29 October 2013

Dijsselbloem says budget extensions should be tied to reform

According to the Financial Times (subscription required), Mr Dijsselbloem’s remarks followed a speech in which he raised concerns that Brussels’ new "leniency" in austerity  demands was coming "without any conditions". 

The Frankfurter Allgemeine Zeitung reports that the basic idea of Dijsselbloem's proposal recalls the principle of the reform programmes to which "programme countries" - Greece, Ireland, Portugal and Cyprus - are subject. They receive financial aid from the euro crisis fund ESM and the International Monetary Fund (IMF) and must not only consolidate their finances in return, but also reform their economies and labour markets. In the original Stability and Growth Pact (SGP), concessions linked to mandatory reforms do not feature. 

The FT further reports that Dijsselbloem's proposal comes amid growing angst in several EU capitals, including Berlin, that recent market calm has led to a flagging of reform efforts in the periphery – particularly in Italy. Many officials worry that, while taxes have been raised and budgets cut in many countries, economies remain structurally uncompetitive. This is because politically difficult liberalisations have lagged behind, making a return to growth more difficult. France, Italy and Greece have come in for particular criticism.  

Dijsselbloem's proposal to amend the EU Stability Pact was met with reluctance, especially in the northern European countries, writes the FAZ. Both the European Commission and the Federal Government on Tuesday commented that Dijsselbloem's ideas had in principle already been realised in the recently adopted reform of the Pact. However, the Dutch Minister's proposal seems to seek less a further tightening up of the pact, but rather intends to stimulate the ongoing debate over which European instruments can be used to enforce structural reforms. 

The issue of ensuring weaker eurozone economies do not slacken reform efforts was also raised anew at last week’s EU su mmit. Angela Merkel, German Chancellor, again urged "contractual arrangements" between all eurozone governments and Brussels binding them to reform programmes. Only 10 per cent of the recommendations by the Brussels executive to the EU Member States had been implemented in 2012, Angela Merkel criticised at the EU summit. Her claim was backed by Jörg Asmussen, the German representative on the Board of the European Central Bank, who said that with the Stability and Growth Pact, the "in principle correct method of economic policy coordination in Europe" did in fact "not work properly", the Spiegel and EU-info report. EU Monetary Affairs Commissioner Olli Rehn, however, defended the Pact, saying that the European Semester was "an unprecedented deepening of economic integration" and "works": budget deficits had been successfully halved since 2010. 

Although the idea of such contracts had fallen out of favour since being raised by the European Commission last year, EU leaders agreed on Friday that their "main features" will be addressed at their December summit. Mr Dijsselbloem said his proposal was not intended as an alternative to the German-proposed "contracts" but followed the same line of thinking. In practice, however, it should be easier to enforce, writes the FAZ, as it would not involve treaty change.

Angela Merkel's proposals for giving the EU greater powers over eurozone members’ national budgets to EU Council President Herman Van Rompuy (a move which would require EU Treaty change) was also addressed by OpenEurope two weeks ago. They wrote that Merkel will reportedly insist on legally enforceable contracts between the Commission and individual Member States, setting out their obligations for maintaining budgetary discipline and improved competitiveness. In return, Germany could agree to a eurozone budget which would amount to tens of billions. The issue of treaty change remains contentious and might be "the opening that David Cameron has been looking for to force through EU reforms" but remains highly unpopular in France.