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Economic Policies Impacting EU Finance
27 April 2012

Bloomberg: Merkel must pitch in to make Europe's growth pact work


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Stung by a backlash against austerity policies, Europe's leaders are planning to draw up a new agreement aimed at boosting economic growth in the euro area. If they want the pact to have any effect, all the region's politicians - and particularly Merkel - will have to step out of their comfort zones.


Vague battle lines have already been drawn. Merkel and European Central Bank head, Mario Draghi, want to encode the kinds of labour market, pension system and other so-called structural reforms that’ll make the likes of France, Greece and Spain more competitive. French presidential front-runner, François Hollande, wants infrastructure projects, funded by special purpose European bonds, to boost jobs and demand.

Whatever other ideas might arise before the agreement is drawn up, possibly as soon as mid-June, it must include at least three elements if it is to really help reverse Europe’s recessionary trend.

First, Europe’s leaders must recognise that common deficit rules alone will not guarantee the currency union’s survival... Second, the agreement should give Spain and Greece in particular more time to bring down debts piled up over the past 30 years... Finally, the pact should acknowledge one of the most immediate requirements for a return to economic expansion: Recapitalisation of private sector banks so that they can start providing businesses with more credit. Without that, Europe is doomed to anaemic growth and a persistent confidence crisis, no matter what documents its politicians may sign.

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