Brussels, 10/03/2009 (Agence Europe) - Economic forecasts confirm greater downturn for the current year. Recent forecasts by the European Central Bank (ECB) services, the latest industrial productivity figures and various confidence indicators - all point to a worse situation than expected, the Eurogroup president said on Monday 9 March.
Deterioration in economic prospects for 2009. During the meeting, Jean-Claude Juncker was very clear, saying: “We can see that the economic situation has grown considerably worse since our last meeting in February and that there are no massive indicators to show things are getting any better”. According to the Luxembourg prime minster and finance minister, “all forecasts and all indications available to us show excessively negative aspects”. There is no doubt that the “recession we are going through is deep and exceeds in magnitude and force that of the early nineties”, he said. ECB figures, which predict a fall in growth of between -3.2% and -2.2% for 2009 (EUROPE 9855), are below all previous predictions, especially those of the Commission (-1.9% in 2009 to present). The Commission is expected to review its forecasts downward in May. On Monday, the economic and monetary affairs commissioner, Joaquin Almunia, had confirmed that risks identified previously are now materialising and that the prospect of recovery beginning in 2009 is fading. Hitherto envisaged for the end of the year, the hypothesis of gradual recovery is “put off till 2010”, Mr Almunia said. Although the economic recovery packages will have an effect, it is still too early to truly calculate the impact they will have and “recovery will take longer than we thought a few months ago”, the commissioner said.
No new recovery plan in sight. Until the effects of the economic recovery measures already decided are known, the eurozone does not plan to set any new measures in place, dismissing this eventuality as firmly as the demands for this from the United States in recent days have been pressing. “We (i.e. the 16 members of the Eurogroup) agreed that recent American appeals consisting of demanding an additional budgetary effort of the Europeans to combat the effect of the crisis do not suit us, in so far as we are not willing to increase the economic packages that we ourselves put together”, Mr Juncker told the press. “We do not wish to give the impression that we are reflecting on starting up new economic packages”, he said, as “Europe and the Eurogroup have already done what they had to do”. The volume of recovery efforts (discretionary state measures, play of automatic stabilisers and the effort made by the Community budget and the EIB) represents 3.3% and 4% of the EU GDP and “we feel we should not have to add to this effort”, Mr Juncker said, preferring to wait until the impact can be assessed rather than increase deficits. The effect of recovery measures will be felt gradually, some taking more time than others, but it will be possible to measure most of the impact “during the year 2010”. For now at any rate, “we do not believe we should add deficits to deficit and elements of debt to the elements of debt that we have already lined up”, he said.
Return to consolidation will take shape. On the other hand, it is possible to assess the weight of recovery measures for public finance without waiting to see what their effect will be on the economy. The Eurogroup is thus “in agreement to restate that we need a strategy to take us out of the worsening public finance situation”, Mr Juncker pointed out with a view to “giving more precision on the exit strategy” during the first half of the current year. The definition of adjustment tracks for excessive deficits of six EU member states, if not seven (if one includes the United Kingdom), will be a first indication of consolidation efforts to be made. In their contribution to the European Council, the EU27 finance ministers also provide that member states should begin to change track in 2010, or 2011 for those with greater margin of manoeuvre (EUROPE 9856), but for the time being the prospect of a new deadline for restoring balance in public finance is still vague (it should not be envisaged until the next Commission economic forecasts are known).
Debate on criteria for eurozone accession is now closed. “In this time of excessive volatility, the time is not ripe to launch a debate on the definition of criteria for acceding to the eurozone or on a new interpretation of our criteria”, the president of the Eurogroup said, before closing the debate on speeding up the accession procedure. It is not a matter of fetishism, but in an Economic and Monetary Union (EMU) without central authority, “it is obvious that the whole system must be based on a body of regulations” set out in the Treaty and the Stability and Growth Pact. “It is not a question of changing accession criteria. It is not a question of reducing the amount of time, from two to one year or less, that a member state wishing to join the eurozone has to spend in the European Exchange Rate Mechanism (ERM II)”, he stressed. “We stay with the criteria as defined by us and which make up the credibility of the monetary union as such”. In his view, “consolidation begins first of all in each country” and “the instruments that we have at our disposal allow us to respond to all situations that may crop up during the months to come”, especially possible new requests for balance of payments support (see related article). A case by case approach must therefore prevail, Mr Almunia said. (A.B./transl.jl)