EU heading for summit divided over how to steer its economy

13th June 2010, Comments 0 comments

EU leaders will this week seek to overcome fundamental differences, notably between heavyweights Britain, France and Germany, on how to steer Europe's economy out of crisis and keep it there.

The strengthening of European "economic governance" via the coordination of national policies will be at the centre of a summit of the 27 EU heads of state and government in Brussels on Thursday.

The aim is to prevent member states taking decisions on a national basis without considering the potential impact on their European partners.

"The crisis has revealed clear weaknesses in our economic governance, in particular as regards budgetary and broader macroeconomic surveillance," argues a draft statement prepared for the 27 EU heads of state and government to endorse at their summit.

"Reinforcing economic policy coordination therefore constitutes a crucial and urgent priority," adds the text, seen by AFP.

The form of that reinforced coordination remains the source of heated debate.

France leads a group of nations seeking to take the exercise even further, championing more coordination for the whole European Union but full "economic government" for the 16 nations which use the euro common currency

Such an "economic government" would mean regular high-level meetings, led by some kind of president with a dedicated secretariat, to come up with common budgetary initiatives for eurozone members.

Spanish Prime Minister Jose Luis Rodriguez Zapatero agreed, during a visit to Rome last week, saying "the eurozone needs to strengthen its common economic governance,"

His Italian counterpart Silvio Berlusconi also supported the French moves, calling for "attentive governance of the situation for the common currency."

The major problem is that German Chancellor Angela Merkel insists that such economic co-decision making should embrace the whole of the 27-nation European Union so as to avoid creating more of a two-tier Europe.

"She has no wish to find herself in a club with the southern economies which she considers to be too lax as far as the national deficit is concerned," one European diplomat explained.

The debate is also worrying eastern European EU members which are not part of the eurozone.

"As a country that is aspiring to join the eurozone, we would like the eurozone to be a leader but not an exclusive elite within the European Union," Polish Prime Minister Donald Tusk said Wednesday.

He can expect backing from the European Commission, the EU's executive arm, which is very unhappy at the prospect of being marginalised by a new institution outside its control.

Even EU president Herman Van Rompuy, who was initially open to the idea, last week came out against the French idea in order to reassure Germany and the countries to the east.

However Britain will not sign up to anything which could have deep implications for the wider EU and threaten the attractiveness and smooth functioning of Europe's biggest financial centre in London.

Last week Britain also rejected point blank EU plans, to be discussed this week, to let Brussels vet national budgets ahead of domestic lawmakers.

Previous Labour prime minister Gordon Brown clashed with EU leaders over the use of the phrase "economic government," a term deployed by French President Nicolas Sarkozy, when the official English translation was the less controversial "economic governance."

Beyond the question of how broad the stricter coordination should be is the issue of how tightly the budget tap should be turned off.

Some in Europe are concerned that their neighbours' austerity packages will hurt the chances of moving out of the worst recession since World War II and staying out.

The announcement of 80 billion euros of cuts by Merkel was met with concern among many of her European partners.

"This is an anti-European measure," judged one high-ranking diplomat, arguing that Germany has the means to support economic growth and to build out of trouble.

There will be more agreement on the need to boost budgetary discipline under the EU's existing stability pact, which insists that deficits should be kept to three percent of output but has been roundly ignored by most member states.

© 2010 AFP

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