- December 27th, 2011
- Posted by 7thmin
The push will be on in the New Year to extend the powers of the European Union, in the hope of it dealing better with challenges like the debt crisis.
More in the short-term, with the threat of a general recession, new efforts will be focused on setting up the permanent guarantee fund, the European Stability Mechanism, by mid-year; and on the possible issue of joint European bonds, guaranteed by governments in a group.
Disputes will go beyond immediate action, to wider ideas of what â€œEuropeâ€ should be, whether a collection of states, or a closer union more on the federal plan. Â
KEEPING THE SHOW ON THE ROAD
â€œWe need to get through Christmas and keep this ship afloatâ€.
That comment attributed to a senior diplomat with the European Union describes the present mood, all parties readying for new trials over the EU economy and its unruly finance sector.
Slow growth since the global financial crisis of 2008 has led to concern that all countries may see recession in the new year.
It is not seen as a depression, but the fear instilled in the 1930s comes back, where contraction looks to be everywhere.
Heavy borrowing and spending, and unsound investing up to 2008 broke banks and compromised the budgets of governments that hurried to take over their bad debts.
On the money side, financial markets saw a crisis, which by common definition is a situation of great danger and great opportunity, and reacted accordingly.
Speculative pressure extended to testing of government resources, forcing up their bond rates; commercial â€œratings agenciesâ€, though not seen as great judges since their disastrous failures of 2008, have then read off the obvious facts of the situation and posted â€œdown-gradesâ€ for whole countries.
WHAT ABOUT NOW â€“ AT END-2011?
The small economies of Greece, Portugal and Ireland suffering most in 2011 from the squeeze on government resources, obtained help from their partner countries in the Eurozone; Ireland has reportedly been pleasing the auditors in its efforts to trade out of trouble, Greece at the other end is seeing depression-like conditions and terrible social discord.
Ten summits of EU heads of government during the year saw the setting up of ever larger reserve funds to give state borrowers access to better than commercial rates.
That looks to have eased the crisis, but not solved it at all; as in one prognosis from the Wall Street Journal: â€œThe Euro is poised to finish the year much where it began: whipsawed by Europe’s debt tinderbox while holding to potentially flimsy support. Selling pressure has abated on Spanish and Italian government debt, at least briefly, although thin market conditions are exaggerating moves in both directions. Both countries remain likely candidates for downgrades of their sovereign-credit ratings, as do Germany and France …â€
TIGHT BUDGETS â€“ MAYBE NEEDED; DO THEY HELP?
An austerity nostrum has been applied to states that have been going over agreed limits with their spending or borrowing, like Greece, and spectacularly, as always, Italy with its distended public debt.
It makes sense, that if you need to pay back on over-borrowing, you cut back; except that, withdrawal of government services and support -government money- also slows down economic activity; making recovery, and actual debt recovery less likely.
BATTLE FOR THE EURO
Great concern fixes on retaining the Euro currency.
Seventeen of the 27 EU states, to date, are in the â€œEurozoneâ€, distributing the banknotes and coin, and signed on to conditions meant to standardise value and make the currency viable: fiscal measures mainly, taking in permanent guidelines on budget deficits, inflation and official interest rates.
They are not wanting to forego the imposing advantages of the Euro to internal trade and commerce, but in places they are under pressure to pull out, reverting to â€œnationalâ€ options, like wholesale defaulting on national debt, devaluation of currency, or a bout of high inflation.
It is an â€œongoing near-death experience of the Euroâ€, as said by the Guardian at the start of December, â€œas Southern European governments buckle under the pressure of paying back their debts at ever-higher rates of interest, and even formerly â€˜respectableâ€™ economies such as France and the Netherlands feel the chill wind of market scrutiny …â€
The same commentary considered the preferred major remedy, a strengthening and further expansion of the European institutions, to enable more detailed and coordinated economic and financial management:
â€œThe counter-offensive is to be a risky route march to a form of economic and political union; it is likely to be deep, far-reaching and problematic. Brussels will exercise unprecedented powers of intervention over national budgets, tax policies and labour markets…
â€œThe buzzwords in the corridors of the Commissionâ€™s Berlaymont building in Brussels are â€˜discipline, surveillance and enforcementâ€™.â€
EXTENDING POWERS OF THE EU
The European Commission President, Jose Manuel Barroso (picture), has been quoted as saying a monetary union and currency needed also an economic and political union â€“ or otherwise be a man with one leg, unable to walk properly.
So, while fanciers of a â€œlittle Europeâ€, as the outcome of crisis, engaged in talk of defaults on sovereign debt, exits from the Eurozone, setting-up ofÂ brass razoo currencies, even the break-up of the European Union; the mainstream response for 2012 looks to be, to have another go at extending the EU further, by treaty.
Extension when attempted in 2005 was knocked back by voters in referendums in France and the Netherlands, and delayed, but came back in modified form as the Lisbon Treaty; so the plan might get support.
THE BRITISH PROBLEM
It has taken a blow already, though, at the pre-Christmas summit of European leaders (9.12.11), when the British announced they would not be in it.
The Prime Minister, David Cameron (picture), said heâ€™d been refused special rebates, wanted in view of the large finance industry in the neo-liberal-minded United Kingdom.
â€œIt was a treaty with proper safeguards or no treatyâ€, he later told the parliament in London.
The Opposition leader, Ed Milliband, worried that â€œbeing left aloneâ€ would remove benefits drawn from free association with the countryâ€™s main group of business and trading partners.
â€œIt is bad for business, it is bad for jobs, and it is bad for Britainâ€, he said.
There would be no point in admitting a veto to individual member states, if member states could not ever use it, though the fact that it should be Britain, home of â€œEuroscepticismâ€, always the curmudgeon on European solidarity, stirred up its critics â€“ plenty of those to be found on the floor of the European Parliament.
Jose Manuel Barroso said a hold-out attitude seeking exemptions â€œmade compromise impossibleâ€, but he reported success in keeping EU member states together, over the currency issue being wrestled with by the 17 in the Eurozone.
A â€œ17/10 splitâ€ had been averted, he said, when the EU leaders decided to bring forward the start of the ESM – the European Stability Mechanism â€“ to the middle of 2012.
SETTING UP THE BACK-UP MONEY â€“ ESM
Set to be the subject of intense work and consultations this January, the ESM is designed as a fund drawing on new financial monitoring powers of the EU, to follow trends and provide warnings; and will take over from the present temporary arrangement set up to assist Greece and other states in trouble in 2011, the EFSF â€“ European Financial Stability Facility.
The EFSF has committed â‚¬190-billion (A$244.7-billion; xe.com, 27.12.11) to date, leaving it with â‚¬250-billion (A$321.9-billion) available, and the EMS, as envisaged this month, would be provided with a further â‚¬250-billion.
Despite serious questions about timing and the sourcing of such money if it has to be used, the President of the European Council, Herman Van Rompuy (picture), was optimistic about the strength of member governmentsâ€™ support for it (12.12.11).
Not quite showing the UK delegation the door, he hailed the interest of â€œnon-Euroâ€ countries in supporting the scheme.
â€œThey recognise the Euro is a common good.
â€œI know it will be close to 26 states; in fact 26 indicated they would participateâ€, he said.
EURO-BANK, AND EURO-BONDS
The European Central Bank, in the meantime, remains the main guarantor for government borrowing, and there is the further proposal, for the issue ofÂ â€œEuro-bondsâ€; government paper jointly backed by the Eurozone partners, to distributed risk — an idea still lacking key support, most notably from Germany.
BACKING THE EUROPEANÂ IDEA
The European idea continues to get strong support from many quarters, which will be behind the push for more powers for the joint enterprise, the EU.
The former Belgian Prime Minister, Guy Verhofstadt, now leader of the 85 centre-right Liberals and Democrats in the European Parliament, gave a speech indicative of that sentiment (2.12.11), warning the leaders of France and Germany against any equivocation, to serve their perceived national interests.
â€œIt is the inter-governmental Europe of nation states all selfishly fighting their own corners that has brought us to where we are now. The only way out of the crisis without destroying the Single Currency and the Single Market is to rally behind the community method based on solidarity and the common interestâ€, he said.
â€œEuropean construction is based on commonly agreed rules, enforced by independent authorities like the European Commission and Court of Justice …
â€œThe elements of a solution are already on the table … We need greater fiscal discipline from all member states of the Eurozone along with a commitment to solidarity which must include a common vision to reduce public debt with some form of mutual guarantee.
â€œWe may need to entrench these principles with a Treaty update … now, not in several months time.â€
AFP, Paris,”Britain warned of recession risk because of eurozone crisis”, 27.12.11.
Aditya Chakrabortty, â€œThe Euro crisis deepensâ€, The Guardian, Manchester, 26.12.11. http://www.guardian.co.uk/world/2011/dec/26/euro-crisis-2012-eurozone?newsfeed=true, (27.12.11).
ALDE-PRESS, Briusels, Verhofstadt reaction … â€œInter-governmentalism is not the answer to the crisisâ€, (media release), 2.12.11.
Javier E. David, â€œEurope’s Debt Still a Focus for Euro Tradersâ€, WSJ, NY, 27.1.211. http://online.wsj.com/article/SB10001424052970204552304577116860157891218.html, (27.12.11).
Jan Strupczewski, “Euro zone leaders may raise ESM, EFSF capacity limit”, Reuters, London, 6.12.11. http://www.reuters.com/article/2011/12/06/us-eurozone-funds-idUSTRE7B52NA20111206, (27.12.11).