The European Parliament x-rays the troika’s doings

European Parliament, Committee on Economic and Monetary Affairs (ECON) Meeting. Jörg Asmussen member of ECB’s Executive Board (first from left). Sharon Bowles (ALDE, UK), President of ECON (third from left), Ollie Rehn, Vice-President of the European Commission in charge of Economic and Monetary affairs and the euro (second from right). Dialogue and exchange of views with members of the troika on financial assistance to Cyprus. (EP Audiovisual Services, 08/05/2013).

The European Parliament launched an investigation on the functioning and the legitimisation of the troika, made up by the European Commission, the European Central Bank and the International Monetary Fund. The three institutions between them undertook to bail out, guide and audit the economies of four Eurozone member states which reached a point of no return between 2010 and 2013.

Greece, Portugal, Ireland and Cyprus faced imminent bankruptcy and had to be rescued by the rest of euro area member states during the past four years. Everything started in spring of 2010, when Greece had to be bailed out first. Then it was the turn of Portugal and Ireland. In the spring of 2013 the two major Cypriot banks and together with them the Republic of Cyprus had to be rescued with a €10 billion support fund. Spain managed to rescue its banks by itself aided by the European Financial Stability Mechanism and Slovenia is currently doing the same entirely on its own.

At the beginning of the end

Now, after the rescue programmes gradually come to an end and Ireland is again out in the markets able to finance itself on its own, the European Parliament decided that the time is right to conduct an inquiry on the functioning and the legitimacy of the troika. The first conclusion is that the programmes drafted by the troika and applied in the four Eurozone member states were legitimised by the national parliaments, under the paralysing threat of immediate and total economic destruction. The European Parliament was left completely outside this procedure and none of those programmes and their revisions were discussed nor approved by the European legislators.

The evaluation of the Troika by the European Parliament that has now started will continue over the coming months and the MEPs are expected to vote on the inquiry’s final report during the March plenary. The inquiry is headed by the Vice-President of the EU Parliament Othmar Karas, an Austrian member of the European People’s Party political group and Liem Hoang Ngoc, a French member of the S&D group. Although the inquiry is being led by the economic committee (ECON) of the Parliament, there will also be contributions from the budgetary control, employment and constitutional affairs committees.

A delegation of MEPs visited Portugal on 6-7 January and Cyprus on 10 January. Visits have also been planned to Ireland on 16-17 January and Greece on 29-30 January. The visits include meetings with ministers, parliamentarians and representatives of civil society. The visit to Athens had to be deferred towards the end of this month due to internal developments in Greece, related to the country’s political and social problems.

Rehn backs the troika

During this week, legislators are discussing this issue with a number of key people. Yesterday, Monday 13 January Olli Rehn, economic and monetary affairs commissioner and Vice-President of the EC, appeared before the Committee. Jean-Claude Trichet, former president of the European Central Bank is being questioned today, Tuesday 14 January, and Klaus Regling, director of the European Stability Mechanism on Wednesday 15 January. After that, the committee will consider its draft report on Thursday 16 January.

Rehn in his initial remarks noted that the different political circumstances in the euro area member states which were financed, monitored and guided by the troika are in the base of the success or failure of the relevant programmes. He reiterated the fact that internal political acceptance of the severe austerity policies applied, played a crucial role on the success of the programmes. He noted that “Democratic accountability of our crisis resolution strategy and of its success is crucially predicated on wide acceptance of the need for reform in the beneficiary country. Ireland and Portugal illustrate this well. So do Spain and Slovenia, where the strong commitment to reforms avoided the need for a macroeconomic adjustment programme. In contrast, political turbulence largely derailed progress in Greece from spring 2010 to summer 2012”.

Last but not least, it has to be noted that the capital markets now predict positive developments in the vulnerable countries. Ireland is already borrowing at interest rates as before the crisis. Risk premiums for bond issues by all those countries have been tremendously decreased. Italy and Spain borrow as if nothing has happened. Even Greece can borrow at much lower interest rates and the Athens government plans a full test of the capital markets, with a long-term bond issue, towards the second half of this year.

The European Parliament will continue the evaluation of the troika during the coming months and the European legislators are expected to vote on the inquiry’s final report in March. However, by then a lot of things may not look like they do today.