The Last Supper
Adelina Marini, May 23, 2012
The EU leaders are gathering tonight in Brussels for a dinner, during which they have to find a way to synchronise their views about a common European approach in boosting economic growth. The context, in which the dinner will take place, is very stressful: governments are falling; populist politicians are on the rise; nationalists triumph; wrath is rising against austerity; Greece is again making the headlines with scenarios for a euro exit (Grexit); Spain is increasing its budget deficit in order to save its banks; one of the most stable and strict member states, the Netherlands, is in a recession and its government fell; Angela Merkel has lost a follower in France.
According to the latest Eurobarometer poll, done for the European Parliament, almost half of the Europeans think that combined measures to limit public spending and to boost economic growth are the best way to end the crisis. 55% of the respondents say that growth measures must be coordinated among the member states. And 80 per cent want the financial assistance for countries in trouble to be conditional.
The year of growth
2012 must be pronounced the year of growth because, after the EU spent two years in reforming its legislation in the direction of financial and budget discipline, economic integration and mutual control among the member states, it started talking about growth. This happened late last year when the glass of patience started to overflow and the EU started to discuss measures to boost growth. It was growth that the first two EU summits were dedicated on - in January and in March. As a result of the pressure from within, from outside (G8 and G20) and by independent analysts, tonight the leaders will again discuss growth.
In a letter to the 27, European Council President Herman Van Rompuy offers 4 main topics, which the talks to focus on. The first is "Sound national economic policies". It is about everything agreed so far - the European Semester (for coordination of budget policies), the Six Pack, which according to Herman Van Rompuy is a cornerstone for maintaining growth-friendly fiscal consolidation and to avoid macroeconomic imbalances. According to the European president, these two key documents, the agreeing of which took less than a year, represent the legal framework that ensures that fiscal consolidation and growth would reinforce each other. During the dinner, European Commission chief Jose Manuel Barroso will present the preliminary assessment of the implementation of the National Reform Programmes, including the measures undertaken under the Euro Plus Pact.
"EU policies bringing added value" is the second topic that focuses mainly on the programme for completion of the single market. A major focus is put on completing work on the common European patent, on which there are a few things left to be agreed. Another key area of the single market is energy efficiency. By the way, the single market was in the spotlight of the Spring European Council as well, because it was contained in the letter of 12 EU leaders who called in 8 points for completion of the internal market because, according to them, this would help growth and would bring relief to the national labour markets.
Jobs creation is the fourth topic in Herman Van Rompuy's invitation to the leaders. According to him, the 27 should concentrate on specific reforms in support of labour market demand in key areas of the economy. But these reforms have to go hand in hand with investments, and these investments have to come from the EU funds. It is expected on this topic Mr Barroso to get involved again in order to report on the ongoing work of the Commission with eight member states that have really high youth unemployment (Spain, Greece, Slovakia, Lithuania, Italy, Portugal, Ireland, Latvia). Besides, ways will be sought to overcome the "skills mismatch", as well as "geographic mismatch". In addition, improvement of recognition of professional qualifications will also be discussed.
The third topic in Van Rompuy's letter is "Measures improving the financing of the economy". The expectations are this would be one of the most discussed topics because it includes many of the ideas that are circulating in the public domain for quite some time. Those are increasing the capital of the European Investment Bank (EIB), the project bonds and the financial transactions tax. Regarding EIB the aim of increasing capital is to mobilise funds to support small and medium enterprises, as well as key infrastructure. In a statement in the European Parliament in Strasbourg on Tuesday, Ivailo Kalfin, MEP (S&D, Bulgaria), called on the leaders precisely for this - to increase the credit capital of the EIB.
Project bonds are another big subtopic with which the leaders will dress their dinner. Since yesterday (May 22) there is an agreement between the European Parliament and the Council of the EU about their creation. The project bonds will be emitted by private companies and will be guaranteed by the European budget which will ensure higher credit rating and will make the projects sounder and more attractive for investors. For the purpose the EU will set aside 230 mn euros for guarantees, while in the same time it is expected to mobilise over 4.5 bn euros of private investments. The idea is the project bonds to be used to finance important infrastructure projects with European impact in the area of transport, energy and IT.
Attracting private funding is crucial because the investment needs in these areas for the period 2010-2020 are estimated to be 1.5 trillion euros. The new instrument will be tested yet this year and next year before becoming an integral part of the next multiannual financial framework (MFF 2014-2020). The Parliament and the Council have agreed for a fast adoption, so that its application can start as of July 2012.
Ivailo Kalfin, too, defended the project bonds, saying they were the only opportunity for a number of countries which cannot afford the necessary investments in reducing unemployment or to implement projects that could boost economic spirit. The leader of the liberals in the European Parliament, Guy Verhofstadt, also supported the project bonds. "We can do more by utilising project bonds and increasing EIB capital. We are - the whole world is - waiting on the Commission to come forward as soon as possible with proposals for a redemption fund. Such an initiative will have a positive effect on the markets and it will be impossible for any EU leader, including Chancellor Merkel, to refuse". (more on the issue of debt sharing you can read later in a separate article on euinside).
The idea of project bonds is supported by the European People's Party too. "We will only get economic growth back on track if the necessary budgetary discipline goes hand in hand with targeted investments. These bonds, aimed at financing projects, will be a very useful tool to relaunch growth in Europe", Dominique Riquet, MEP (France) said, group spokesman on project bonds.
In addition to the topic for funding of the European economy is also the "apple of discord" in the EU - the idea for introduction of a financial transactions tax. This is an issue euinside has been following in depth. Hours before the dinner of the leaders there was again a debate on the proposal in the European Parliament. In his letter Herman Van Rompuy points out that he is fully aware of the divergences of views on the issue but called against shrinking "from exchanging views and hopefully finding a pragmatic way forward". The Eurobarometer poll shows that 66% of the respondents support the introduction of the tax, which many economists warn that it would increase the burden not on the financial sector but on the end-consumers.
In spite of the indeed intense debates, the number of supporters of the idea has grown by 5 percentage points, compared to the previous poll of September 2011. There is, however, a remarkable difference in terms of where the supporters are - 73% of them are in eurozone countries and the strongest this support is in Greece, Cyprus, Italy, Portugal and Spain, while outside the euro area the idea has the support of 53% of the European citizens.
The upcoming dinner will probably not be of the most delicious ones for the German chancellor, who seems more and more isolated in her conviction that the money of the German taxpayers should remain in Germany. With the entry into the Elysée palace of Francois Hollande, the proponents of pouring money in support of growth in the real economy have increased by one. No specific decisions are expected tonight - only the way toward them to be drawn. The decisions themselves should be ready for the June European Council.