Brussels, 24/11/2010 (Agence Europe) - Inter-institutional debate about reform of economic governance in Europe is dominated by the financial crisis faced by Ireland and how it is likely to impact on the rest of the eurozone. During heated exchanges leading to the expulsion of a Conservative Births MEP (see related article), Ireland's economic policy in the lead-up to the cash crisis came in for criticism. The MEPs will fight for stricter economic governance rules than those recommended by the EU Council of Ministers. The Commission is currently working on a permanent eurozone debt crisis management system.
We have to learn the “right lessons” from the Irish problems, explained the chair of the EPP group, Joseph Daul of France, explaining that the Celtic Tiger had built its economic growth in isolation with an unusual tax policy, lax bank regulation and an investment code unparalleled in any other EU country. Its speculative housing bubble has now burst, households are in debt, unemployment has reached a record high and the banks have run out of steam, he added. After the government bailed out the banks to a tune of €480 billion, three times the country's GDP, it called for and was given EU solidarity, but Daul wondered whether this EU solidarity that has rightly been granted to Dublin today, as it had when the country joined the EU, had been reciprocated by the Irish government over the past few years. He criticised the attitude of some countries “the same ones as usual”, which always oppose any harmonisation of national fiscal policies although this is a “precondition” for governance of the euro.
Agreeing with the leader of the Christian Democrats, the chair of the Liberal group at the EP, Belgium's Guy Verhofstadt, regretted that the EU plan to save the banks that had been mooted by the European Commission has been rejected by the member states because such a plan would have averted the current problems facing Ireland. How did the Irish banks pass the stress tests?, asked the chair of the Socialist group, Martin Schulz of Germany.
The President of the European Commission, José Manuel Durão Barroso, said that “rigorous bank stress tests” had been introduced at EU level but it was the member states that actually carried out the tests in their own country. This would change when the new EU financial supervision system comes into play, he said. Asked whether the current debt crisis had been caused by the single currency, he said it was dishonest to suggest that the euro had caused the problem because the situation would have been far worse without the euro. He said that people should remember that countries outside the eurozone like Iceland were in even worse debt.
Philippe Lamberts (Green, Belgium) criticised the economic model that had invested in speculation rather than the real economy. To put out the bonfire in Ireland, he said, it would not be enough to simply cut public spending because the debt needed to be restructured to ensure that both the debtors, who had spent too much, and the lenders, who had lent cash irresponsibly, contributed to the belt-tightening. Bairbre De Brún (GUE/NGL, UK) refused to accept the idea that poor people and pensioners should have to pay for the Irish crisis while the banks were certain to be allowed to generate profits again in the future. She said that this was not aid from Europe and her group strongly opposed the measures. Explaining that it made “no sense” to put even more pressure on Ireland, the chair of the GUE/NGL, Lothar Bisky of Germany, called on politicians to take control of the economy. Nigel Farage (ELD, UK) wrote off the entire European project in one sentence, saying that he did not want the EU flag, which should be consigned to the rubbish bin of history, and asking what will happen to democracy now that Ireland is going to introduce its budget for 2011 just before the general elections.
Economic governance. Urging his counterparts to take “very seriously” the comments of the president of the ECB that the draft legislation on economic governance would not suffice to restore stability to the eurozone (see EUROPE 10262), Guy Verhofstadt explained that the EP had “special responsibility” to go beyond what was recommended by the European Council and “communitarise” penalties on countries in the eurozone that break the Stability and Growth Pact (SGP) rules, ensuring that the penalties were applied automatically. He said that eurobond markets needed to be set up, failing which the disparities in the cost of refinancing sovereign debt spreads would not go away.
Schulz said that the fact that the Franco-German duo had managed to get the rest of the EU to go along with its opinions on reform of the SGP showed how Europe was becoming frayed at the edges. He slammed what he described as a “deal” whereby Berlin and Paris managed to win agreement for a limited reform of the EU treaties to set up a permanent post-2013 mechanism for managing eurozone debt crises, in exchange for a very modest rise in the EU budget, as desired by London (see EUROPE 10247). Co-president of the Greens/EFA group, Rebecca Harms of Germany regretted the “total absence of the European spirit”.
In the opinion of the President of the European Council, Herman Van Rompuy, the recommendations of his taskforce on economic governance are “very close” to the legislative package unveiled at the end of September 2010 by the European Commission. Asked whether the procedure to trigger penalties against eurozone countries was insufficiently automatic, he said it was exactly what the task force had suggested, pointing out that penalties would be deemed to be decided upon unless a qualified majority vote on the Council of Ministers opposed them. He insisted that this was “genuine progress” and should be seen in connection with progress in setting up the European Semester that will come into force in 2011 whereby member states shall have a peer review of their draft budget before it is formally passed by the national parliament.
Contrary to the Commission's suggestions, member states have introduced a six month period during which eurozone countries failing to respect the SGP would have a breathing space to introduce measures to correct their budget position or macroeconomic balances before penalties are applied. After this six-month period, it would be for the ECOFIN Council to decide by a qualified majority vote on the right measures to be taken and penalties could not apply until after this six-month period using the “inverted qualified majority position”. This six-month period that the member states are keen on is not to the liking of the ECB, the European Commission or many MEPs.
Barroso praised the outcome of the task force's work as demonstrating a convergence of views on the Commission's draft legislation and preserving two key elements, namely tight budget rules and broad economic surveillance. Counting on the “Community Method” to generate tangible results, he welcomed the common desire to reach agreement on this issue by the summer of 2011.
Debt crisis management mechanism. The European Council has decided to introduce a permanent eurozone debt crisis mechanism after 2013 that will a priori include private sector involvement. In December 2010, the Commission will unveil its preparatory work on how such a mechanism might operate. Although it will be funded by member states' budgets, Barroso said the initiative would be “European” explaining: 'It is vital that something credible, robust, lasting is put in place. The mechanism will have three main components: a macroeconomic adjustment programme, a financing arrangement, and private sector involvement.' On the private sector involvement component, he commented that he had warned the EU's leaders against going ahead with this. He was pleased that the future changes to the Lisbon Treaty to ensure a solid legal basis for the new eurozone debt crisis management mechanism would not include removal of the right to vote at the Council. Van Rompuy warned that it was important not to launch into futile institutional debates for the sake of it. (M.B. trans fl)