EMF had only one hit. It was with their first release in 1990, a single called “Unbelievable.” Twenty years on, the possible existence, let alone success of another EMF, the European Monetary Fund, seemed scarcely believable. But Greece’s descent into fiscal hell over the last few months has changed all that and on Monday the European Union essentially took its first, albeit tentative step, toward constructing its own version of the International Monetary Fund.

As far as historic moments go, Luxembourg Prime Minister Jean-Claude Juncker, who also heads the Eurogroup, and European Economic and Monetary Affairs Commissioner Olli Rehn, did their best to make their announcement that the other 15 euozone members had agreed to provide Greece with financial assistance as underwhelming as possible. The briefing room at Justus Lipsius building in Brussels must rarely have been as packed for a monthly Eurogroup news conference as it was on March 15 when journalists gathered to hear that eight years after the euro went into circulation and almost two decades since the signing of the Maastricht Treaty that laid the foundations for the single currency, those using it accepted that the framework needs to be strengthened.

 

Juncker and Rehn announced that a procedure had been put together by which a eurozone member in economic trouble, in this case Greece, would be able to rely on financial backing from its partners. From being one of the European members of the so-called PIGS economies, Greece could soon be handed the key to the EU piggy bank. The EU is not an organization that adapts particularly quickly to changing landscapes but Greece’s plight has caused a seismic shift that puts the very viability of the euro at stake. So, the Union has decided it needs to update its tools to ensure it’s not lost in this new financial geography.

Juncker and Rehn did not reveal exactly how the scheme, which bypasses the “no bailout” clause in the Maastricht Treaty, would work although it appears that it will take the form of bilateral or multilateral loans from other eurozone members or banks in those countries that will be funneled through the European Commission. Strangely, for a measure designed to ward off speculators who think they can still make a quick buck off Greece’s economic weakness, Rehn played down the landmark moment, speaking of “coordinated assistance” which “could be activated if needed” while underlining that any action would be in line with the “treaty framework” and “national law.” 

The EU specializes in technocratic double speak but this time there was a good reason for obfuscating. Any deal relies on the acquiescence of Germany, the eurozone’s most powerful and healthiest economy. Beyond any qualms that the Germans may have about giving cash to a country that has so flagrantly ignored the currency’s rules, the government is concerned about telling the country’s taxpayers they might have to cough up for Greece’s recklessness. Chancellor Angela Merkel leads a three-party coalition of her own Christian Democratic Union, the liberal Free Democratic Party and Bavaria’s Christian Social Union. Elected to power only last year, the so-called “black and yellow” coalition is suffering. Its popularity in opinion polls is sinking faster than Greece’s credibility on international markets and the FDP leader Guido Westerwelle, who is vice-chancellor and foreign minister is pursuing a populist agenda that makes it difficult for Merkel to consider Germany’s participation in an emergency fund for Greece.

This might explain why less than 24 hours after the meeting of EU financial ministers in Brussels, when the bailout was again given approval, Merkel was telling Germany’s Parliament: “We do not need a solution that helps in the short run but weakens the euro in the long run.” This double talk is part of the cat-and-mouse game that Merkel is playing with German voters but also reflects Berlin’s determination not to commit to the financial package before it is absolutely necessary as it fears setting a precedent that would make it easier for another struggling member – Portugal or Spain maybe – to call for assistance in the near future rather than itself taking measures to fix its public finances.

But in essence, the precedent was set on Monday night with the landmark breakthrough in the eurozone, which brought the creation of a European Monetary Fund a step closer. The EMF may be several years away because changes to the EU’s treaties are first needed but it appears to be a natural continuation of what was agreed this week.

Given the financial turbulence of the last couple of years, it makes absolute sense for the EU countries to have a fund that they can rely on to rectify economic problems. It means that the option of the IMF would be off the table and Europeans could be true masters of their own destinies. The IMF, in the view of many economists, provides a one-size-fits-all solution that does more damage than good in many of the countries that call on its help. With the EMF, the EU could adopt a more tailor-made approach based on European economic and social particularities. Also, the idea of each member state contributing toward this fund on an annual basis would make them real stakeholders in the future of the Union and take the EU closer to a more complete economic and political union.

The economic crisis has brought the EU to the point of no return. If Greece doesn’t get the financial help it needs and turns instead to the IMF, as it has threatened to do, then hopes that the Union could stand for more than a collection of common goals and practices would be in tatters. If Germany were to decide that it has had enough of the economic shenanigans of countries like Greece and considers reintroducing the Deutschmark, which would please some in Berlin, then the effect would be even more devastating.

Giving Greece a cash injection is a logical short-term decision to help it and the EU ride the current storm but if the Union is to safely navigate through this crisis then a more substantial solution is needed for the long-term. For all the coyness and brinkmanship on all sides, it is patently obvious that there are still powerful common interests at the EU’s heart and that its future depends on these outweighing individual designs or whims. That’s why the idea of an EMF is not so unbelievable anymore.

This commentary was written by Nick Malkoutzis and appeared in Athens Plus on March 19.