Between europhilia and reality
Adelina Marini, May 19, 2011
Europe's efforts to tackle the debt crisis and to save its single currency indeed deserve admiration, but the reality is that there are member states that suffer from severe problems, which they still have not solved. This is one way to summaries the introductory remarks of EU Monetary and Economic Affairs Commissioner Olli Rehn, European Commission President Jose Manuel Barroso and OECD Secretary General Angel Gurria at this year's Brussels Economic Forum. It was held in a very critical for the euro area and the EU at large moment and this is precisely why Mr Olli Rehn called on the participants to take part with their expertise in discussing the measures the European Union undertook in the past year to reform its economic governance.
We still haven't swum to the shore
I was inspired with the metaphor of swimming by Mr Barroso who started his speech with a quote by the well known investor Warren Buffet: "It's only when the tide goes out that you learn who's been swimming naked". Barroso said this to explain that when the crisis hit in 2008, some Europeans were quick to point a finger at the United States, "as if Americans were the only ones swimming naked and Europe was beyond reproach". The truth however is, according to him, that the global financial system as a whole was swimming naked and all needed to continue their efforts to cover up.
Olli Rehn was far more honest by admitting that the shortcomings of the coordination of economic policy were evident and that not enough attention was paid to the potential of unsustainable debt dynamics, "and even when these problems were identified the Stability and Growth Pact (SGP) lacked the necessary teeth to the effectively restrain imprudent policies in the member states". Yet last year the Commissioner identified that the Pact lacked teeth and this led to overhaul of the economic governance, of which euinside wrote in details.
Olli Rehn made another confession by saying: "We completely ignored the broader macroeconomic imbalances, such as asset price and private credit booms, large current account imbalances and the erosion of competitiveness". For the purpose, he mention that the EU came up with a package of 6 proposals for a reform, the purpose of which was strengthening the Stability and Growth Pact, introducing surveillance of macro economic imbalances, enhancing the policy of coordination.
In the very beginning of his speech Mr Rehn made a short review of the current situation, by quoting European Commission forecasts, published last Friday. In his words, in 2012 it is expected the EU to reach the pre-crisis levels of production, "which means basically that now we cover the four years we lost during the financial crisis and economic recession, we are returning to GDP level of 2008 next year", he added. The Commissioner noted another very important thing in his words, that these improved data were despite the political changes in the Middle East and North Africa, despite the natural and nuclear catastrophe in Japan, as well as despite the ongoing tension on the sovereign debt markets over certain member states.
Although he mentioned that he was not trying to say that everything was fine and named the problems, Olli Rehn was indirectly challenged by the Secretary General of the Organisation for Economic Cooperation and Development (OECD), Angel Gurria. He expressed fears that unless structural reforms were implemented in the most vulnerable and worst hit euro area member states, there was a real danger of stagnation. "Stagnation could possibly also emerge from persistent deterioration of the structural and business environment. Such risks are present in the euro area, where some economies have experienced stagnation-like growth over the recent past. All this suggests that the global crisis is not over yet. [...] OECD projects and suggests that if nothing is done, the pace of growth in the euro area over the next 15 years will be about half of what it has been since 1995", he vigorously said.
The countries whose name should not be mentioned
Neither Angel Gurria, though, nor Olli Rehn or Jose Manuel Barroso named the countries that are eurozone's biggest problems. On the most probable suspect - Greece - the statements were as follows:
Olli Rehn: "It is clear that Greece has to seriously reinforce the implementation of the economic reforms and the privatisation programme before any new steps may be taken".
Jose Manuel Barroso: "Moreover, to those who observe the implementation of the existing programmes, it does not help to come every day with new ideas or new conditions. Priority must be given to decisively implement what was agreed. In politics, and in economics, sticking to the course is a virtue and a must, and it is what we must do now. And let me be absolutely clear: debt restructuring could never be an alternative to the admittedly painful adjustments that need to be implemented".
Angel Gurria: "I want to say here it is a very different case the fiscal case of Greece, I like to say it was a bit of a rounding problem, you know - with that be a 4% it was close to 14".
Olli Rehn named Greece this way in the context of his explanation that the programmes, approved as a precondition for payment of the bailout, had been necessary "to prevent further seismic shocks into the European financial system and to the wider European economy". Against the backdrop of the return of Greece to the headlines with speculations about whether it will default, leave the euro area or beg for another bailout, Olli Rehn's statement has a very clear direction and it is Athens. European Commission President Jose Manuel Barroso was even more determined in his statement, although he did not mention Greece by name.
The quote we showed you above in fact is directed not only towards the ruling parties in Greece, but also to the majority of politicians and analysts who let in circulation the hypotheses not just of an upcoming restructuring of the Greek debt but of this being negotiated currently at certain EU levels, as euinside wrote. But for Angel Gurria, whose analysis is actually a look from the outside, Greece is only a part of the problem, no matter that it is in its essence different from those in Ireland and Portugal, as of the latter he said that its problems were self-inflicted.
Let us count ourselves - who is a europhile?
The OECD Secretary General's statement, in fact was the most flamboyant in the first part of the morning panel, which went on under the title: Strengthening European economic governance - Surveillance of fiscal and macroeconomic imbalances. He started like this:
"In 1969 I started working at the Mexican Federal Electricity Commission and that particular entity of the Mexican government was attempting to float a bond issue in European Units of Account. You had to calculate and weight of 14 different currencies in order to calculate just what interest payments you have to make every month. And of course, we were exchanging the text of the brochure for the selling of the bonds and making the corrections by telex. Most of you don't know what the telex is. [laughter] I say this because that was my first operational contact with Europe and with the efforts of Europe to have a single currency and with the effort of Europe to develop a single market. I suppose that makes me a europhile, which I confess I am", Gurria said, causing applause in the room.
But are the financial markets europhiles or europhobes? The answer should be that this does not matter. What matters is the long term perspective the debtors to be able to pay their debts. And if Europe had allowed in its rows people who have a problem with the rounding up or with working till late, this is a problem it needs to solve on its own. The question is which Europe - Europe of the member states or the other one - of the institutions. Part of the problem is that there still is a difference.