Summer pause gives time to rethink Eurozone’s problems

Olli Rehn, Vice-President of the EC in charge of Economic and Monetary Affairs and the Euro (on the right), received Jack Lew, US Secretary of the Treasury. (EC Audiovisual Services, Brussels).

Olli Rehn, Vice-President of the EC in charge of Economic and Monetary Affairs and the Euro (on the right), received Jack Lew, US Secretary of the Treasury. (EC Audiovisual Services, Brussels).

The United States Secretary of the Treasury Jack Lew on his way back to Washington from the G20 meeting in Moscow made a stop-over in Athens on Monday to meet the Greek Prime Minister Antonis Samaras. Probably this is not major news. However, what Lew said under the Acropolis about his encounter with the German Minister of Finance Wolfgang Schäuble in the Russian capital, is surely of great interest.

Reportedly the American visitor told the Greek PM that Germany is expected to relax its austere attitude towards Greece and consequently vis-à-vis the entire southern Eurozone. Even if Schäuble didn’t say it straight away, the fact that Lew mentioned that to his host in Athens has its own value. The truth is that both Greece and Portugal have problems in applying their troika (European Commission – European Central Bank – International Monetary Fund) imposed austerity programmes while Italy’s fiscal performance is a big question mark for Brussels and Berlin. Eurozone is also in dire-straits with its banking sector, where the big lenders have to either cut down their size and assets or urgently find a hell lot of more good quality capital. Let’s take one thing at a time.

Fiscal deficits

Undoubtedly the summer pause will offer the opportunity to Eurozone’s decision makers to rethink the single euro money problems. The fact however that the euro appears unbending with the dollar and the rest of the major world currencies is an infallible sign that Eurozone is not cornered. As luxury is a standard in Europe, seemingly the old continent has also the luxury of more time to fix its imbalances.

As of mid-July, EU legislators abandoned Brussels and Strasbourg and returned to their constituencies. Before leaving though they told us that in September they will address the two burning Eurozone problems, that is fiscal excesses and bank supervision. The relevant Press release goes like that, “MEPs are taking a break from official meetings the coming weeks, but behind the scenes work will continue to prepare for important legislative files later this year. Parliament will have to decide on matters that will affect the EU and Europeans for years to come, such as the long-term budget, banking supervision, data protection and better protection for temporary workers”.

Of the issues mentioned above budgets and banking supervision are of key importance for the “years to come”. On both accounts the Parliament has shown a remarkable resilience and legislators have already accepted a tough Multiannual Financial Framework 2014-2020 for EU institutions’ spending. This seven years long EU budget comprises fewer resources than the previous one for the 2007-2013 period. In this way the EU Parliament has greatly contributed in cutting down government budget deficits all over the 28 membered EU.

Oversized banks

Passing to the issue of banking supervision, the Parliament has no reason to counter the supremacy of the European Central Bank. In reality this project is in a very advanced stage of implementation, with the ECB having been very active for quite some time now organising and manning its independent bank supervision department, after given the green light from the Council, the Commission and the competent Parliamentary committee. What is still pending for the realisation of the European Banking Union is the OK from Germany for the Bank Resolution Mechanism.

No doubt that the creation of the European Banking Union will herald a new era in European Union, probably not for all of its 28 member states. However for the 17 Eurozone countries which will all participate plus the willing of the other 11 member states, the banking union will be a giant step towards a common confrontation of both problems; the excess indebtedness of the southern part of Eurozone and the weak capital position of the banking sector. For one thing ECB’s supervision over banks will gradually cut off the umbilical cord between sovereign debt and national lenders, while the Bank Resolution Mechanism will take care of those financial firms which may prove not viable. Hopefully before the end of 2014 the EU Banking Union will be in place.

Greece and Portugal

The next crucial issue the EU has to confront from September onwards is obviously the political uncertainty and the weakness of Greece and Portugal in effectively controlling their government deficits and debts. The same is true for Italy and Ireland but in a much less urgent way. Not to forget that Italy has just exited the excessive deficit category after a ground-breaking Commission decision. As for Ireland, the country is judged by the troika of EC-ECB-IMF as effectively applying its fiscal consolidation programme and expected to be able to come out to the capital markets on its own account later on in 2013 or in early 2014.

In reality this arrangement leaves only Greece and Portugal in the red zone. In both countries the problems are twofold. On the one side, their political establishment seems impotent to plan a long-term exit from the fiscal deficits region. Secondly, there is a persistent tendency of more and more private debtors, households and business alike, being unable to serve their obligations. This is an obvious repercussion of the deep recession both economies are still in. In this respect the question that Brussels and Berlin face is what policy line to follow? Relax the austerity programmes or reinforce economic growth with more loan injections from outside sources like the European Investment Bank, the EU or direct aid from Germany? Up to now both methods are used, but in a restricted way.

The good side is that both countries taken together account for a very tiny part of Eurozone’s economy. If Eurozone didn’t face an acute banking problem itself, Greece and Portugal would have presented not a major issue. In any case after the German elections of 22 September, Berlin would have more manoeuvring space to tackle this matter and fortunately there is ample time for that.

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

Stopping antimicrobial resistance would cost just USD 2 per person a year

The Ukrainian crisis to destabilize Europe and the world for a long time

Impacting society with digital ingenuity – World Summit Award proclaiming the top 8 worldwide

MARKUP initiative to boost market access to Europe for East African SMEs

EU budget: Commission proposes most ambitious Research and Innovation programme yet

The Parliament paves the way for the creation of the European Banking Union

Syria: Why did the US-Russia brokered ceasefire collapse? What does the duo care for?

Libya: Attack on foreign ministry, an attack on all Libyans, stresses UN envoy

DR Congo elections: ‘Excessive use of force’ in campaign must be avoided, says Bachelet

ECB’s Draghi favours a cheaper euro to serve all Eurozone countries

How many more financial crises in the West can the world stand?

Cultural Intelligence: the importance of changing perspectives

Why the merchant ships can pollute the atmosphere with CO2 quite freely

Here’s how we can tackle the growing cybersecurity skills gap

70 years after the Universal Declaration of Human Rights, this is why we need dignity more than ever

How telehealth can get healthcare to more people

Why South Africa is on a path of economic renewal

G20 LIVE: The European Sting covers online world news and the latest developments at G20 from Antalya Turkey

US prosecutors now target Volkswagen’s top management, upsetting Germany

Hollande protects the euro from the attacks of extremists

UN rights experts call on Russia to release Ukrainian film-maker whose life is in ‘imminent danger’

‘Collective endeavour’ needed to strengthen peacekeeping further, says top UN official

Boom in Artificial Intelligence patents, points to ‘quantum leap’ in tech: UN report

Is Haiti better prepared for disasters, nine years on from the 2010 earthquake?

Eurostat confirms a dangerously fast falling inflation in Eurozone

‘Global care crisis’ set to affect 2.3 billion people warns UN labour agency

DR Congo: Ebola response resumes despite ‘risky environment’

All sides in Yemen conflict could be guilty of war crimes, UN experts find

Eurozone: The cycle of deficits, debts and austerity revisited

European Youth Capital 2019 announced: Novi Sad, Serbia

We have to fight for a fairer tech industry for women

European Banking Union: Like the issue of a Eurobond?

Capitalism’s greatest weakness? It confuses price with value

Trump to subject the Fed, challenge the ECB and make Wall St. bankers even richer

Restoring prospect of peace in Middle East is ‘our shared responsibility’ UN envoy tells Security Council

How banks should prepare for robots going rogue

Medical Education is #NotATarget

Armenia should take vigorous measures against entrenched corruption

The EU pollution rights trading system frozen

UN chief hails victory of ‘political will’ in historic Republic of North Macedonia accord

The EU Consumer Policy on the Digital Market: A Behavioral Economics View

European Commission adopts new list of third countries with weak anti-money laundering and terrorist financing regimes

The EU Commission implicates major banks in cartel cases, threatens with devastating fines

US-North Korea summit ‘an important milestone’ towards denuclearization, says Guterres

Migration crisis update: lack of solidarity not only among EU leaders but also EU officials

More urgency needed to help increasing numbers ‘locked out’, before 2030, says UN’s Bachelet

Solutions for cultural understanding: medical students’ perspective

“Our house is on fire.” 16 year-old Greta Thunberg wants action

Venice will now start charging tourists an entrance fee

Did Draghi ask the Germans to accept a drastic change of austerity policies?

Facebook and Google to treat Europe as the 51st State of the USA

How China raised the stakes for electric vehicles

The deforestation risks lurking in the banking sector

EU to lead one more fight against climate change at G7 summit

Trade, taxes and other takeaways from Li Keqiang’s speech to the World Economic Forum

How well you age depends on what you think of old age

Why Sweden’s cashless society is no longer a utopia

How and why Mercedes fakes the EU fuel consumption tests

Eurozone: Negative statistics bring deflation and recession closer

The Americans are preparing for the next financial crisis

The rise of alternative medical practices in modern sports

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s