The EU Spring Summit set to challenge austerity

Martin Schulz, President of European Parliament: "Since the last Spring Summit, two million more people have lost their jobs." (EU Parliament Audiovisual services, 14-03-2013 - 19:07 pm, in Brussels).

Martin Schulz, President of European Parliament: “Since the last Spring Summit, two million more people have lost their jobs.” (EU Parliament Audiovisual services, 14-03-2013 – 19:07 pm, in Brussels).

The “Spring Summit” of the 27 EU leaders on 14-15 March unfolding currently amidst the Brussels winter scenery, will be forced to challenge the presently followed economic policy orientation of austerity, under the pressure of major developments. Obviously the Italian elections results and the ensuing political stalemate, set a new background for every political economy exercise to be applied in Eurozone. But probably of more importance is Francois Hollande’s statement from Dijon last Wednesday, when he clarified that the French government budget deficit for 2013 will not be less than 3% of the GDP, as he had predicted some months ago, but close to 4%. The 2012 deficit is not yet known but government sources in Paris say it will be around 4.5%. Hollande made it clear that France cannot accept austerity as the only target for Eurozone’s economic policy and stressed that growth action is also needed.

The European Sting wrote last Wednesday that, “As everybody knows, a less than 3% government budget deficit is Ollie Rehn’s, Berlin inspired economic policy recipe for Eurozone”. In this way Paris widely diverges from Mr Rehn’s instructions as laid out in Commission’s  Country-specific Recommendations 2012-2013 for France, expected to be presented for examination in this EU Summit. Actually in the context of the procedure of the “European Semester”, the Summit is expected to adopt detailed economic policy recommendations not only for the Eurozone member states but for all the 27 countries.

France rejects “recommendations”

In the case of France Ollie Rehn’s Recommendations go as follows: “Reinforce and implement the budgetary strategy, supported by sufficiently specified measures, for the year 2012 and beyond to ensure a timely correction of the excessive deficit and the achievement of the structural adjustment effort specified in the Council recommendations under the Excessive Deficit Procedure”. Understandably any deficit above the 3% of the GDP benchmark is excessive.

Presumably this European Council of 14–15 March is to assess the overall progress made by all member states in implementing the 2012 country-specific recommendations and adopt strategic advice and guidelines. In the case of the 17 Eurozone member states deficit restrictions are much more severe.

So it was not by accident that, two days before the Summit the French President choses to blow up the Commission’s Recommendations for his country and announces excessive  budget deficits for 2012 and 2013. Obviously Paris is making unilaterally the growth policy factor equally important for Eurozone as the deficit reduction measures. The Sting observed on Wednesday that Hollande’s statement “was full of French decisiveness and probably aggressiveness, aimed at putting an end to the German plans for Eurozone”.

Rompuy’s mediation

Seemingly Herman Van Rompuy, the President of the European Council, got the message. As a result in his opening remarks Rompuy yesterday afternoon made clear references to the needed for a compromise between Berlin’s austerity drive and growth supporting budget deficits as Paris wants it. The following paragraph is very characteristic on this. According to Rompuy,“The question is finding the right balance. We won’t overcome a debt crisis with more debt. We won’t create jobs if companies have no access to credit. But neither will we bring back confidence and opportunities if our economies continue to shrink. It’s not black and white. Nuances matter. As some might say, there are many “shades of grey”.

Presumably the outcome of this Spring European Council will be exactly some shades of grey like the menacing winter Brussels skies. However it is not only the French President who contradicts the uniquely targeted austerity policies of Berlin and Brussels. Martin Schulz, the President of the European Parliament had a lot to say yesterday ahead of the Summit. Given that the Treaty of Lisbon gives to the European legislators the right of co-decision, it’s impossible for the Council and the Commission to decide anything without the consent of the Parliament. Schultz  knowing that, didn’t chew his words.

“Poverty and unemployment are spreading in crisis-hit Europe with serious economic, social and political repercussions”, the EU Parliament President warned EU leaders at the start of the European Council on Thursday afternoon. Then he added that, austerity and budget cuts cannot be the only tools for policy-makers, and he went all the way presenting Parliament’s main demands concerning the proposal for the EU’s budget for 2014-2020, which MEPs have refused to endorse in its current form.

All in all the 27 heads of states and governments are not having an easy job in Brussels these days. It will be even more interesting to see what kind of decisions will be taken in the Eurogroup of the 17 Eurozone countries leaders. The Euro summit was expected to convene yesterday night at 22.00 pm. The main role in it was to be held by the Governor of the European Central Bank, Mario Draghi, who was expected to inform the 17 leaders about the economic situation in the euro area. Italy, Greece and Cyprus are supposed to be the main issues on this occasion.

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