The Commission tells Berlin it is legally obliged to help Eurozone out of stagnation

Press conference by Olli Rehn, Vice-President of the European Commission, on the Autumn Fiscal Package 2013. (EC Audiovisual Services, 15/11/2013).

The time has come and the European Commission gave to Germany in writing, what has been so far aired orally. In this respect, Brussels tells Berlin that it is legally obliged to abandon its egotistic austere and protective policies and help itself and the entire Eurozone enter again in a sustainable growth path. Let’s take one thing at a time.

The EU’s executive arm yesterday published the first ever budgetary surveillance package, covering all EU member states with special focus on euro area countries under the enhanced economic governance procedure (‘two pack’ regulations). At the heart of the package are the first ever opinions on the draft budgetary plans for 2014, submitted by the 13 euro area countries not under an economic adjustment programme (all except Cyprus, Greece, Ireland, and Portugal). Those last four euro area members are under special surveillance, receiving financial aid from the troika of European Commission, the European Central Bank and the International Monetary Fund.

Close surveillance

Olli Rehn, European Commission Vice President in charge of Economic and Monetary Affairs and the Euro, while presenting the first such package covering 13 euro area Member States and 3 non-euro Member States said: “We have reached a turning point on the road to economic recovery and today we reach a milestone in the implementation of Europe’s strengthened economic governance…in an economic and monetary union, national budgetary decisions can have an impact well beyond national borders. Member States have given the Commission the responsibility to issue these opinions and I trust that they will thus be taken on board by national decision-makers.”

In detail, the Commission aired its opinion firstly on countries with excessive budget deficits namely Belgium, Spain, France, Malta, the Netherlands, Poland, Slovenia and Slovakia. Out of those member states Spain, France, Malta, the Netherlands and Slovenia have received new Excessive Deficit Procedure (EDP) recommendation this year. As a result, they have laid out plans for structural reforms with a budgetary impact. For Croatia, Lithuania and Finland, presently not under EDP the Commission has sent reports to the Council assessing the reasons for an actual or forecast breach of either of the key thresholds set out in the Stability and Growth Pact (SGP).

Italy, Croatia, Estonia, Germany, Austria, Finland and Luxembourg are not under EDP procedure. Still all of them received Commission recommendation “in their pursuit of stronger growth and fiscal sustainability”. Of course what is of crucial importance relates to what the Commission had to say to Germany.

Advising Germany

On many occasions the Commission has ‘advised’ Germany to relax its austere policies mainly in the field of incomes, by either favouring wage increases in line with productivity or by reducing taxation on low paid workers. This time though, the Commission gives to those recommendations a very urgent character. On top of that, those ‘advices’ take a legal and official form under the enhanced economic governance procedure. This could entail the imposition of penalties if not applied. Of course it will be a first-rate surprise, if Brussels penalised Berlin for not reducing its foreign trade balance and not favouring wage increases to German workers.

In any case, the Commission notes that it expects an important change of course in economic policies from the ‘under construction’ new German grand coalition government. Presumably the participation of the SPD socialists in it, is thought to act as a catalyst at least as far the minimum legal wage is concerned.

The Commission starts its criticism on Germany by observing that this country “has made no progress in addressing the structural part of the fiscal recommendations issued by the Council in the context of the 2013 European Semester”. Of course, Brussels recognise that the German government’s draft budget as submitted to the Commission on 15 October this year is in line with the provisions of the reinforced growth and stability pact.

Slammed on rigid structures

Still Germany is slammed for failing to address “the Council recommendations issued in the context of the 2013 European, with respect to enhancing the cost-effectiveness of public spending on healthcare and long-term care, improving the efficiency of the tax system, using the available scope for increased and more efficient spending on education and research, completing the implementation of the constitutional balanced-budget rule at Länder level, reducing high taxes and social security contributions, especially for low-wage earners; and removing disincentives for second earners”.

A few lines below, the Commission notes that “As soon as a new government takes office, national authorities are encouraged to submit to the Commission and the Eurogroup an updated Draft Budgetary Plan taking into account the present Opinion”. Exactly under those recommendations comes their official validation…“Done at Brussels, 15.11.2013, For the Commission, Olli Rehn Vice-President”.

Unquestionably, the Commission is now changing gear in its efforts to convince Germany to do more to help itself and by that help others.

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