Milan, 12/09/2014 (Agence Europe) - Making no reference to France, at their meeting in Milan on Friday 12 September, representatives of Eurogroup reiterate the importance of introducing and applying structural reforms to encourage economic recovery in the eurozone.
“Need to accelerate on structural reforms. Failing which, there would be no sustainable recovery. No country is immune from reform,” said EU Economic and Monetary Affairs Commissioner Jyrki Katainen. The head of Eurogroup, Jeroen Dijsselbloem, said energetic and credible reforms, along with an investment policy, were needed to boost the eurozone's growth potential. He said they couldn't simply rely on the European Central Bank (ECB)'s monetary policy, but admitted that painful structural reforms take time and “need political courage.” The head of the ECB, Mario Draghi, said the “effect of monetary and fiscal policies is much bigger if structural reforms are performed” and “people are speaking about a reforms dividend.”
This begs the question of what type of reforms are needed? They will differ from country to country although they must all pursue the same objective of encouraging economic activity. Katainen stressed the “need to improve the quality of public spending.” Katainen, a Finnish liberal hostile to any tax increases to balance the public purse, said there was a “need to accelerate on structural reforms. Failing which, there would be no sustainable recovery. No country is immune from reform.” He added that it was “not a choice of reducing it but there was always a choice of how to make savings. Reducing expenditure rather than raising taxes to ensure growth.” He recommended, however, investment in research and development and the three-year €300 billion investment plan the future European Commission is in the process of preparing. He said the investment plan would have two parts: “a public part using public funds in a more efficient way, other part how to create better single market for industries. The second part is even more challenging - how to find obstacles and right answers.” Eurogroup also discussed a reduction in the burden of taxation on labour.
Flexibility. Eurogroup's statements about structural reforms sounded like a direct warning to France, although Dijsselbloem was anxious to brush aside any idea of controversy and said that economic and budgetary situation in France had not been discussed in Milan. “Countries will be judged on their efforts in structural reforms,” warned Dijsselbloem. In early November, the European Commission will unveil its assessment of member states' budget plans for 2015, for which the deadline for submission to the Commission is mid-October.
Eurogroup described the Stability and Growth Pact (SGP) as an anchor of stability and pointed out that flexibility under the EU budget rules must not undermine the SGP's hard-won credibility. Katainen said there were two preconditions for extension of the deadline, viz. “evocation of the economic situation and implementation of effective action to tackle the structural deficit. Both are to be fulfilled before starting to consider extension of the deadline.”
On Wednesday, France announced that it will be able to reduce its public deficit to below 3% of GDP in 2017 rather than 2015 (see EUROPE 11152). It is sticking to its commitments to reduce its structural deficit (not including the impact of the economic cycle) by making spending cuts from now until 2017, including €21 billion in 2015. (MB)