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

After COVID-19, we must rethink how we find and produce new drugs

Using the quarantine to your advantage

Journey of my life

What you need to know about the European Green Deal – and what comes next

What the Amazon rain forest tells us about globalization

Financing the 2030 Agenda: What is it and why is it important?

UNICEF warns of ‘lost generation’ of Rohingya youth, one year after Myanmar exodus

Is the ECB enforcing the will of the big Eurozone member states on the small? Can the euro area live with that?

European Development Days 2021: driving the global debate on green action ahead of Kunming and Glasgow Summits

New UN-Syrian Action Plan signals an ‘important day’ for child protection, says UN envoy

Stop cooperation with and funding to the Libyan coastguard, MEPs ask

This is how climate science went mainstream

Air pollution: How to end the deaths of 7 million people per year?

As coronavirus spreads to poorer countries, here’s how the world can help

EU Commission spends billions without achieving targets

For resilient, sustainable city mobility after COVID-19, these trends must continue

Coronavirus: Commission proposes update to coordinated approach on free movement restrictions

‘Deteriorating’ human rights in Belarus amounts to ‘wholescale oppression’: UN expert

UN chief hails Libyan leaders’ agreement to hold general election

Women in leadership: shattering the glass ceiling

Coronavirus: Commission adopts package of measures to further support the agri-food sector

Is continuous sanctioning the way to resolve the Ukrainian crisis?

DR Congo: ‘No time to lose’ says newly appointed UN Ebola response coordinator

This crisis cannot be confronted with statistics

A sterilised EMU may lead to a break up of Eurozone

Tackle ‘unacceptable inequalities’ in cancer care, saving up to seven million lives, WHO urges

The next generation is key for a European renaissance

Eurozone officials play with people’s deposits and minds

Free and secure access needed in DR Congo conflict zone to tackle Ebola – WHO

Ending harmful fisheries subsidies would improve the health of our ocean. This is why

In Tokyo, UN chief expresses full support for US-Japan dialogue with North Korea

Russia: MEPs deplore military build-up, attack in Czechia and jailing of Navalny

European Citizens’ Initiative: Commission decides to register 2 new initiatives

Coronavirus: Chinese aid to the EU delivered to Italy

How to make our cities greener, healthier, wilder and fairer

Tackle ‘tsunami of hatred’ across the world urges Guterres, to counter anti-Semitism, racism and intolerance

European Commission issues first emission of EU SURE social bonds

European Youth Forum welcomes adoption of Sustainable Development Goals and calls on European countries to not ignore them!

UN chief laments ending of Cold War-era disarmament treaty

How insect hotels and honey highways are helping bee populations in the Netherlands

‘Historic’ new Syria talks should focus on relief for war-weary civilians, says UN negotiator

A Sting Exclusive: “Delivering on the Environmental Dimension of the new Sustainable Development Agenda”, Ulf Björnholm underscores from UNEP Brussels

The challenge of palliative care in universal health coverage

Microplastic and nanoplastic pollution threatens our enviroment. How should we respond?

Who threatens the lives and livelihoods of Ukrainians?

Ten reasons to be optimistic in 2019

How electrification will make the world more inclusive

Ecocraft: take gaming to another level by greening Minecraft

Will CETA be implemented after eight long years or it will be vetoed by the EU citizen?

To build back better, we must reinvent capitalism. Here’s how

5 reasons why biodiversity matters – to human health, the economy and your wellbeing

E-energy declaration: will energy digitalization be beneficial to the climate?

New EU farm to fork strategy to make our food healthier and more sustainable

The cuts on 2014 Budget will divide deeply the EU

UN chief ‘deeply saddened’ by Ethiopia plane crash which killed 157, including at least 21 UN workers

The future of work ‘with social justice for all’ tops agenda of centenary UN Labour conference

Brain Drain remains a crucial and unresolved issue

Africa is creating its own Great Wall – and it’s green

What does ‘excess deaths’ mean – and can it give a clearer picture of the number of coronavirus fatalities?

State aid: Commission approves Luxembourg guarantee measure to further support economy in coronavirus outbreak

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

%d bloggers like this: