How much time has the ‘European Union of last chance’ left?

European Council of 24/10/2014. From left to right: Alexander Stubb, Finnish Prime Minister, Mark Rutte, Dutch Prime Minister, Angela Merkel, German Federal Chancellor and Rosen Plevneliev, President of Bulgaria. The Finn and the Dutch leaders show the German Chancellor a document, while the Bulgarian politician doesn’t dare touch it. (The Council of the European Union photographic librery).

European Council of 24/10/2014. From left to right: Alexander Stubb, Finnish Prime Minister, Mark Rutte, Dutch Prime Minister, Angela Merkel, German Federal Chancellor and Rosen Plevneliev, President of Bulgaria. The Finn and the Dutch leaders show the German Chancellor a document, while the Bulgarian politician doesn’t dare touch it. (The Council of the European Union photographic librery).

Ahead of the 18-19 December Summit of the 28 EU leaders, the European economy dives deeper in recession and disinflation. Brussels sources estimate that November inflation plunged again to 0.3% from 0.4% in October, widely diverging from the institutional target of below but close to 2%. There is more to it though. According to Eurostat, in the 18 member states Eurozone growth during the third quarter of 2014 was decimated to a derisory 0.2%. No wonder why the European Union is reprimanded by the rest of the developed world for constituting the main obstacle to global economic development.

Even the German economy is trapped in stagnation for a second quarter in a row, with France faltering widely and Italy plunging once more to recession. Those countries account for more than two thirds of the Eurozone economy. Unbelievably, this is the bright side of things. In the dark part of the moon, Greece, Spain, Portugal, the Netherlands, Cyprus, Belgium, Austria and Finland are either plagued by disastrous unemployment rates and recession or are stuck in stagnation.

Which policy mix?

At the same time the European Union is caught in a disturbing dispute between Germany and its satellites on the one side and France, Italy and the rest of the south on the other about the right policy mix to see the euro area out of its malaise. Germany insists that incomes austerity and zero deficit budgets can establish a sound base for a sustainable economic policy mix in the long run, whereas the other camp cries out that in the meanwhile the Union might perish.

France and Italy have already compiled government budgets for 2015 with deficits exceeding the allowed margin of 3% of the GDP. Under the new strict economic governance rules, established in 2013 by the ‘two pack directories’ to protect Eurozone from excessive sovereign borrowing, disproportionate deficits may trigger heavy penalties from the European Commission. So far the Commission hasn’t decided to apply the rules to the letter and Paris and Rome maintain that they need more time to bring their state finance in line with the new rulebook.

France and Italy demand more

Paris and Rome have also made clear that Brussels and the European Central Bank have to do more in order to help the euro area economy start growing again, in order to escape from the disinflation zone. The obvious way to do so is by tolerating relaxed fiscal and monetary policies. Berlin opposes such policy options. It seems however that the German government can accept some kind of compromise between fiscal-monetary orthodoxy and relaxation.

Wolfgang Schäuble, the Federal Minister of Finance, has already announced an extra investment plan to support his country’s infrastructures. Nevertheless, the German minister was very careful with money and cited a rather disappointing €10 billion extra spending of public money over the next three years. By the same token though, Berlin has taciturnly accepted ECB President Mario Draghi’s expansionary monetary policy initiatives, despite the vigorous reactions by Germany’s central bank, the Bundesbank. Buba’s President, Jens Weidmann has always been opposing monetary easing in order to support the real economy, but Berlin hasn’t backed him all the way.

Looking for new stimuli

The urgent need to devise additional stimuli to revive the European economy has led the newly elected European Commission President Jean-Claude Juncker to promise a €300bn investment programme. The question is though if this will constitute a new financial instrument or if it will be procured from existing sources, like the approved EU budgets for the next seven years. This can be narrowed down to a rearrangement of existing credit lines.

Commission sources say that an adroit use of public money can mobilise 10 times more of private capital. Then they argue that the extra public money needed doesn’t look that monstrous as Junker’s initial announcement. Conversely, the French don’t share this approach. Paris asserts that a meaningful accomplishment of the Junker investment plan needs at least €80bn of new public spending.

Cheap money alone can’t do it

Whatever the outcome around the new investment plan, the truth remains that so far the cheap money policy with the close to zero interest rates, introduced in the European financial system by the ECB a long time ago, hasn’t galvanised Eurozone’s growth capacities. It becomes clear then that monetary policy alone cannot reactivate the economy. Consequently, the €300bn investment package has to be implemented with maximum sensitivity vis-à-vis the millions of the unemployed.

If this is to be the case, the 28 EU leaders’ Summit of 18-19 December has to take immediate action on two fronts, investments at EU level and structural reforms for member countries, including Germany. Only then ECB’s quantitative easing (albeit restricted) is to have a noticeable impact. If not, Eurozone will continue to tremble every time Greece is heading for bankruptcy. It is equally true that Italy, France and Spain cannot tolerate politically, socially and financially the fiscal and monetary austerity any more.

What are the stakes?

And it’s not only that. Marine Le Pen has already aligned her National Front with Putin’s Russia, the same is true for Viktor Orban’s Hungary, while Nigel Farage can amputate the Union with his UKIP. All these are direct outcomes of Europe’s economic sickness. If an effective cure is not introduced right away, soon there won’t be much left to revive. Juncker said that his is the ‘Commission of last chance’. He is more than right, actually this is the ‘Union of last Chance’.




















Featured Stings

Water supply a human right but Greeks to lose their functioning utilities

How many more financial crises in the West can the world stand?

Azerbaijan chooses Greek corridor for its natural gas flow to EU

Why Eurozone’s problems may end in a few months

Volkswagen scandal update: “We want clarity fast, but it is equally important to have the complete picture”, Commission’s spokesperson underscores from Brussels

European Confederation of Junior Enterprises hosts in Geneva the Junior Enterprise World Conference

A day in the life of a refugee: the role of nations and citizens of the world

The 27 EU leaders did nothing to help May unlock the Brexit talks

German elections: Is Merkel losing ground or Shultz is winning?

Copyright: European Union , 2017; Source: EC - Audiovisual Service; Photo: Frank Molter

EU hits deadlock on the future of glyphosate a month before deadline

Jade Spring Meeting 2017 – day 2: Coporate workshops, general assembly and magna moment

COP21 Breaking News: Conference of Youth Focuses on Hard Skills to Drive Greater Climate Action

The three US financial war fleets

Can the EU afford a trade war with China?

Why do medical students need to emigrate to become doctors in 2017?

Trump badly cornered at home by agribusiness and steel consumer lobbies: Trade

Draghi’s top new year resolution: Quantitative Easing

Eurozone: Inflation plunge to 0.4% in July may trigger cataclysmic developments

A rapid deterioration of the humanitarian situation in the war-torn Yemen

From Grexit to Brexit: UK industry now says the in/out referendum is good for your health

On Human Rights Day European Youth Forum calls for end to discrimination of young people

The European Youth Forum needs better signal for its “call” for Quality Internships

Counting unemployment in the EU: The real rate comes to anything between 16.1% and 20.6%

Opening Remarks by H.E. Ambassador Yang Yanyi, Head of the Chinese Mission to the EU at the Chinese Fashion Night

The EU Commission does nothing about the food retailing oligopoly

Eurozone: How safe are our deposits? Which banks will survive?

Eurozone banks to separate risky activities: Can they stay afloat?

The EU Parliament endorses tax on financial transactions

The US + Britain trivialize mainland Europe, NATO and the EU

Lithuania vs Parliament over 2014 EU budget

The US may be “open” to reviving TTIP, while the EU designs the future of trade with China

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

German stock market is not affected by the Greek debt revolution while Athens is running out of time

EU will not deliver on promises without democratic accountability

China revisited by the former Ambassador of Hungary to China

The West castigates Turkey’s Erdogan for the ruthless political cleansing

Eurozone has practically entered a deflation trap

A Sting Exclusive, the European Commissioner for Energy Günther Oettinger writes for the Sting on “EU Industry: a major energizer”

Greece: The new government of Alexis Tsipras shows its colors

Managers’ pay under fire

Why Eurozone can afford spending for growth

EU Commission says falling labour remuneration leads to deflation and damages growth prospects

Mario Draghi didn’t do it but Kim Jong-un did

E-Government can be a remedy for the crisis

Education expenditure in the EU not hurt much by crisis

The EU Parliament slams Commission on economic governance

EU is now giving Google new monopolies to the detriment of European citizens and Internet companies

EU Commission: Banking and energy conglomerates don’t threaten competition!

How will Brexit affect higher education in the EU?

Eurozone’s bank resolution mechanism takes a blow

UK’s PM Theresa May asks for a two-year Brexit transition plan as negotiations round kicks off

Twenty days that may remold the future of Europe

France and Poland to block David Cameron’s plans on immigration

A new proposal breaks the stalemate over the Banking Union

Can the EU last long if it cuts Cyprus out?

UN Environment Assembly 2017: where the world convenes to #BeatPollution

The UK to split if May’s hard or no-deal Brexit is pursued

Finally an answer to the hottest question of European youth today: How to make sure Juncker’s Investment Plan works for youth

IMF – World Bank meetings: US – Germany clash instituted, anti-globalization prospects visualized

China Unlimited: the dragon’s long and winding road

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in: Logo

You are commenting using your 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