EU to finance new investment projects with extra borrowing; French and Italian deficits to be tolerated

Embrace between François Hollande, President of the French Republic, and Jean-Claude Juncker, President of the European Commission as from 01/11/2014 in the presence of Angela Merkel, German Federal Chancellor, and Martin Schulz, President of the European Parliament (in the foreground, from left to right). European Council of Brussels, 23-24/10/2014. Discussions focused on getting the right balance in the EU's approach on the Economy so it could stimulate growth and reduce unemployment. (EC Audiovisual Services, 23/10/2014).

Embrace between François Hollande, President of the French Republic, and Jean-Claude Juncker, President of the European Commission as from 01/11/2014 in the presence of Angela Merkel, German Federal Chancellor, and Martin Schulz, President of the European Parliament (in the foreground, from left to right). European Council of Brussels, 23-24/10/2014. Discussions focused on getting the right balance in the EU’s approach on the Economy so it could stimulate growth and reduce unemployment. (EC Audiovisual Services, 23/10/2014).

The EU Commission has correctly translated the ideas emanated from the Brussels’ European Council of 23-24 October and accordingly adjourned confrontation with France and Italy over budgetary deficits and extra investment spending for 2015. European Commission Vice President Jyrki Katainen responsible for financial affairs and the euro seems to have read very carefully the Conclusions of the 28 EU leaders’ summit and noticed two things.

Firstly, he saw that the leaders made a very brief reference to government finance orthodoxy and the obligation of member states to reduce budgetary deficits to levels laid down in the Stability and Growth Pact. Secondly, Katainen noticed that in their final communique the 28 leaders devoted a lot of space and articulated lengthy and convincing arguments supporting the need of increased public spending on investments, on both European and national levels.

Katainen took the message

Katainen, being an intelligent politician, didn’t need more signals. Last Tuesday he issued a statement saying plainly that the Commission is not to point a finger to Italy and France over their fiscal deficits, as they are inked in black in the 2015 budgets. Both countries have submitted their plans to the Commission for next year government budgets, flaunting large deficits above the 3% of GDP tolerable limit. The 2013 amendment of the Stability and Growth Pack after the introduction of the ‘two pack Directives’, provides much tougher rules and penalties for excessive deficits. Member states are obliged to submit their budgetary plans for next year by 15 October, as they have already done, and the Commission has to approve or reject them by the end of November.

In view of the widespread speculation in the media about imminent hostilities between Paris and Rome on the one side and Brussels on the other over the 2015 budgets deficits, Katainen had to intervene. He issued a statement saying, “After taking into account all of the further information and improvements communicated to us in recent days, I cannot immediately identify cases of “particularly serious non-compliance” which would oblige us to consider a negative opinion at this stage in the process”. The Commission Vice President clarifies here that there won’t be any ‘non-compliance’ decision at least at ‘this stage of process’.

The European Council reigns

Katainen didn’t leave the issue there. He added that “Any possible further steps under the Stability and Growth Pact will be assessed at a later stage, taking into account the Commission’s Autumn Economic Forecast and the opinions on the draft budgetary plans”. Obviously the Commission states here that Paris and Rome have nothing to fear from Brussels at this stage that is in November. However it was not the EU’s executive arm that decided not to push things to the limits concerning the French and Italian government budgets for 2015.

It was the European Council of the EU leaders of 23-24 October which decided not to press Francois Hollande and Matteo Renzi over budgetary orthodoxy. In the face of it the Council was convened to discuss the ‘2030 CLIMATE AND ENERGY POLICY FRAMEWORK”. As it turned the main theme of discussion was an antithesis; growth spending or financial soundness? The controversy is spearheaded by France and Italy on the one side and Germany on the other, with most of the EU leaders though supporting Hollande and Renzi. The latest enlistment in the ‘growth’ camp is Austria, with Vienna abandoning the Berlin group of fiscal orthodoxy.

Berlin bends

Nevertheless even Germany has lately abandoned its hard-line austere ideology. The architect of this theory, the German minister of Finance Wolfgang Schäuble, has recently accepted that his country and the European Union as a whole need an upsurge of public and private investment spending. He appears now to favour every effort to increase investments, nonetheless without jeopardizing the upper limits of allowed government deficit set by the Growth and Stability Pact at 3% of GDP. Up to now Germany has been strongly advocating zero deficits.

As a result, the final communique of the last European Council devoted a whole paragraph on the Commission President elect Jean-Claude Juncker’s idea of additional €300 billion of investments in the EU. The most important part of it is this: “The European Council supports the incoming Commission’s intention to launch an initiative mobilising 300 billion euro of additional investment from public and private sources over the period 2015-2017”.

More loans

Extra spending of €300bn in three years is not at all a small thing and will certainly be partially financed with extra government borrowing and at the same time increasing deficits by the same amount. There is no other conceivable way to finance new and important investment projects than loans and deficits. Already all EU countries depend on borrowed money. The idea is that they can repay in the good times, if and when they are to come. But let’s return to what the 28 EU leaders have to say in the present.

The Council’s statement goes even further. It states that there is an urgent need to identify “concrete actions to boost investment, including a pipeline of potentially viable projects of European relevance to be realised in the short and medium term”. It’s pretty obvious that something is changing in Brussels. The German backing for a new generation of investment projects of ‘European relevance’ is a major shift of economic strategy that can revive the anaemic economy of the EU.

By the same token, France and Italy will not be persecuted for needing more time to bring their budget deficits at or below the permitted level of 3% of GDP. Two or three more years to do so cannot be considered as a direct violation of the Stability and Growth Pact. Not to forget that Italy has a very good record on that account. Rome, under Mario Monti, had been an excellent student of financial orthodoxy.

the sting Milestones

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

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

5 ways for businesses to walk the talk on gender equality

France is building a village for people with Alzheimer’s

These are the 4 most likely scenarios for the future of energy

Coronavirus spread now a global emergency declares World Health Organization

Mali peace process in a ‘critical phase’, says head of UN Mission

What kind of action on social justice should we expect from companies in the future?

Fit for Future platform selects EU initiatives for simplification and modernisation

Mexico: Helping refugees go into business, a ‘win-win situation’, says UNHCR’s Grandi

ILO’s Bureau for Employers´Activities to publish new study on women in business and management

Finland has just published everyone’s taxes on ‘National Jealousy Day’

Commission presents first reflections on building a strong social Europe for just transitions

A Sting Exclusive: “Paris is the moment for climate justice”, Swedish MEP Linnéa Engström claims from Brussels

How digital can transform healthcare in Asia for millions of people

Recession: the best argument for growth

European Union signs aviation agreement with the Republic of Korea

Is co-living an answer to the affordable housing crisis?

Businesses, governments and consumers to implement a more climate-friendly approach to #BeatPlasticPollution on World Environment Day 2018

Bold, innovative measures for refugees and their hosts sought, at first ever Global Forum

Are we sleepwalking into a new global crisis?

International Women’s Day 2019: more equality, but change is too slow

EU institutions agree on priorities for coming years: A common agenda for our recovery and renewed vitality

Amid ‘volatile’ environment, UN mission chief urges Iraqi leaders to ‘listen to the voice of the people’

India and the US: 5 ways the countries compare

The EU heads of State and Government about the result of the European Elections 2019

Global South cooperation ‘vital’ to climate change fight, development, Guterres tells historic Buenos Aires summit

Suicide in postpartum depression

As Libya talks resume in Geneva, UN negotiator seeks to overcome sticking points

Thursday’s Daily Brief: Climate emergency, call to support breastfeeding, rising political heat and new investigation board for Syria

Humanity ‘at a crossroads’ as damage to planet poses growing risk to health, UN environment agency warns

Australian solar could power Singapore within a decade

Destabilizing Lebanon after burning Syria; plotting putsch at home: King and Crown Prince of Saudi Arabia

From Model T to EV: a short history of motor vehicle manufacturing

EU mobilises €9 million to tackle the food crisis in Haiti

Will Cameron succeed in keeping UK inside the EU and reverse the present economic downturn?

It ain’t over until Google says it’s over

Humanitarian Aid 2016: The needs, the highlights, the crisis and the relief

A money laundering case on Vatican Bank’s road to renovation

We need to talk: UN gears up for 75th anniversary with Global Conversations

NASA is recruiting new astronauts – this is what it takes to apply

3 ways to fight short-termism and relaunch Europe

Humanitarian action: New outlook for EU’s global aid delivery challenged by COVID-19

European Youth, quo vadis?

MEPs urge the EU to lead the way to net-zero emissions by 2050

Coronavirus: Commission issues guidelines on testing

This farmer is saving the jungle by growing food in it

Brussels to tear down the trade wall with Mexico as opposed to Trump’s “walls”

Science leads the response to COVID-19. These 25 scientists are tackling the other global challenges

Half of the world’s population lack access to essential health services – are we doing enough?

Permafrost is thawing so fast it’s gouging holes in the Arctic

Does the EU want GMOs and meat with hormones from the US?

Telemental health care in times of psychological instability: call 188

Climate change and health: a much needed multidisciplinary approach

Commission presents EU-Vietnam trade and investment agreements for signature and conclusion

EU Emissions Trading System does not hurt firms’ profitability

“A divided Europe is not in China’s interests”, Ambassador Zhang of the Chinese Mission to EU welcomes Brussels

EU/Africa, Caribbean and Pacific: towards which partnership?

Commission welcomes political agreement on InvestEU

The ‘ASEAN way’: what it is, how it must change for the future

EU’s judicial cooperation arm, Eurojust, to become more effective with new rules

We can feed the world in a sustainable way, but we need to act now

More Stings?

Advertising

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