There is a way for Eurozone to reach a sustainable growth path

Jean-Claude Juncker, President-elect of the EC, gave a press conference on the attribution of portfolios to the Commissioners-designate. He unveiled his team and the new shape of the next European Commission. After the EU had come through one of the most testing periods in its history, one of the biggest challenges would be to convince citizens that things will change. To deliver change, the Commission needed to be open to reform. (EC Audiovisual Services, 10/9/2014).

Jean-Claude Juncker, President-elect of the EC, gave a press conference on the attribution of portfolios to the Commissioners-designate. He unveiled his team and the new shape of the next European Commission.
After the EU had come through one of the most testing periods in its history, one of the biggest challenges would be to convince citizens that things will change. To deliver change, the Commission needed to be open to reform. (EC Audiovisual Services, 10/9/2014).

Slowly but surely Euro area inflation rate heads for the zero zone, making decision makers nervous and everybody else, especially the unemployed young even more pessimistic and passive about their present situation and the future prospects. And all that is happening in this part of the globe where only a few years ago the Europeans didn’t seem to worry about many things. Eurostat, the EU statistical service published last week data about the August inflation rate finding it at 0.4%, unchanged compared to July but one decimal point below the relevant June figure. Unfortunately, the continuous fall of inflation means that the unemployed have no chance of finding a job in the foreseeable future.

That’s why everybody is alarmed every time the rate of change of the consumer price index gets closer to zero. Alas, the longer inflation stays close to zero the more risks for a new recession appear in the horizon. Given that Eurozone for many months now is stuck in the stagnation area, some decision makers feel that they can no longer hide the real dangers that lie ahead.

Cœuré and Asmussen speak their mind

Understandably that’s why Benoît Cœuré, Member of the Executive Board of the ECB, and Jörg Asmussen decided to sound the alarm and jointly wrote an article which appeared on Friday 19 September in two European newspapers, the prestigious German ‘Berliner Zeitung’ and the major French business newspaper ‘Les Echos’. It’s not the first time that Cœuré rings the alarm bell. As for Asmussen, he is a German economist, who has served as a member of the executive board of the European Central Bank. Before that he was Deputy Finance Minister of Germany. Today he serves in the Ministry of Labour of his country and closely monitors Europe’s labour market developments. He decided to join forces with Cœuré in order to make their voices heard in Berlin and Paris.

The two experts first described the problem. They wrote “Let’s face it: no single institution or country can solve the problems of the euro area. Growth and inflation are low; debt and unemployment remain too high. These issues can only be addressed by national and European policy-makers taking concerted action using all available levers. If a government or institution fails to do its task, the others will not be able to compensate for that shortcoming”.

It’s the first time that two not elected high ranking officials are directly addressing the European governments, asking them to do what is needed to take Eurozone out of the hook. They observe though that Germany and France in particular play an exceptional role in the euro area and consequently have a special responsibility. The two writers stressed that, “What Europe needs now is a comprehensive economic strategy that addresses weaknesses in both supply and demand in individual countries through a sound mix of monetary, fiscal and structural policies. Germany and France have a decisive role to play in the context of this three-pillar strategy”.

Telling Berlin and Paris what must be done

The two prominent economists have the courage to directly address the Berlin and Paris governments. They indirectly also recognize that the responsibility to revive the economy lies with those two heavyweight Eurozone countries, which unfortunately do not live up to their obligations. By the same token the two economists indicate that the rest of euro area member states are incapable of changing the political and economic prospects of Eurozone, without the decisive implication of their two largest colleagues.

It was high time somebody from within the European structures pointed a finger at the German Chancellor Angela Merkel and the French President Francois Hollande. Inflation falls steadily. After it crossed the 2% institutional benchmark in December 2013 it moves continuously downwards, systematically destroying any possibility for Eurozone to achieve a sustainable growth path. Despite that dreadful reality, Berlin and Paris seem stuck in their own convictions and problems. The two countries still refuse to cooperate in order to produce a joint strategy to drag Eurozone out from stagnation and unemployment.

Germany and France have to cooperate

Cœuré and Asmussen do not believe that the European Central Bank singlehandedly can revive the European economy, with its monetary policy measures adopted during the last three months. A lot more is needed and the two writers tell Germany and France what is expected of them. If the current economic conjuncture was not quite alarming the two economists, one German and one French, wouldn’t have the nerve to put up a policy strategy for their respective governments to follow.

They conclude like this “France also needs reforms to support employment and revive business investment, notably by reducing barriers to entry in protected sectors and by eliminating the obstacles to the development of small and medium-sized enterprises. Germany needs to boost competition and productivity in the domestic non-tradable sector, which would also have a positive impact on the country’s growth prospects and make it less vulnerable to shocks affecting trade with non-euro area countries. At the European level, an investment initiative has been proposed by the incoming President of the European Commission. These new instruments, a thorough and improved use of structural funds and financing by the European Investment Bank, project bonds, and initiatives of other development banks should focus on countries with limited budgetary leeway. The funds deployed can take the form of both debt and equity”.

This last remark is a direct answer to those, mainly in Germany, who argue that it’s not right to finance growth with more debt. The two economists state that equity is a very effective tool to finance growth projects, without increasing the debt of the host country. In this way the Eurozone countries with available financial reserves and idling resources can finance growth in the over indebted member states of Eurozone, without risking their money. However, for such projects to be realized, a high degree of cooperative attitude, both political and economic has to be present in both the ‘investor’ and the host member state. The property of the projects can be a very controversial issue and such problems can only be solved on the political level. That’s why the overall European project has to acquire a deeper political content. Without an advanced political Union, Eurozone runs existential dangers.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Featured Stings

The next 48 hours may change the European Union

A young European voice on Grexit: too high a bill and too big a deal!

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

EU and India re-open talks over strategic partnership while prepare for a Free Trade Agreement

JADE Testimonial #1: Marcello @ Enlargement

EU agrees on Ukraine – Georgia visa-free travel amid veto risks and populist fears

ITU Telecom World 2016: it’s all about working together

Schengen is losing ground fast revealing Europe’s clear inability to deal with migration crisis

Eurobarometer: Not a single answer about what the Banking Union will cost to citizens

Eurozone examines the prospect of issuing debt paper jointly

Will Merkel ever steer the EU migration Titanic and restore her power in Germany?

COP21 Breaking News_09 December: List of Recent Climate Funding Announcements

CDNIFY @ TheNextWeb 2014

COP21 Breaking News_08 December: Cities & Regions Launch Major Five-Year Vision to Take Action on Climate Change

Dangerous Trumpism in the Middle East with an anti-European edge

Who threatens the lives and livelihoods of Ukrainians?

Beyond self-regulation: dealing with Europe’s consumption problem

Who cares about the unity of Ukraine?

Commission: Gifts of €6 billion and free trainees to ‘help’ poor employers

Which EU countries have to correct their economic policies?

At the edge of humanity: refugee healthcare in Greece and the EU

Can the EU afford to block China’s business openings to Europe by denying her the ‘market economy status’?

What lessons to draw from the destruction of Syria

Italian voters put again the European Peoples in the Brussels picture

Hostages to a rampant banking system

COP22 addresses a strong global pledge to effectively implement the Paris Agreement

The European Parliament floating over the South China Sea

What UK and EU risk if Brexit “wins” these elections

EU members commit to build an integrated gas market and finally cut dependency on Russia

Extra mild ECB tapering of QE and zero interest rates keep euro low

Greece’s Tsipras: Risking country and Eurozone or securing an extra argument for creditors?

World Health Organisation and young doctors: is there any place for improvement?

To entrepreneurship and beyond!

G20 LIVE: World Leaders in Turkey for G20 Summit. Global Economy will be discussed in Antalya

EU Commission accuses Germany of obstructing growth and the banking union

Search Engine neutrality in Europe in danger: Are 160.000 Google filtering requests good enough?

European Commission determined to conclude EU-Mercosur trade deal this year despite French concerns

Lagarde: Keep feeding the banks cut down wages and food subsidies

The consequences of Brexit seen by a European young entrepreneur

Ukraine-EU deal sees the light but there’s no defeat for Russia

Refugee crisis update: EU still lacks solidarity as Hungary and Slovakia refuse to accept EU Court’s decision

“For my children Italy will be an innovation lab and not a museum”; the Sting reports live from World Economic Forum 2015 in Davos

Merkel refuses to consider the North-South schism of Eurozone

Why the ECB had to clarify it caters for the entire Eurozone not just Germany?

How dearly will Germany pay for the Volkswagen emissions rigging scandal

Medical students: The need for emigration

The British “nonsense”, the relaxed Commissioner and the TTIP “chiaroscuro” at this week’s Council

International World Summit Award calls for outstanding digital applications with impact on society from 178 UN member states

Investing in working conditions and quality jobs

Threats from mammoth banks and Brussels fuel May’s poll rates

Eurozone guarantees all banks with…taxpayers’ money

Crimea, a wicked game of political chess and a ‘big’ coincidence

ECB’s new money bonanza handed out to help the real economy or create new bubbles?

Is Eurozone heading for disinflation?

Cyprus Parliament says no to blackmail

The three sins the EU committed in 2015

Eurozone: Despite anemic growth and shaky banks marks record trade surplus

Ukraine: turning challenges into opportunities


EU sets ambitious targets for the Warsaw climate conference

Will Europe be able to deal with the migration crisis alone if Turkey quits the pact?

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 )

Twitter picture

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

Facebook photo

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

Google+ photo

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

Connecting to %s