Eurozone mess forces hand of economic government

17th March 2010, Comments 1 comment

The mess the eurozone finds itself in, with an unprecedented contingency plan now drawn up to bail out wayward countries like Greece, has forced Europe to sketch out a new form of cross-border economic government.

Brussels -- An agreement to design terms for bilateral loans from partner countries that share the euro currency instinctively cuts against the grain of decisions taken when the currency was launched 11 years ago, expressly to prohibit bailouts for fear of encouraging imprudent spending.

It marks the first major step toward building a system where economic policy is coordinated across the many and varied landscapes of the 16-nation area.

"It was absolutely necessary to reach a deal to establish a system for financial aid to countries facing budget problems," said Paul de Grauwe, economics professor at Belgium's University of Louvain.

That said, "if there is no intervention at a structural and institutional level, there will be more crises and once again huge problems trying to manage them."

Over and above the short-term ramifications of Greece's immediate difficulties in even vaguely balancing its books, the eurozone as a whole is concerned with a lack of cohesive management of its assets.

Jean-Dominique Giuliani, head of the Robert Schuman Foundation think-tank, sees the Greek plan as "a positive step towards more lasting solutions" that could lead Europe to "progress towards the achievement of complete monetary and economic union."

Notably, the debate has moved toward the creation of a European monetary fund to deal with internal problems, a German-driven regional version of the International Monetary Fund (IMF).

Others have advocated related ideas such as the creation of a European debt agency or even a ratings agency in order to combat the influence of external bodies who can send the currency's value tumbling with individual downgrades.

Germany wants to see very strict conditions attached to any future aid, and imagines a so-called EMF as a battering ram for enforcing much tighter budgetary discipline on countries.

Berlin ultimately wants the scope to kick repeat offenders out of the bloc as the final deterrent.

For de Grauwe, that would "signal the end of the eurozone" because "as soon as certain conditions are introduced, certain states could be chased out, meaning the end of the union."

What European capitals have begun to do instead is to ask questions about what the economic priorities should be for each member, under the goal of greater harmonisation.

Some, such as France, see a need for others, namely Germany, to adopt policies that favour more equal competition, particularly when it comes to Germany's huge export strength.

All of which feeds friction over the road ahead, as underlined in a football analogy from German Finance Minister Wolfgang Schaeuble

"If Olympique Lyonnais played a little worse, things would be easier for Bayern Munich, but that's not how the politics of (economic) competition work," he said.

Ministers touched on such growing discord over the way forward during Monday night talks, and the European Commission is due to come forward with proposals on how to iron out national discrepancies around the middle of next month.

For Fabian Zuleeg, an economist with European Policy Centre analysts, "it is perfectly natural that there are very different ideas on the table" during such a phase of introspection.

AFP / Expatica

1 Comment To This Article

  • A. Cameron posted:

    on 17th March 2010, 11:07:03 - Reply

    Of course, if people did a decent day's work in sunnier climes, these problems wouldn't arise. And if they were paid enough to give a damn, they might do a decent day's work. And if the glutinous bosses and politicians weren't lining their own pockets ...