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’.

 

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

State of Health in the EU: shift to prevention and primary care is the most important trend across countries

Canada leading the way on women’s inclusion and empowerment, says OECD

Global Citizen-Volunteer Internships

Suicide Prevention: Using Graduation as a Transformative Tool

Joint press release: Republic of Korea – EU Leaders’ video conference meeting

This is Germany’s $45 billion, 18-year plan to move away from coal

COVID-19 underlines the importance of fintech in emerging markets

Virus Coronavirus: No time to die

Greece @ MWC14: Greek-born mobile champions at MWC 2014

The age of influence: why digital platforms must come clean about political ads

Continue ‘their mission’ urges UN chief, as the victims of the Baghdad bombing are remembered, 15 years on

Gaza: deadly violence continues to escalate, top UN officials work to restore calm

Finnish Prime Minister calls for a more united EU of concrete actions

Mental health: fighting the hidden pandemic

MEPs back plans to promote water reuse for agricultural irrigation

I’m not feeling lucky: The “Right to Be Forgotten” ruling puts Google inside a box

Quality of Europe’s bathing waters remains high, latest annual assessment finds

Guterres calls for ‘maximum restraint’ following drone assault on key Saudi oil facility

These are the world’s safest cities

Building social good – lessons from an Asian giant

Coronavirus: Commission welcomes Parliament’s quick green light for proposed new resources to protect lives and livelihoods

Post the pandemic: keeping our worlds turning

The megatrend that will shape our working future

Robots aren’t stealing all our jobs, says the World Bank’s chief economist

5 lessons for the future of universities

New El Salvador law, a victory for forced displacement victims: UN refugee agency

Coronavirus: The truth against the myths

YOUTH WILL BE A KEY FOCUS IN THE NEXT EUROPEAN PARLIAMENT

‘Urgent need’ to stop Mali violence with ‘effective’ military response: UN expert

FROM THE FIELD: Faces and Voices of Conflict

6th Edition of India m2m + iot Forum to open its door on 14th January, in association with The European Sting

The ethics of the Medical Technology Civilisation era

Here are five ways we can make mental healthcare better

Educational disadvantage starts from age 10

8 amazing facts to help you understand China today

12 ways the tech sector can help save the climate in 12 years

Four in 10 indigenous languages at risk of disappearing, warn UN human rights experts

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

Mergers: Commission approves acquisition of joint control over Prosegur Alarmas by Telefónica and Prosegur

We lack a global framework for saving our environment. Here’s how we change that

Aidex: the Global Humanitarian and Development Aid Event

Why the UN is investigating poverty in the United Kingdom

UN expresses concern following wave of street protests in Iraq and elsewhere

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

Here are three key ways that data analytics can improve the workplace

Don’t understand the US-China trade war? This metaphor could help

OECD’s Gurría calls for overhaul of economic thinking to address global challenges

UN’s AIDS agency ‘greatly encouraged’ by latest scientific breakthrough showing cure is possible

US prosecutors now target Volkswagen’s top management, upsetting Germany

UN should be ‘exemplary’ in defending judicial independence, top Judge tells Security Council

Climate change is a security threat. We must act now

Future of our planet hinges on action by today’s youth – UN deputy chief

UN agency warns conditions around Yemen’s key port city of Hudaydah still ‘very bad’, as staff rush to deliver aid

China’s impact as a global investor; the Sting reports live from World Economic Forum 2015 in Davos

Coronavirus: Commission Statement on consulting Member States on proposal to further expand State aid Temporary Framework to recapitalisation measures

MEPs want to fund crucial areas to stimulate European growth

It’s time for global businesses to accept local responsibility

Turkey remains numb while its economy is expected to shrink further due to a cocktail of EU and US sanctions

This afternoon Britain will be once more isolated from mainland Europe

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

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