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 Milestone

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

7 steps to becoming a ‘CEO Academy’

‘All atrocity crimes are preventable’ and can never be justified – UN chief

How to help companies become global defenders of LGBTI rights

Can North Korea and the U.S. strike a nuclear deal?

Antarctica: the final coronavirus-free frontier. But will it stay that way?

Joris in Indonesia

Civilians suffering due to sanctions must be spared ‘collective punishment’ urges UN rights expert

Negotiated two-State solution still ‘the only option’ for Palestine: Guterres

COVID-19: What to know about the coronavirus pandemic on 6 April

‘Continuing absence’ of political solution to Israel-Palestine conflict ‘undermines and compounds’ UN efforts to end wholesale crisis

Eurozone bank rescues ‘a la carte’ until 2015 then only bail-ins

Future EU-UK Partnership: European Commission receives mandate to begin negotiations with the UK

EU to scrutinise foreign direct investment more closely

Is this really it for the gig economy? Read on

“InvestEU”: MEPs support new programme to boost financing for jobs and growth

Kazakhstan continues to push for a nuclear-free world

Scientists now think air pollution is fuelling violent crime

Why are wildfires getting worse?

Everything you need to know about water

230 Junior Entrepreneurs and over 70 guests attended the International Congress on “Entrepreneurial Skills for Youth”

Latest Coronavirus (Covid-19) briefing from the World Health Organisation – key takeaways

We can make sure Globalization 4.0 leaves no one behind. This is how

Yellen and Draghi tell Trump and markets not to expedite the next crisis

Business uncertainty rises as US grants only temporary exception to EU for steel and aluminium tariffs

Climate change will shrink these economies fastest

Climate change: Direct and indirect impacts on health

Europe is no longer an innovation leader. Here’s how it can get ahead

UN panel to rally global political will to tackle internal displacement crisis

Universal Health Care: can it exist only in utopic society?

How transparency can help the global economy to grow

European Commission adopts rules to ensure a smooth transition to its next President and the next College of Commissioners

UN welcomes ‘milestone’ release of 833 Nigerian children from anti-Boko Haram force

Blockchain is facing a backlash. Can it survive?

Where labour costs the most (and least) in the European Union

Welfare of transported animals: MEPs urge EU states to do a better job

Accountability in Sudan ‘crucial’ to avoid ‘further bloodshed’, says UN rights office

Faith can overcome religious nationalism. Here’s how

GSMA Mobile 360 – Africa: Rise of the Digital Citizen, Kigali 16 – 18 July 2019, in association with The European Sting

New rules for temporary border controls within the Schengen area

How this one change can help people fight poverty

Italian elections: a long political limbo is ahead

Antimicrobial resistance: how can an intersectoral approach between society and healthcare professionals be developed and applied?

How fixing broken food systems can help us meet all the SDGs

Mental health in times of a pandemic: what can each individual do to lessen the burden?

These are the regions where people have most faith in their schools

COVID-19 and the pursuit of financial inclusion in Pakistan

These European countries produce the most plastic waste per person

Preparing Africa for ravages of climate change ‘cannot be an afterthought’ – COP24

Elections results: Austerity’s black to prevail in the new multicolored German government

Removing deadly mines means ‘new horizons and hope’, clears a path to SDGs, says UN chief

A call for a new crop of innovators

EU: Centralised economic governance and bank supervision may lead to new crisis

Antitrust: Commission consults stakeholders on guidance for national courts when handling disclosure information

How LA plans to be 1.6°C cooler by 2050

Breaking news: Juncker’s Commission mutant trojan horse is on the loose in Strasbourg

Take action on air pollution to save lives, and the planet, urges UN chief

How we overhauled healthcare amid Venezuela’s crisis

Is your smart home as safe as you think?

Everything you need to know about Ireland’s economy (Post Brexit)

Resolving banks with depositors’ money?

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