Brussels, 04/11/2008 (Agence Europe) - Meeting in Brussels on Monday 3 November 2008, eurozone finance ministers adopted the pessimistic economic forecasts published by the European Commission earlier in the day (see EUROPE 9774). They discussed the utility of deciding on a general framework for national economic support measures focussing on investment policy rather than consumption aid.
The chair of the Eurogroup, Jean-Claude Juncker, said that the finance ministers in the eurozone had agreed with the European Commission's growth forecasts for the eurozone as a whole and its individual countries. He said it was virtually certain that average growth in the 15 countries that have adopted the euro would be only 0.1% in 2009, adding that there would be a very sharp slowdown in employment in 2009 compared to this year. Juncker welcomed the forecasts of inflation averaging 2.2% in 2009, down from 3.5% in 2008, and therefore returning to close to the level pursued by the European Central Bank. In the light of the falling inflationary risks such as the high oil price, the ECB may decide to lower interest rates at its meeting on Thursday 6 November.
In a hugely uncertain economic context, the budget situation will deteriorate in 2009, and seven member states (including France, Italy, Latvia and Romania) are expected to overshoot the 3% public deficit cap set in the stability and growth pact (SGP). Juncker warned that the time has not yet come to enter a deficit-debt-rising taxation spiral. He said member states had to respect the objective of returning to financial equilibrium in the medium-term, but admitted that on a case-by-case basis, the date at which the deficit would be brought back in line would extend beyond 2010, unofficially ending the guidelines decided in Berlin in 2007. The chairman of the Eurogroup hammered home that he was not planning to relax the SGP rules and would be applying the pact to the letter. The SGP was revised in 2005. It allows a degree of flexibility in the timetable of launching excess deficit proceedings and in the planned return to equilibrium in public finance. This flexibility will apply above all to member states like Germany that have budgetary room to manoeuvre built up during a period of growth, explained EU Economic Affairs Commissioner Joaquin Almunia, listing four factors to be taken into account when deciding whether this flexibility will apply - namely establishing sustainable budget trajectories, the existence of room for manoeuvre, ambitious structural reforms and adopting temporary targeted measures.
What can be done at EU level to boost the economy? Juncker said that he did not think a general relaunch plan was needed but rather targeted, short-term measures. Juncker, who is also the prime minister of Luxembourg, explained to the banks that public guarantees had not been granted because bankers are wonderful but rather, most importantly, to fund the real economy. The accumulated rise in budget deficits for 2009 was a significant fiscal stimulus to the tune of half of the EU budget (€50 billion), explained Almunia, noting the importance of coordinating member states' action at EU level in order to optimise the impact of this stimulus, which could be used to speed up reforms, invest in infrastructure (eg trans-European networks and linking up energy grids), help the most vulnerable and back small and medium-sized enterprises. Following on from its recent report (see EUROPE 9772) and work by the Council, the Commission will unveil measures on 26 November 2008 to boost the action of the member states.
It is not a matter at this stage of reviewing all the different types of sector-specific measures that could be taken at national level. Industries like the car industry and aviation are sometimes mentioned but a diplomat explained that the European Council summit in December would have to note that measures have been adopted (or a general framework of measures). Firstly, however, consensus needed to be built on the benefits of deciding on a general framework at EU level to inspire the member states in their search for solutions to halt the economic slowdown. Any measures in this framework should boost investment rather than consumption.
Would EU coordination of national policies require the appointment of a chair of the Eurogroup from among the ranks of heads of state? Juncker said that it would not be useful to institutionalise a meeting at such a high level. He did not, however, oppose the convening of such meetings when required due to the serious nature of situations, like the first eurozone summit in Paris in October 2008 in order to decide on emergency measures to end the paralysis of the financial markets. Between gritted teeth, Juncker said it was of little importance to him who actually chaired the Eurogroup. In the past, theological debates concerned the holding of a eurozone summit, and now concerned the identity of a possible chairman/chairwoman, and would perhaps in the future concern a future secretariat, wondered the diplomat. Pragmatically, he added that when the circumstances demanded it, an arrangement would be found. (M.B./transl.fl)