2014 dawns and the EU continues to widen and deepen. Latvia is now part of the Eurozone, bringing the total to 18. What has Latvia got itself into, you might ask, until you realise that it has pushed itself through a harsh austerity regime just to get into the club. Trepidation might be the right word for Latvia's entry into the Euro; that troubled zone where predecessors have encountered price rises. But with the trial by fire that was the last few years of austerity and Eurozone entry, the country is likely to prize its membership and look unkindly on the periphery's pleas for (debt) forgiveness.
Another event to be marked is Mayotte's move into the category of Outermost Region of the EU. 5 years after it voted to become a department of France, it's been added to the "outermost" category (and being of the coast of Madagascar it is fairly outermost from Europe's perspective), which is an enlargement of sorts. As an outermost region, Mayotte will be in the Customs Union and have the Euro as its currency. It remains outside of the Schengen zone, however. And of course, the restrictions on Romania and Bulgaria have expired today, giving their citizens the full rights of European citizens.
This is after a year where Croatia joined the Union and Ukraine saw huge protests for closer relations with the EU (though it's important to remember that the EU is not promising membership and may not be willing to offer more than the agreement that was on the table). But 2014 will be remembered (in EU circles) as a moment of truth in the European elections. It's a challenge to offer a proper choice when citizens go to the polls, and, as always, it partly depends on citizens demanding that choice. The European Year of Citizens may be rolling on, but we'll not get much in terms of primaries, and for the candidates to make themselves known there'll need to be some key policies to catch the public's attention.
A tough call - but a vital challenge. The 2014 elections will shape the EU for the next 5 years to come. It's not just that the European Parliament is a co-legislator now (the Member States in the Council need its agreement for most EU legislation), but the coherence and impact of the campaign will determine how the next Commission President will be elected and how European politics and the Eurocrisis will proceed. If there's a strong verdict delivered for a more social or less united Eurozone at the election that will influence the outcomes of the political wranglings for the next half a decade. Now we have a new year, can we make the most of it?
Showing posts with label eurozone. Show all posts
Showing posts with label eurozone. Show all posts
Wednesday, 1 January 2014
Monday, 16 December 2013
Ireland exits the Bailout, but not Austerity
Today Ireland has exited the EU bail-out programme - the first country to do so - but it doesn't mean an end to austerity. Appearing on TV last night in a State of the Nation Address, Taoiseach Enda Kenny praised the sacrifices of the public and said that Ireland had regained its international standing. However, "prudent budgetary policies" will continue, meaning that there will be further austerity. The transport minister has also cautioned against any "giveaway budgets" on the basis that the public will be skeptical of them.
Ireland still needs to repay the bail-out loans and reduce its debt, and monitoring of the national finances will continue at the EU level (although now it will be based on the semester system in line with other Eurozone states, rather than the more controlling Troika process). The senior coalition partner, Fine Gael (EPP), is hoping that exiting the bail-out will generate enough satisfaction that things are slowly going in the right direction, even if people aren't feeling any benefit in their lives or in their communities.
For the junior partner, Labour (PES), this strategy is unlikely to work. Having campaigned in the election on a platform of "Labour's way or Frankfurt's way", there is little gain for Labour in a slow recovery (despite its attempts to capitalise on it). And not only is the economy bad for Labour, but when it comes to popular, more liberal, stances on social policy (abortion and same sex marriage, for example), it doesn't seem to boost Labour's position.
Whatever the position of the governing parties, there is really little to be excited about on the Irish economy. The stronger export sector has been an advantage, but with the general economic malaise in Europe and high levels of private debt in Ireland, it's hard to see where the growth is coming from. The bail-out and banking debts that the public have been saddled with results in continuing austerity with Kenny aiming for 2020 as the year recovery will be complete.
Ireland may be the star pupil of austerity, but it hardly demonstrates that austerity is a star policy.
Ireland still needs to repay the bail-out loans and reduce its debt, and monitoring of the national finances will continue at the EU level (although now it will be based on the semester system in line with other Eurozone states, rather than the more controlling Troika process). The senior coalition partner, Fine Gael (EPP), is hoping that exiting the bail-out will generate enough satisfaction that things are slowly going in the right direction, even if people aren't feeling any benefit in their lives or in their communities.
For the junior partner, Labour (PES), this strategy is unlikely to work. Having campaigned in the election on a platform of "Labour's way or Frankfurt's way", there is little gain for Labour in a slow recovery (despite its attempts to capitalise on it). And not only is the economy bad for Labour, but when it comes to popular, more liberal, stances on social policy (abortion and same sex marriage, for example), it doesn't seem to boost Labour's position.
Whatever the position of the governing parties, there is really little to be excited about on the Irish economy. The stronger export sector has been an advantage, but with the general economic malaise in Europe and high levels of private debt in Ireland, it's hard to see where the growth is coming from. The bail-out and banking debts that the public have been saddled with results in continuing austerity with Kenny aiming for 2020 as the year recovery will be complete.
Ireland may be the star pupil of austerity, but it hardly demonstrates that austerity is a star policy.
Thursday, 28 November 2013
A Strong Europe?: What the Grand Coalition has in store
Two months after the German elections the Grand Coalition deal between Merkel's CDU (and their sister party, the CSU) and the SPD has been signed. It's not a done deal until the SPD membership has endorsed the coalition treaty, and there is some resistance to it given their anti-Merkel election campaign and the frequency with which Merkel's coalition partners have the political life sucked from them. Still, the SPD leadership are likely to have their way, and with a membership vote on the deal the coalition will have a firm foundation for the next 4 years.
The headline policies, such as the minimum wage and reduced pension age (SPD) and road tolls for foreigners (CSU) have tended to be driven by the junior partners of the coalition. It's been suggested that the leadership style of Merkel's CDU (focusing on her leadership rather than policy) may have worked well in the campaign, but was a weakness when it came to coalition negotiations. So how is Germany's Europe policy shaping up?
The coalition agreement can be read here (PDF - in German), with the European policy at pp.15, 156-167.
Eurozone and the Single Market
The big one and, despite the hopes that the SPD may have moderated the austerity-centric policy, there is really no change here. In fact the strongly conservative tone is startling - there's plenty of talk about reducing debt and deficits and working on competitiveness, but when you turn to the "social Europe" section the rhetoric is pretty much repeated: austerity is the only way to ensure a social Europe seems to be the message.
On banking union there is little new. Yes, there must be banking union, and, yes, private banking debt must be separated from public debt (with banks taking the hit first). However the deal underlines that releasing funds under the European Stability Mechanism (ESM) or otherwise will remain subject to a vote by the Bundestag and emergency credit lines are a last resort only. The agreement both stresses that there will be no common liability at the European level since budgets are a national competence, and that budgets must be effectively overseen and co-ordinated at the European level. (It appears that the joined-up thinking demanded of Brussels has not similarly been applied here...). The SPD's leanings towards Eurobonds have apparently been stamped out altogether for the purposes of coalition.
On the future of emergency credit and the "reform contracts" that are supposed to accompany them, the German government supports the contract idea, though such deals must be "democratically legitimised". Presumably this means that the national parliament of the bail-outee will have to ratify the contract before being lent money.
Interestingly, the agreement states that there will have to be changes to the treaty basis of the currency union - a bit hint in favour of treaty change.
The new German government will support the completion of the single market, to which you can add the usual talk of both requiring further harmonisation to help create a level playing field and also ensuring the reduction of red tape, etc., etc., that always bolted on statements about the single market these days (and apparently copy-pasted here for emphasis). The stand out policy here is on posted workers, which should be "developed" to ensure that posted workers work under the same pay and conditions as nationals of the host country would.
Social Europe
Not much here at all. Under this heading the austerity rhetoric is repeated, perhaps on the basis that since times are tough austerity will have to stand in to reduce the number of policies, ironically causing a policy deficit in the process. There's not much here that isn't already long-standing policy at the EU level. Youth unemployment is bemoaned (the answer is held out to be structural reform and making free movement of this young educated workforce easier). Social and wage dumping are to be fought, and the new government will be supportive of tax harmonisation, which will have the alarm bells ringing from Dublin to Helsinki.
Money from the European Investment Bank has been promised for several types of projects and policy. Honestly, so many people have promised EIB money for so many things at this point that I'm starting to wonder if the next financial crisis will be when it collapses. It seems that when the EU budget is so small and you're cutting it, the answer is to promise to get the EIB to lend money for it. Just wait til the Europarty manifestos come out....
EU Democracy and foreign Policy
Enlargement, while supported, will face a tougher Germany: criteria must be more strictly applied, and Turkey's accession process won't "automatically" end in membership. Berlin also wants to beef up EU foreign policy through its humanitarian and development aid policies - and even military planning. It foresees a close cooperation between the EU and NATO here, which is probably something that would happen to a certain degree, directly or indirectly, though the neutral Member States may not be so happy with this.
When it comes to EU Democracy, there is nothing new: more education about Europe and supporting a more uniform electoral code seems to be the extent of the coalition's thinking here. There's not even a mention about how the 2014 elections can be used, never mind how they might affect the formation of the next Commission. Berlin will, however, want to see German on a more equal footing with French and English as a working language of the EU - it will be interesting to see how it pushes for this in practice.
Overall, very disappointing, if not entirely unexpected. For those of us on the left, the agreement's European paragraphs appear to contain no "social democratic handwriting". For those hoping for a change to Germany's Eurozone policy there is not only nothing, but a vigorous restatement of that nothing. For those looking for renegotiation there is an encouraging hint here, though the passage on social standards and the attitude towards the posting of workers will - or should - worry some British politicians who perhaps project too much of themselves into Germany's pro-single market outlook.
The headline policies, such as the minimum wage and reduced pension age (SPD) and road tolls for foreigners (CSU) have tended to be driven by the junior partners of the coalition. It's been suggested that the leadership style of Merkel's CDU (focusing on her leadership rather than policy) may have worked well in the campaign, but was a weakness when it came to coalition negotiations. So how is Germany's Europe policy shaping up?
The coalition agreement can be read here (PDF - in German), with the European policy at pp.15, 156-167.
Eurozone and the Single Market
The big one and, despite the hopes that the SPD may have moderated the austerity-centric policy, there is really no change here. In fact the strongly conservative tone is startling - there's plenty of talk about reducing debt and deficits and working on competitiveness, but when you turn to the "social Europe" section the rhetoric is pretty much repeated: austerity is the only way to ensure a social Europe seems to be the message.
On banking union there is little new. Yes, there must be banking union, and, yes, private banking debt must be separated from public debt (with banks taking the hit first). However the deal underlines that releasing funds under the European Stability Mechanism (ESM) or otherwise will remain subject to a vote by the Bundestag and emergency credit lines are a last resort only. The agreement both stresses that there will be no common liability at the European level since budgets are a national competence, and that budgets must be effectively overseen and co-ordinated at the European level. (It appears that the joined-up thinking demanded of Brussels has not similarly been applied here...). The SPD's leanings towards Eurobonds have apparently been stamped out altogether for the purposes of coalition.
On the future of emergency credit and the "reform contracts" that are supposed to accompany them, the German government supports the contract idea, though such deals must be "democratically legitimised". Presumably this means that the national parliament of the bail-outee will have to ratify the contract before being lent money.
Interestingly, the agreement states that there will have to be changes to the treaty basis of the currency union - a bit hint in favour of treaty change.
The new German government will support the completion of the single market, to which you can add the usual talk of both requiring further harmonisation to help create a level playing field and also ensuring the reduction of red tape, etc., etc., that always bolted on statements about the single market these days (and apparently copy-pasted here for emphasis). The stand out policy here is on posted workers, which should be "developed" to ensure that posted workers work under the same pay and conditions as nationals of the host country would.
Social Europe
Not much here at all. Under this heading the austerity rhetoric is repeated, perhaps on the basis that since times are tough austerity will have to stand in to reduce the number of policies, ironically causing a policy deficit in the process. There's not much here that isn't already long-standing policy at the EU level. Youth unemployment is bemoaned (the answer is held out to be structural reform and making free movement of this young educated workforce easier). Social and wage dumping are to be fought, and the new government will be supportive of tax harmonisation, which will have the alarm bells ringing from Dublin to Helsinki.
Money from the European Investment Bank has been promised for several types of projects and policy. Honestly, so many people have promised EIB money for so many things at this point that I'm starting to wonder if the next financial crisis will be when it collapses. It seems that when the EU budget is so small and you're cutting it, the answer is to promise to get the EIB to lend money for it. Just wait til the Europarty manifestos come out....
EU Democracy and foreign Policy
Enlargement, while supported, will face a tougher Germany: criteria must be more strictly applied, and Turkey's accession process won't "automatically" end in membership. Berlin also wants to beef up EU foreign policy through its humanitarian and development aid policies - and even military planning. It foresees a close cooperation between the EU and NATO here, which is probably something that would happen to a certain degree, directly or indirectly, though the neutral Member States may not be so happy with this.
When it comes to EU Democracy, there is nothing new: more education about Europe and supporting a more uniform electoral code seems to be the extent of the coalition's thinking here. There's not even a mention about how the 2014 elections can be used, never mind how they might affect the formation of the next Commission. Berlin will, however, want to see German on a more equal footing with French and English as a working language of the EU - it will be interesting to see how it pushes for this in practice.
Overall, very disappointing, if not entirely unexpected. For those of us on the left, the agreement's European paragraphs appear to contain no "social democratic handwriting". For those hoping for a change to Germany's Eurozone policy there is not only nothing, but a vigorous restatement of that nothing. For those looking for renegotiation there is an encouraging hint here, though the passage on social standards and the attitude towards the posting of workers will - or should - worry some British politicians who perhaps project too much of themselves into Germany's pro-single market outlook.
Thursday, 24 October 2013
Breaking the link between Governments and the Banks: Tales from Statusquoland
The Irish Taoiseach, Enda Kenny, is in Brussels at the European Council with 2 aims: (1) ensure that Ireland has access to an emergency line of credit (the "Enhanced Conditions Credit Line") with as few conditions as possible to smooth Ireland's exit from the bailout programme, and (2) to have the European Council re-agree what they agreed back in June 2012.
That's right: a major win for Kenny would be the re-agreement of something that the European Council already agreed over a year ago! I'm not joking.
Back in June 2012, the European Council agreed that a Banking Union was the way forward (PDF). The banking debts had to be severed from sovereign debts because Member State governments cannot bear the cost of this most Europeanised of market sectors. The Banking Union should also create a way for banks to be re-capitalised or wound up on a Eurozone basis, so that the debt crisis would not happen again. The European Council even decided to review the case for breaking the link between sovereign debt and existing bank debt - something that would do wonders for the balance sheets of the Irish and Spanish governments and ease the burden on their people considerably
This outbreak of good sense didn't last very long. In September 2012, Germany, along with The Netherlands and Finland, declared that not only will past banking debt not be severed from sovereign debt, but the European Stability Mechanism would not recapitalise banks instead of governments. Instead the order for recapitalising banks in the future would be: private funds, then Member State governments, and only then would the ESM step in. So three Member States had decided to completely void European policy agreed between 27 countries just 3 months ago, and they completely ruined the idea of a Banking Union. Why should countries bankrupt themselves saving banks, for the Eurozone to help out the banks directly more than the countries? It would be pure madness.
So now Kenny wants to return to the June Agreement:
It's a farcical position to be in and it shows how little progress is being made, and it shows that Merkel is perhaps the most conservative Chancellor ever: she literally does not want to change anything, and will only sanction limited change if its aim is to make sure things stay the same. Once, Merkel described the internet as Neuland - "New Land" - but even as the digital agenda is being discussed in Brussels, it feels like Europe is stuck in the twilight of Statusquoland. Even the German powerhouse economy can only expect 0.5% of growth this year.
So as Ireland, the Eurozone's star pupil, is preparing to leave the bailout programme, it's hard to be optimistic. Austerity has hardly worked wonders on the Irish economy, with government debt higher than at the start of the progamme, and employment soaring after 5 years of cuts. Without even the rewards of agreed Eurozone reform, many question how worthwhile the status of "star pupil" really is.
Statusquoland: If at first you don't succeed, apply the same rules more strictly.
That's right: a major win for Kenny would be the re-agreement of something that the European Council already agreed over a year ago! I'm not joking.
Back in June 2012, the European Council agreed that a Banking Union was the way forward (PDF). The banking debts had to be severed from sovereign debts because Member State governments cannot bear the cost of this most Europeanised of market sectors. The Banking Union should also create a way for banks to be re-capitalised or wound up on a Eurozone basis, so that the debt crisis would not happen again. The European Council even decided to review the case for breaking the link between sovereign debt and existing bank debt - something that would do wonders for the balance sheets of the Irish and Spanish governments and ease the burden on their people considerably
This outbreak of good sense didn't last very long. In September 2012, Germany, along with The Netherlands and Finland, declared that not only will past banking debt not be severed from sovereign debt, but the European Stability Mechanism would not recapitalise banks instead of governments. Instead the order for recapitalising banks in the future would be: private funds, then Member State governments, and only then would the ESM step in. So three Member States had decided to completely void European policy agreed between 27 countries just 3 months ago, and they completely ruined the idea of a Banking Union. Why should countries bankrupt themselves saving banks, for the Eurozone to help out the banks directly more than the countries? It would be pure madness.
So now Kenny wants to return to the June Agreement:
"Speaking at an event in the National Gallery in Dublin celebrating the 50th anniversary of charity group Chesire Ireland, Mr Kenny said he would again urge European leaders to fulfil their pledge to break the link between sovereign and bank debt.“One of the failings or inadequacies of the European Council over the years has been an inability to actually complete programmes where decisions are made,” he said“In this regard, I refer to the decisions that were made last year in respect of banking union. For Ireland and for other countries, it is absolutely critical that we follow those things through to completion before moving on to any other agendas.”"
So as Ireland, the Eurozone's star pupil, is preparing to leave the bailout programme, it's hard to be optimistic. Austerity has hardly worked wonders on the Irish economy, with government debt higher than at the start of the progamme, and employment soaring after 5 years of cuts. Without even the rewards of agreed Eurozone reform, many question how worthwhile the status of "star pupil" really is.
Statusquoland: If at first you don't succeed, apply the same rules more strictly.
Monday, 23 September 2013
Bundestagswahl 2013 - Merkel stays in control
The big headline - that Merkel remains in prime position after the German federal elections - isn't a big surprise, for Germany or for Europe. The shape of the next governing coalition and the impact on German and European politics, however, it a more complicated matter. As a parliamentary election, the German media have been calling the election too close to call, despite Merkel's CDU (and sister party CSU) having a 17% gap from its nearest rival, the centre-left SPD. Still, the Christian Democrats are within a few seats of an overall majority by themselves, so they are clearly in the driving seat for the next parliamentary period.
The SPD have improved on their electoral performance since the last elections, but it was nowhere near enough to challenge the CDU, with the Christian Democrats also increasing their share of the vote (and by an even greater amount than the SPD). The Christian Democrats have done extremely well, particularly given the leftwards drift of German politics. Over the last parliamentary term, there has been Fukashima (which tarnished the image of the nuclear industry and caused Merkel to U-Turn on the issue by promising the phasing out of nuclear power), the end of conscription (something the opposition wanted, and which shocked CDU traditionalists), and a sharp increase in the inequality gap in Germany.
But for each of these issues, Merkel has moved into the territory of her centre-left opponents, and essentially prevented them from making political capital out of these issues. The CDU has even gone into the election supporting a minimum wage! When Merkel has come to embody prudent management (despite passing remarkably little of her programme over the last two governments), the opposition has to offer change to get in. And if Merkel steals their policies for change...?
The Left Party and the Greens have lost votes in this election. While the Left Party had been in decline throughout the last few years, the Greens had been riding high, having even taken the senior coalition partner position in the Baden-Wuerttemberg Land government. Controversy over their tax policies has played badly in the media despite their best efforts to explain them, and has been a factor in losing support.
The biggest losers though are the junior coalition partners of the current government: the market liberal FDP. They have not met the 5% hurdle necessary in order to get into the Bundestag. CDU voters have not given their second vote to the FDP to make a right-wing coalition possible. On the other hand, the Eurosceptic party, Alternativ fuer Deutschland, has done quite well, and might just make it into the Bundestag.
Coalitions and Political Courses
All this means that a centre-left government is not going to form. The SPD have not done well enough, and the Greens have lost support, making the opposition coalition-in-waiting without a majority. If they add in the Left Party, they could forma majority, but the Left Party, with its East German Communist roots, is still not trusted on the federal level by the centre-left parties. Peer Steinbrueck, the SPD candidate for Chancellor, has ruled a coalition with the Left Party out, confirming that the CDU will lead the next government.
Therefore the CDU/CSU will probably form a Grand Coalition with the SPD (without the SPD candidate for Chancellor serving in the government, but that's not such a big problem for the SPD). There is the possibility of a CDU/CSU coalition with the Green party, as the Greens have gone into coalition with the CDU in Hamburg before, and the SPD are wary of Grand Coalitions since their experience in the first Merkel government, with Steinbrueck sounding negative about the idea. I still think that a Grand Coalition is the more likely outcome, however.
So what will be the effect on German and European politics? On the Eurozone, the opposition were in favour of Eurobonds and more radical action, so this option may find more favour with the next German government, though strong conditions would no doubt be attached. Within the next coalition, this could cause problems with the Christian Democrats' right wing, and the (relative) success of the Eurosceptic AfD might encourage more backbench rebellions from the CDU/CSU's right. (Notably, the AfD has claimed to be the inheritors of the FDP's political space).
That said, the good performance of the AfD probably won't have the same impact on the German political scene as UKIP have had in Britain. First of all, the AfD have only gained around 5% of the vote, and secondly, the CDU/CSU have increased their share of the vote by more than that - and specifically for the reason of Merkel's leadership, which includes the Eurocrisis. Finally, small parties tend to have a tough time in Germany. Though the Greens have done very well in becoming established, the rise and fall of the Pirate Party, and the more obvious collapse for the FDP, shows for the CDU as a Volkspartei (broad-church type party), that they can wait small parties out.
Continuity will be the watchword in German politics. The coalitions may chance, but Merkel remains in control. she dominates the political scene, and has set the pace of European politics. Freed by this win the speed of EU institutional reform may speed up, but I don't expect much divergence from the Merkel plan.
Merkelpolitik remains.
The SPD have improved on their electoral performance since the last elections, but it was nowhere near enough to challenge the CDU, with the Christian Democrats also increasing their share of the vote (and by an even greater amount than the SPD). The Christian Democrats have done extremely well, particularly given the leftwards drift of German politics. Over the last parliamentary term, there has been Fukashima (which tarnished the image of the nuclear industry and caused Merkel to U-Turn on the issue by promising the phasing out of nuclear power), the end of conscription (something the opposition wanted, and which shocked CDU traditionalists), and a sharp increase in the inequality gap in Germany.
But for each of these issues, Merkel has moved into the territory of her centre-left opponents, and essentially prevented them from making political capital out of these issues. The CDU has even gone into the election supporting a minimum wage! When Merkel has come to embody prudent management (despite passing remarkably little of her programme over the last two governments), the opposition has to offer change to get in. And if Merkel steals their policies for change...?
The Left Party and the Greens have lost votes in this election. While the Left Party had been in decline throughout the last few years, the Greens had been riding high, having even taken the senior coalition partner position in the Baden-Wuerttemberg Land government. Controversy over their tax policies has played badly in the media despite their best efforts to explain them, and has been a factor in losing support.
The biggest losers though are the junior coalition partners of the current government: the market liberal FDP. They have not met the 5% hurdle necessary in order to get into the Bundestag. CDU voters have not given their second vote to the FDP to make a right-wing coalition possible. On the other hand, the Eurosceptic party, Alternativ fuer Deutschland, has done quite well, and might just make it into the Bundestag.
Coalitions and Political Courses
All this means that a centre-left government is not going to form. The SPD have not done well enough, and the Greens have lost support, making the opposition coalition-in-waiting without a majority. If they add in the Left Party, they could forma majority, but the Left Party, with its East German Communist roots, is still not trusted on the federal level by the centre-left parties. Peer Steinbrueck, the SPD candidate for Chancellor, has ruled a coalition with the Left Party out, confirming that the CDU will lead the next government.
Therefore the CDU/CSU will probably form a Grand Coalition with the SPD (without the SPD candidate for Chancellor serving in the government, but that's not such a big problem for the SPD). There is the possibility of a CDU/CSU coalition with the Green party, as the Greens have gone into coalition with the CDU in Hamburg before, and the SPD are wary of Grand Coalitions since their experience in the first Merkel government, with Steinbrueck sounding negative about the idea. I still think that a Grand Coalition is the more likely outcome, however.
So what will be the effect on German and European politics? On the Eurozone, the opposition were in favour of Eurobonds and more radical action, so this option may find more favour with the next German government, though strong conditions would no doubt be attached. Within the next coalition, this could cause problems with the Christian Democrats' right wing, and the (relative) success of the Eurosceptic AfD might encourage more backbench rebellions from the CDU/CSU's right. (Notably, the AfD has claimed to be the inheritors of the FDP's political space).
That said, the good performance of the AfD probably won't have the same impact on the German political scene as UKIP have had in Britain. First of all, the AfD have only gained around 5% of the vote, and secondly, the CDU/CSU have increased their share of the vote by more than that - and specifically for the reason of Merkel's leadership, which includes the Eurocrisis. Finally, small parties tend to have a tough time in Germany. Though the Greens have done very well in becoming established, the rise and fall of the Pirate Party, and the more obvious collapse for the FDP, shows for the CDU as a Volkspartei (broad-church type party), that they can wait small parties out.
Continuity will be the watchword in German politics. The coalitions may chance, but Merkel remains in control. she dominates the political scene, and has set the pace of European politics. Freed by this win the speed of EU institutional reform may speed up, but I don't expect much divergence from the Merkel plan.
Merkelpolitik remains.
Monday, 15 April 2013
SPD Manifesto: A different course for Europe?
It's no secret that the European left are depending on a victory in Germany in this year's federal election before there can be some change of course on the Eurocrisis. With French, Italian and German elections within 18 months of each other (though the Italian one was more unexpected), the hope must have been to capture the big 3 Eurozone Member States to change the currency's political direction. It's an uphill battle: Hollande is struggling in the polls, the Italian centre-left failed to win a parliamentary majority, and at the moment Merkel's CDU are ahead of the SPD in the polls.
John Palmer over at Social Europe Journal, has questioned whether the SPD really do have the policy prescriptions that might help the Eurozone. Are the SPD putting forward vague promises or a more substantive platform for Europe? The SPD has published its election manifesto (PDF in German), where you can find the relevant European sections on pages 21-23 and 89-92.
Miteinander fuer mehr Soziale Marktwirtschaft in Europa - Working together for a more social market economy in Europe (pp.21-23):
The SPD essentially agree on the need for a Banking Union with the ECB as a regulator for the big banks (but with national oversight for the medium and small banks), and are for a Bank Fund, funded by the banks, that will deal with future financial crises. They also want more harmonisation when it comes to taxation (including corporation tax). The commitment to Social Europe is repeated, with support for investment through a European Investment Fund and a further strengthening of the European Investment Bank.
Finally, the manifesto sets out the SPD's support for a European Debt Fund to ensure the capacities of the Eurozone members, in return for a binding debt reduction and reform plan.
Ein anderes und besseres Europa - A different and better Europe (pp.89-92):
This section is mostly rhetoric setting out the SPD's European identity and credentials in comparison to the governing parties. The SPD supports the development of the Commission as the executive of the EU, but with a stronger role for the European Parliament in electing it and holding it to account. The manifesto also highlights the PES primaries for their Commission president candidate. I'm glad to see the SPD explicitly support creating a parliamentary tradition on the European stage ("Auch so wird ein Stueck Parlamentstradition die in den Mitgliedsstaaten selbstverstaendlich ist, auch auf die EU Ebene gebracht" - Thus will a part of the parliamentary tradition of the Member States be brought to the EU stage).
Strikingly, the SPD places a "competence division" at the heart of the reform process - though the manifesto clearly aims towards a more European economic policy, the possibility for the return of powers to the national level is left open. Cameron's renegotiation policy may find more success if the more federalist opposition is elected than if his ideological neighbour is.
The SPD calls for a strong European Social Union, and an European economic government subject to European Parliament control, but these concepts remain vague (no doubt leaving more room for negotiation if the other Eurozone Member States accept the idea).
Conclusion
A victory for the SPD-Green opposition this autumn is not going to be revolutionary: the SPD support a lot of what is already in place or what will be put in place in terms of the Banking Union, Financial Transaction Tax and the bail-outs. But it would signal to the rest of the EU that a second pillar could be negotiated alongside the rigid rules for fiscal rigour.
It's still quite a vague vision, and a limited one. No mention is made of the possibility of a Eurozone budget and a Eurozone Parliament (or part of the European Parliament) when it comes to economic government, so investment funds, bonds and banks are the vehicles for economic investment. This means that essentially additions to the institutional architecture are being envisaged rather than a more flexible (and electorally responsive) vision of a central budget subject to the European Parliament. The manifesto may be more realistic when it comes to winning electoral support, but the worry on the left must be that these new bonds and institutions may not generate enough investment to counter the depressive effect of fiscal rigour in a recession.
John Palmer over at Social Europe Journal, has questioned whether the SPD really do have the policy prescriptions that might help the Eurozone. Are the SPD putting forward vague promises or a more substantive platform for Europe? The SPD has published its election manifesto (PDF in German), where you can find the relevant European sections on pages 21-23 and 89-92.
Miteinander fuer mehr Soziale Marktwirtschaft in Europa - Working together for a more social market economy in Europe (pp.21-23):
"Wir wollen kein Europa, das Spielball der Maerkte ist, sondern eines, das im Interesse der Menschen handelt. Nur geeint und im festen Zusammenschluss der Europaeischen Union hat Europa eine Chance im globalen Wettbewerb von Ideen und Werten, von Politik und Wirtschaft. Aus diesem Grund wollen wir die Politische Union Europas weiter vertiefen.
[We don't want a Europe that is a plaything of the markets, but one that works in the interests of people. Only with a united European Union does Europe have a chance to compete globally when it comes to ideas, values, politics and economics. For this reason we want to further deepen the political union - (Own translation)]"
Finally, the manifesto sets out the SPD's support for a European Debt Fund to ensure the capacities of the Eurozone members, in return for a binding debt reduction and reform plan.
Ein anderes und besseres Europa - A different and better Europe (pp.89-92):
This section is mostly rhetoric setting out the SPD's European identity and credentials in comparison to the governing parties. The SPD supports the development of the Commission as the executive of the EU, but with a stronger role for the European Parliament in electing it and holding it to account. The manifesto also highlights the PES primaries for their Commission president candidate. I'm glad to see the SPD explicitly support creating a parliamentary tradition on the European stage ("Auch so wird ein Stueck Parlamentstradition die in den Mitgliedsstaaten selbstverstaendlich ist, auch auf die EU Ebene gebracht" - Thus will a part of the parliamentary tradition of the Member States be brought to the EU stage).
Strikingly, the SPD places a "competence division" at the heart of the reform process - though the manifesto clearly aims towards a more European economic policy, the possibility for the return of powers to the national level is left open. Cameron's renegotiation policy may find more success if the more federalist opposition is elected than if his ideological neighbour is.
The SPD calls for a strong European Social Union, and an European economic government subject to European Parliament control, but these concepts remain vague (no doubt leaving more room for negotiation if the other Eurozone Member States accept the idea).
Conclusion
A victory for the SPD-Green opposition this autumn is not going to be revolutionary: the SPD support a lot of what is already in place or what will be put in place in terms of the Banking Union, Financial Transaction Tax and the bail-outs. But it would signal to the rest of the EU that a second pillar could be negotiated alongside the rigid rules for fiscal rigour.
It's still quite a vague vision, and a limited one. No mention is made of the possibility of a Eurozone budget and a Eurozone Parliament (or part of the European Parliament) when it comes to economic government, so investment funds, bonds and banks are the vehicles for economic investment. This means that essentially additions to the institutional architecture are being envisaged rather than a more flexible (and electorally responsive) vision of a central budget subject to the European Parliament. The manifesto may be more realistic when it comes to winning electoral support, but the worry on the left must be that these new bonds and institutions may not generate enough investment to counter the depressive effect of fiscal rigour in a recession.
Thursday, 21 March 2013
Economic Union and Cyprus
The crisis flared up in a shocking manner this week as Cyprus, long on the list of potential bail-out countries, found itself at the centre of the Eurocrisis after the controversial bail-out deal was rejected by the Cypriot parliament. The ECB has extended its emergency credit to the Central Bank of Cyprus until Monday, giving the country some more time to find a Plan B. Cyprus is increasingly looking to Russia for support (Russia has already loaned Cyprus some money), and there is a media battle over the rights and wrongs of the bail-out conditions. The decision to tax bank depositors as a one-off was always going to have a knock on confidence, and the confusion over who decided what is increasing with a PR war over the decision to extend the tax to depositors with accounts of under €100,000.
The head of the Euro Group, Jeroen Dijsselbloem, was in the European Parliament today to answer questions on the crisis, and European Council President Van Rompuy and Commissioner Maroš Šefčovič were grilled by the Parliament yesterday. The deposit tax was attacked from across the political spectrum:
The shambolic approach to bail-outs highlights again that the EU is operating in a piecemeal way to the crisis and has little coherence to its responses. The demand for a deposit tax doesn’t sit well with bank deposit guarantees, the aim of protecting depositors or breaking the link between sovereigns and the banking system as was agreed at the European Council summit in June.
Ironically yesterday the Commission unveiled further plans on economic and monetary union to increase co-ordination on important economic policies including the areas of “competitiveness, employment, market functioning, tax systems, financial stability and fiscal sustainability”, as well as further developing this contractual approach to financial assistance in the form of “Convergence and Competitiveness Instruments” (CCIs). These proposals aren’t yet legislative proposals, but they underline the technocratic approach:
Without oversight and accountable political decision-making at the European level to decide on what kind of Eurozone we want in the first place, the coordination and the negotiation of the CCIs will be based on a technocratic vision of the Eurozone. If the CCIs are to form a pillar of Eurozone economic and social policy, shouldn’t there be a Eurozone framework drawn up by the European Parliament that identifies economic and social priorities regularly to guide this, rather than technocratic priorities being enshrined? Currently bail-out deals seem to be ad hoc and unprincipled, with disastrous results for policy making.
The head of the Euro Group, Jeroen Dijsselbloem, was in the European Parliament today to answer questions on the crisis, and European Council President Van Rompuy and Commissioner Maroš Šefčovič were grilled by the Parliament yesterday. The deposit tax was attacked from across the political spectrum:
"My question is: how come all of a sudden small savings and depositors are no longer protected? This is a dangerous precedent. It takes years to recover trust by depositors. Why hit the small savers? The crisis in Cyprus has sounded an alarm bell. We have to speed up the regulation of financial markets. Above all, we need a European solution to the Cyprus problem, not a Russian one." - Corien Wortmann-Kool, vice chairwoman of the centre-right European People's Party.
"The European law is very clear: all deposits below €100,000 must be guaranteed in case of bank failure. We urged the Cypriot government and the European authorities to come up with an alternative solution that protects the savings of ordinary citizens. The EU has made huge progress on strengthening the stability of the eurozone with the recent agreement to set up a single European supervisor to oversee the banks, and the new rules on capital requirements for banks (the so-called 'CRD IV' package). We need to do more by setting up a European resolution mechanism in case of bank failures." - Elisa Ferreira, S&D spokesperson for economic and monetary affairs.
"A banking union must protect the bank customers, especially the ordinary depositors rather than the bond holders and creditors. Nor does the decision do anything to break the link between banks and sovereigns. It is totally incomprehensible and undermines the credibility and legitimacy of the EU and its new financial structures to restore stability." – Guy Verhofstadt, leader of the Liberal ALDE group.
“While it is clear that a bailout is necessary to protect Cyprus from eventual bankruptcy, the tax on bank deposits will risk destabilising the complete structure of the Cypriot banking system, and is an aggressive gesture by the Eurogroup to the population of Cyprus.” - Monica Frassoni, European Green Party co-Chair.
The shambolic approach to bail-outs highlights again that the EU is operating in a piecemeal way to the crisis and has little coherence to its responses. The demand for a deposit tax doesn’t sit well with bank deposit guarantees, the aim of protecting depositors or breaking the link between sovereigns and the banking system as was agreed at the European Council summit in June.
Ironically yesterday the Commission unveiled further plans on economic and monetary union to increase co-ordination on important economic policies including the areas of “competitiveness, employment, market functioning, tax systems, financial stability and fiscal sustainability”, as well as further developing this contractual approach to financial assistance in the form of “Convergence and Competitiveness Instruments” (CCIs). These proposals aren’t yet legislative proposals, but they underline the technocratic approach:
“What would the ex-ante coordination process look like?
A Member State would provide information on a major economic reform plan in its National Reform Programme (on economic policies for the coming year) or at another time during the year. The Commission would assess the plan and deliver an opinion on it. The Commission's assessment would cover the extent to which the reform tackles the specific policy challenges and how it would improve competitiveness and adjustment capacity. The Commission's assessment would pay particular attention to the impact the reform would have on the functioning of the euro area and possible spillover effects on other Member States. These plans will then be discussed by the Council of Ministers and the Eurogroup. The Commission and the Council can suggest modifications to the national reform plan where they could be justified by the expected effects on other Member States and the functioning of the Economic and Monetary Union.”
Without oversight and accountable political decision-making at the European level to decide on what kind of Eurozone we want in the first place, the coordination and the negotiation of the CCIs will be based on a technocratic vision of the Eurozone. If the CCIs are to form a pillar of Eurozone economic and social policy, shouldn’t there be a Eurozone framework drawn up by the European Parliament that identifies economic and social priorities regularly to guide this, rather than technocratic priorities being enshrined? Currently bail-out deals seem to be ad hoc and unprincipled, with disastrous results for policy making.
Thursday, 7 February 2013
Liquidating Anglo Irish Bank
Last night the Oireachtas (Irish parliament) held an extended sitting lasting into the night to pass emergency legislation to liquidate the Irish Bank Resolution Corporation, the successor to the Anglo Irish Bank.
The legislation was sprung on lawmakers when news of a possible deal with the ECB over the billions of debt bound up in promissory notes to the bank was leaked. (You can read more on the background to the promissory notes here). The ECB board is scheduled to meet tomorrow and will decide on a deal on some of the Irish banking debt. This sparked concerns over the bank (that its assets would be at risk and that the state would be exposed at a time when creditors and debtors knew that liquidation was coming), leading to the government launching the bill through the Oireachtas under a guillotined procedure - the Irish president flew home from a visit to Italy on short notice to sign the bill into law.
The Irish Bank Resolution Corporation Bill 2013 (the Bill couldn't be amended so the wording is identical to the Act) was passed by the Dáil (lower house) by 113 votes to 35 just before 3am before going to the Seanad for approval. It empowers the Minister for Finance to order the liquidation of the IBRC, to order National Asset Management Agency (NAMA, Ireland's bad bank) to take a number of actions, including bidding for the assets of IBRC (i.e. swap assets for NAMA bonds), and to create or issue securities under a number of circumstances, including in return for release from liabilities. The Act will also fire all of the employees of the IBRC - while NAMA will rehire some of these, it will be a particularly shocking and disruptive time for them.
The deal on the promissory notes (if any) is not yet known, so the Oireachtas had to decide on half of the deal before the ECB agreed to anything. The speculation is that the promissory notes will be turned into long term government bonds by the Minister for Finance, turning the banking debt into government debt in return for the debt to be paid off over a longer period, lessening the need for budgetary cuts. The retention of responsibility for the overall debt, with no debt write-down, will be unpopular and it will be difficult for the government to present the deal as a victory in the fight for the separation of banking and sovereign debt. However there could (should) be savings when it comes to the interest on the debt. The final deal may end up having a different shape to it, but, whatever the detail, once the deal is accepted it is highly unlikely that further concessions should be negotiated.
There is no guarantee that the ECB will arrive at a decision on this today. The order of events means that it will be difficult to know whether, whatever deal is reached, a better deal could have been possible. But unless the deal includes a write-down on the debt, it will still be seen as cementing public responsibility over private debt.
The legislation was sprung on lawmakers when news of a possible deal with the ECB over the billions of debt bound up in promissory notes to the bank was leaked. (You can read more on the background to the promissory notes here). The ECB board is scheduled to meet tomorrow and will decide on a deal on some of the Irish banking debt. This sparked concerns over the bank (that its assets would be at risk and that the state would be exposed at a time when creditors and debtors knew that liquidation was coming), leading to the government launching the bill through the Oireachtas under a guillotined procedure - the Irish president flew home from a visit to Italy on short notice to sign the bill into law.
The Irish Bank Resolution Corporation Bill 2013 (the Bill couldn't be amended so the wording is identical to the Act) was passed by the Dáil (lower house) by 113 votes to 35 just before 3am before going to the Seanad for approval. It empowers the Minister for Finance to order the liquidation of the IBRC, to order National Asset Management Agency (NAMA, Ireland's bad bank) to take a number of actions, including bidding for the assets of IBRC (i.e. swap assets for NAMA bonds), and to create or issue securities under a number of circumstances, including in return for release from liabilities. The Act will also fire all of the employees of the IBRC - while NAMA will rehire some of these, it will be a particularly shocking and disruptive time for them.
The deal on the promissory notes (if any) is not yet known, so the Oireachtas had to decide on half of the deal before the ECB agreed to anything. The speculation is that the promissory notes will be turned into long term government bonds by the Minister for Finance, turning the banking debt into government debt in return for the debt to be paid off over a longer period, lessening the need for budgetary cuts. The retention of responsibility for the overall debt, with no debt write-down, will be unpopular and it will be difficult for the government to present the deal as a victory in the fight for the separation of banking and sovereign debt. However there could (should) be savings when it comes to the interest on the debt. The final deal may end up having a different shape to it, but, whatever the detail, once the deal is accepted it is highly unlikely that further concessions should be negotiated.
There is no guarantee that the ECB will arrive at a decision on this today. The order of events means that it will be difficult to know whether, whatever deal is reached, a better deal could have been possible. But unless the deal includes a write-down on the debt, it will still be seen as cementing public responsibility over private debt.
Tuesday, 22 January 2013
The Irish Presidency Work Programme
Ireland took over the presidency of the Council of the European Union at the start of the year, and last Wednesday Taoiseach Enda Kenny, leader of the Fine Gael-Labour (EPP-PES) coalition government, outlined the priorities of the presidency to the European Parliament. Sustainability, jobs and growth are the central mantra of the presidency, though the familar buzzwords didn't stop Kenny from attempting rhetorical flight in the Strasbourg chamber, enthusing about the European family.
In his speech to the European Parliament, Kenny outlined a
large work programme, from CAP and CFP reform to collective copyright
management and data protection. The Data Protection package is one of the biggest legislative changes and a flagship policy of the Commission. There's been worries that the law won't be passed before the parliament ends, causing the draft to lapse and the work to go to waste, so there will have to be a big push from the presidency to make progress here.
Interestingly, while he stressed the need to
pass the 2-Pack of legislation (which I’ve written about here) and the
importance of the European Semester, Kenny also expressed a willingness to
engage with the Parliament on the democratic deficit – let’s see if any
constructive measures make it to the statute books.
A major topic was, of course, breaking the link between sovereigns
and banking debt, with the banking union and progress on the implementation of
the Single Supervisory Mechanism. On trade, Kenny looked forward to the authorisation and opening of negotiations with the US, along with negotiations with Japan, Canada and ASEAN.
Finally, Kenny couldn't help plugging Ireland's big tourism campaign - The Gathering!
You can see a list of the measures behind these priorities here.
Thursday, 18 October 2012
Schaeuble's Currency Commissioner
German Finance Minister, Wolfgang Schaeuble, floated the idea of a currency commissioner in the run-up to this week's European Council summit. The currency commissioner would be able to veto national budgets, and would be independent of the rest of the College of Commissioners (the Commission takes decisions by majority vote) to "depoliticise" the role.
This idea is clearly bonkers. You cannot "depoliticise" the fundamental matter of national budgets, because you cannot pretend that budgets and economic issues are simply matters of technical wizardry, with expert options being implemented for desired outcomes - desired outcomes are political matters, and deserve a meaningful airing in a publically accountable body: the national parliament. While there is an argument for certain budgetary contraints on Eurozone Member States to ensure the functioning of the common currency - in exchange for solidarity between Member States, it should be stressed - at the end of the day Member States should be able to set their own budgets.
Rather than trying to come up with tighter and more rigid and better enforced rules for the Eurozone, we should be working to divorce banks from the sovereigns to make banking a European matter within the Eurozone, and creating a system where Member States can go bankrupt, without endangering the system and with some support for recovery after bankruptcy. A flexible and politically accountable system would work much better than Schaeuble's approach - there needs to be political accountability for national budgets at the national level, and at the European level for those elements of European solidarity.
Even on the European level of accountability, Schaeuble's plan fails: an independent currency commissioner would be free of the restraint of the rest of the college of commissioners (and here the issue of the nationality of said commissioner would come into political focus), and the ability of the European Parliament to hold him or her to account is also muddied. Could the EP sack this independent commissioner or only as a part of the Commission as a whole? Where's the balance between independence and accountability here?
Schaeuble's approach here reveals an underlying philosophy that's plan wrong. Money and budgets are political, and there needs to be democratic accountability and participation both nationally, and Eurozone-wide for the Euro to work. Once Schaeuble and others take account of this basic fact we might get to see more realistic and workable plans being suggested.
This idea is clearly bonkers. You cannot "depoliticise" the fundamental matter of national budgets, because you cannot pretend that budgets and economic issues are simply matters of technical wizardry, with expert options being implemented for desired outcomes - desired outcomes are political matters, and deserve a meaningful airing in a publically accountable body: the national parliament. While there is an argument for certain budgetary contraints on Eurozone Member States to ensure the functioning of the common currency - in exchange for solidarity between Member States, it should be stressed - at the end of the day Member States should be able to set their own budgets.
Rather than trying to come up with tighter and more rigid and better enforced rules for the Eurozone, we should be working to divorce banks from the sovereigns to make banking a European matter within the Eurozone, and creating a system where Member States can go bankrupt, without endangering the system and with some support for recovery after bankruptcy. A flexible and politically accountable system would work much better than Schaeuble's approach - there needs to be political accountability for national budgets at the national level, and at the European level for those elements of European solidarity.
Even on the European level of accountability, Schaeuble's plan fails: an independent currency commissioner would be free of the restraint of the rest of the college of commissioners (and here the issue of the nationality of said commissioner would come into political focus), and the ability of the European Parliament to hold him or her to account is also muddied. Could the EP sack this independent commissioner or only as a part of the Commission as a whole? Where's the balance between independence and accountability here?
Schaeuble's approach here reveals an underlying philosophy that's plan wrong. Money and budgets are political, and there needs to be democratic accountability and participation both nationally, and Eurozone-wide for the Euro to work. Once Schaeuble and others take account of this basic fact we might get to see more realistic and workable plans being suggested.
Eurozone Exit of the crisis countries could cost world €17 Trillion
As the European Council meets for its summit to decide on the way forward for the Eurozone based on Van Rompuy's recommendations, Die Sueddeutsche Zeitung has reported on a study by the Bertelsmann Stiftung, which found that if the crisis-hit countries of the Eurozone left, it would cost the major world economies €17 Trillion up to 2020:
The isolated withdrawal of Greece would be manageable, but would also trigger a recession that would spread to the US and China. The Bertelsmann Stiftung also says:
Not a time to be rowing back on the progress that's already been made.
Update: The EUObserver has an article on this in Englisgh here. And the calculations were done by Prognos for the Bertelsmann Stiftung, rather than by the Stiftung itself.
"Bei einem Austritt Griechenlands aus dem Euro hätten die wichtigsten Volkswirtschaften bis 2020 einen Verlust von 674 Milliarden zu tragen. Ein Ausstieg der Euro-Länder Spanien, Italien, Griechenland und Portugal könnte sogar bis zu 17,2 Billionen Euro an Wachstumsverlusten führen, schreibt die Stiftung.
Das höchste Minus beliefe sich in Frankreich auf 2,9 Billionen Euro, in den USA auf 2,8 Billionen Euro, der Verlust in China auf 1,9 und in Deutschland auf 1,7 Billionen Euro. Die wirtschaftlichen Einbußen in Deutschland wären dann mit 21.000 Euro pro Kopf teilweise noch höher als etwa in Griechenland mit mehr als 15.000 Euro.
[Own Translation: A Greek Exit from the Euro would cost the major economies €674 Billion by 2020. An exit by Spain, Italy, Greece and Portugal could cost up to €17.2 Trillion in loss of economic growth, the foundation writes.
The biggest lost would be in France at €2.9 Trillion, in the USA at €2.8 Trillion, the lost in China would be €1.9 Trillion, and in Germany €1.7 Trillion. The economic loss in Germany would be €21,000 per capita, which is higher even than the pro capita loss in Greece at over €15,000.]"
The isolated withdrawal of Greece would be manageable, but would also trigger a recession that would spread to the US and China. The Bertelsmann Stiftung also says:
"Für Griechenland wäre das Szenario mit einem Staatsbankrott, einer massiven Abwertung der neuen griechischen Währung, Arbeitslosigkeit, Nachfrageverlusten u.v.a. verbunden, was sich bereits schnell auf seine direkten Handelspartner auswirkt. In dem südeuropäischen Land selbst würden sich die anschließenden Wachstumsverluste bis zum Jahre 2020 auf 164 Milliarden Euro oder 14.300 Euro pro Einwohner belaufen. Die 42 wichtigsten Volkswirtschaften der Welt müssten in der Summe aber bereits einen Verlust von insgesamt 674 Milliarden Euro verkraften.
Da aber nicht auszuschließen ist, dass ein Euro-Austritt Griechenlands massive Folgen für weitere südeuropäische Krisenländer hätte, wurden die Berechnungen auch auf diese Szenarien ausgeweitet.
[...]
In ihrer Gesamtbewertung kommen die Autoren zu dem Fazit: Ein zunächst isolierter Austritt Griechenlands und sein Staatsbankrott wären zwar ökonomisch verkraftbar, könnten aber mit ihren schwer kalkulierbaren Folgen die Weltwirtschaft in eine tiefe Rezession stürzen, die auch vor außereuropäischen Volkswirtschaften keinen Halt machen würde. Neben den rein ökonomischen Konsequenzen ist auch mit erheblichen sozialen Spannungen und politischen Instabilitäten zu rechnen – vor allem in den Ländern, die aus dem Euro ausscheiden, aber auch in anderen Volkswirtschaften.
[Own Translation: For Greece a bankruptcy scenario along with the devaluation of a new Greek currency would mean unemployment, loss of demand, etc, which would have a rapid impact on Greece's direct trading partners. In Southern Europe the economic loss up to the year 2020 would be €164 Billion, or €14,300 pro capita. The 42 biggest world economies would have to reckon with a total loss of €674 Billion.
However it must not be rulled out that a Greek Exit would have massive consequences for the southern crisis-hit countries, so the calculations were applied to these further scenarios.
[...]
Overall, the authors came to the conclusion that an isolated Greek Exit and its bankruptcy would be economically manageable, but the unpredictable consequences could lead to a deep global recession that would not stop at Europe's borders. Apart from the purely economic consequences, there are also the high social tensions and political instability to consider - especially in the exiting countries, but also for other economies.]"
Not a time to be rowing back on the progress that's already been made.
Update: The EUObserver has an article on this in Englisgh here. And the calculations were done by Prognos for the Bertelsmann Stiftung, rather than by the Stiftung itself.
Friday, 28 September 2012
The Bottom Line 20/9/2012
The BBC Radio 4 business programme, The Bottom Line, recently had a show where the 3 panelist business representatives were asked about Europe and the Euro, and if it really is in decline compared to the rest of the world. It's not long - only 10 minutes in the second third of the show - but if you're interested, you can listen to it here.
Friday, 17 August 2012
The Fiscal Stability Regulation
The second proposal of the two-pack, the Fiscal Stability
Regulation (PDF), focuses on budgetary surveillance where Member States are
“experiencing or threatened with serious difficulties with respect to their
financial stability”. The Regulation would only apply to the Eurozone Member
States. The Regulation would mean that Eurozone Member States will, just like
Member States requesting precautionary assistance from the EFSF, ESM or IMF, be
subject to a higher level of budgetary surveillance than would normally be the
case under the Eurozone legislation so far.
The Regulation
- The Commission can decide whether a Member State should be put under enhanced surveillance, and whether to prolong that status every 6 months. The Commission must put Member States receiving financial assistance on a precautionary basis under enhanced surveillance if they actually draw on the precautionary aid;- If a Member State is under enhanced surveillance, it must adopt measures aimed at addressing the sources or potential sources of difficulties and, on request from the Commission, the Member State shall: communicate information on the financial situation of financial institutions under the surveillance of national supervisors to the Commission, ECB, and European Banking Authority; carry out stress tests to test the resilience of the banking sector to financial and macroeconomic shocks; be subject to regular assessments of its supervisory capacities over the banking sector; communicate information needed for the monitoring of marco-imbalances- The Commission will conduct regular review missions in Member States under enhanced surveillance. If further measures are needed, the Council may recommend that the Member State seek financial assistance on a qualified majority vote;- Where financial assistance is sought, the Commission will prepare an analysis of the sustainability of the Member State’s government debt;- The Member State receiving financial assistance will prepare a draft adjustment programme in agreement with the Commission to be approved by the Council by QMV. If the Commission highlights significant deviations from the programme, the Council may make a finding of non-compliance by QMV;- The monitoring under adjustment programmes will suspend the monitoring over other Eurozone legislation;- There will be “post-programme surveillance” as long as a minimum of 75% of the financial assistance received by a Member State has not been repaid, and this period may be extended by the Council, voting by QMV. For this surveillance, the Commission will conduct regular review missions and the Council may recommend corrective measures to the Member State on a QMV vote;- For qualified majority votes, only Eurozone members can vote in procedures under this Regulation, with the Member State concerned excluded from the vote.
European Parliament Report
The report in the Economic and Monetary Affairs Committee was
drafted by Jean-Paul Gauzes (EPP). The report was adopted by Committee by 25
votes to 4, with 13 abstentions. It was passed in a plenary vote, but I haven’t
been able to find out what the vote was.
The report contains 72 amendments, and the main changes are:
- Like the Excessive Deficit Regulation, more referenced to employment and social protection have been made in the recitals, and in the first article with regard to wage formation and collective agreements;- Amendment 8 would include a recital referring to ECJ case law that Member States can restrict the free movement of capital on ground of public security, stating that this may be possible to fight tax evasion where a Member State faces serious difficulties in retaining financial stability. It would also insert a reference to the ability of the Council, on a Commission proposal, to authorise restrictions in the free movement of capital concerning third countries. Provisions addressing this are also to be included as articles;- It would make it a requirement for Member States to report debt issuance plans to the Commission and Council;- The report seeks to tie the decision that a Member State is at risk more closely to objective factors, including warnings from the European Systemic Risk Board;- Requiring the Commission to examine the potential negative spill-over effects generated by Member States, including in the field of taxation, and the Council may make recommendations to the Member State regarding this on a proposal from the Commission;
- Requiring the Commission to report the findings of its reviews (including post-programme reviews) to the European Parliament;- Requiring Member States intending to request financial assistance to inform the European Parliament;
- That the assessment of government debt sustainability also include an assessment of the impact of the adjustment programme on the Member State’s ability to repay, and the Commission will make public its methods of economic assessment;- The Commission would be given the power to approve draft macroeconomic adjustment plans, with the Council being able to reject an approval by qualified majority voting. Likewise, the Commission can adopt recommendation for a new draft plan where it judges the old one to be insufficient; a recommendation which the Council can reject. (This would increase the power of the Commission in comparison to the original draft);- The Commission can also make changes to the adjustment programme where there is a significant gap between forecasts and realised figures, which the Council can reject by QMV within 10 days of the decision;- Similarly, the Commission will be empowered to decide whether a Member State has significantly deviated from the adjustment plan, with the Council having 10 days to reject this decision;- Adjustment plans must take into account the need to ensure sufficient means for fundamental policies such as education and healthcare;- A Member State subject to an adjustment plan shall audit existing debt to assess the reasons for its accumulation;- Social partners and civil society shall be given the opportunity to express their views on the Commission public recommendations and opinions provided for under this Regulation;- A Member State can be placed under “legal protection” if it is going to default on a decision of the Commission (which can be rejected by the Council within 10 days). Under legal protection a Member State should be able to stabilise and honour its debt. Legal protection would: have the effect of “close-out netting” or “credit event” provisions becoming inoperative; maintain (freeze) loan interest rates and ensure that new loans (apart from financial assistance) are to be reimbursed as a priority; creditors of the Member State must make themselves known to the Commission within 2 months or have their debts extinguished; the Member State submits a recovery and debt settlement plan to the Commission for approval;- For post-programme surveillance, the Commission can take these decisions, with the Council having the power of rejection.
Thoughts
The European Parliament has put forward some amendments to
increase scrutiny and oversight over the budgetary monitoring, with more
reporting to the European Parliament and opening up Commission recommendations
and opinions to the comment of social partners and civil society. There are
also references to the need for the social impact of the adjustment programmes
to be assessed and for the necessary funding for health and education to be
ensured.
However the drive to empower the Commission is striking. In
all cases the Council can reject the Commission’s decision so the Commission
still needs the Council’s consent in a way, but it matters that the consent can
be implied through inaction and that it doesn’t have to be won in a vote. This
would make it more likely for the provisions of the Regulation to be exercised since
it is politically difficult for Member States to vote on issues for another
Member State. The “legal protection” amendments are the most radical. I don’t
know much about state bankruptcy, but the provisions seem to be far too
concerned with ensuring that creditors can be paid off (and by implication that
the failed adjustment programme be taken as far as possible to secure enough
repayment as possible, despite this failure). That the Commission can declare this protection without an application by the Member State goes too far in empowering the Commission. There is no way this amendment will pass in the Council, and it should
be noted that the Commission is considering ways bankruptcy could be dealt with
in the Eurozone.
Thursday, 16 August 2012
Excessive Deficit Regulation
The Excessive Deficit Regulation (PDF) builds on the
six-pack legislation’s provisions on budgetary surveillance.
The Regulation
The Regulation would establish a common budgetary timeline
(mid-term budgetary framework to be published by 15th April, draft
budget laws published by 15th October, and budget laws should be
adopted by 31st December), and require the creation of national
independent fiscal councils for monitoring the implementation of national
fiscal rules for achieving budget balance.
For budget monitoring, the relevant information is
(simplified list taken from Article 5(3)):
(a) The targeted budget balance as a percentage of GDP;(b) The projections at unchanged policies for expenditure and revenue as a percentage of GDP;(c) Targeted expenditure and revenue as a percentage of GDP;(d) A detailed description of measures to be included in the budget to bridge the gap between the targets in (b) and (c);(e) The main assumptions about expected economic developments and important economic variables, based on independent macroeconomic growth forecast;(f) Any additional indications on how recommendations to the Member State will be met.The Commission will give its opinion on the draft budgetary laws by 30th November, and national parliaments can require a Commission presentation to them. There will also be an overall assessment for the Eurozone.
When a Member State is under the excessive deficit procedure
it falls under closer budgetary scrutiny, with regular reports to the
Commission on the execution of the budget on the general government and sub-sector
levels. Under Article 7(6), the Commission can require a Member State to carry
out and report on a comprehensive independent audit of its accounts and provide
additional information on its progress on the excessive deficit. The Regulation
would increase the Commission’s power in monitoring Member States’ budgets and
involvement in budgets where there is an excessive deficit procedure in force.
European Parliament Report.
For the Economic and Monetary Affairs Committee, Elisa
Ferreira (S&D) drafted the report for the Parliament’s response at
first reading. The report was endorsed in Committee by 18 to 12, with 14 abstentions,
and in plenary by 501 to 138, with 36 abstentions. The report was endorsed by
an EPP-S&D-ALDE-Greens/EFA coalition.
The report submits 81 amendments that will be the Parliament’s
starting negotiating point with the Member States in the Council. The main
changes are:
- Greater reference to employment and social partners to be added to the recitals;- It would add (non-binding) calls for a Financial Transaction Tax and a Common Consolidated Corporate Tax Base to the recitals;- Specifies that the Regulation does not affect wage formation or collective agreements;- Would define “particularly serious not compliance” as a deviation of 1% GDP in one year or an average of 0.5% GDP each year for two years from the budgetary objective if there are no exceptional circumstances;- Gives some more flexibility with the deadlines;- “Expected economic developments” will include an estimation of the assumed macroeconomic multiplier effects (so stimulus packages can be taken into account);- Specifies that the Commission’s power to specify content of draft budgetary plans is through delegated acts, which brings it under closer control and scrutiny by the Parliament and Council;- The European Parliament can also require that the Commission present its budgetary plans to it and the relevant EP Committee, as well as the Eurogroup, will discuss the Commission’s opinion on national budgetary plans and the budgetary situation in the Eurozone. The Commission may update its opinions in the light of these discussions;- Overall assessments of the Eurozone shall also include stress tests that provide “an indication of the risks to public finance sustainability in the event of adverse financial or budgetary developments.”- The requirement of Member states to report debt issuance to the Commission and the Eurogroup will be included;- The Commission will be required to present a report on a roadmap towards Eurozone Stability bonds and present a proposal for a Eurozone sustainable growth instrument aiming at mobilising approx. 1% GDP per year over 10 years, including an increase in EIB capital and project bonds, to be invested in European infrastructure, science and technology;- Eurozone Member States may agree an annual coordinated public debt issuance framework (this is for a future proposal, however);- A European Redemption Fund shall be established based on joint liability and strict conditionality for 25 years (after which it will be wound up), covering debt over 60% GDP of non-assistance programme Eurozone Member States on a roll-over period of 5 years. There will also be a fiscal consolidation strategy and a structural reform agenda. The ERF’s day-to-day management will be under the Commission following a regulation by the EP and Council;- Under the excessive deficit procedure, the relevant Member State will present its national plan, including areas of European Added Value, such as EIB credit lines;- The Commission shall present a report, and possibly a proposal, on a European Debt Authority to the Parliament and Council that would be responsible for managing and coordinating all issues relating to the annual debt issuance plan of the Member States.
Thoughts
The report is clearly very ambitious, particularly inserting
the creation of a European Redemption Fund, likely as a way of aiding Italy and
Spain. The Parliament is keen to introduce a greater scope of variables to the
process and to highlight the importance of social partners, respect for wages
and collective agreements, and European solidarity through national plans
indicating EIB and other economic help. It’s also clear that the Parliament is
using this opportunity to push its ideas on to the agenda and to overcome being
overshadowed by the European Council summitry that’s dominated the past 2-3
years of crisis. The Parliament has also tried to introduce more democratic and
parliamentary controls over the Commission’s power, especially in ensuring the
oversight of its delegated powers by the Parliament and Council. By reserving a
right to demand Commission reports and the right of debate, the Parliament
tried to ensure that all these plans are open to political debate and
discussion.
Still, the need for the Parliament to cram requirements for
further reports and debates on further aspects of Eurozone reform highlights
how one-dimensional the current “fiscal union” is. The more radical elements
are sure to be thrown out or heavily watered down – I don’t expect to see the
redemption fund survive negotiations with the Council – but there are some
grounded ideas for improving the content of reporting, planning, and of
improving democratic oversight.
Wednesday, 4 July 2012
Eurozone politics should not be a game of football
It was a tense summit last week, but it had a clear result: 1-0 to Hollande. Or was that Merkel? Maybe Monti?
After last week's summit the German papers have turned to rage - how could Merkel give in to Hollande on banking union?! - to pride - aha! of course Merkel tricked Hollande into a banking union with supervision from the ECB! This is the most depressing part of European summitry: the debates are so childish and miss the point entirely.
The deal made last week (PDF) is the same as the deal that stands this week. The same deals are known, there have been no further explanations. But the point-scoring narrative rumbles on for days afterwards, instead of actually asking if the proposed system will work, or if something else needs to be done.
The Eurozone leaders are slowly, ever so slowly, inching their way towards closer economic and political union in order to deal with the crisis. Clearly the weight of the financial sector of the Eurozone cannot be contained in the periphery, which does not have the fiscal firepower to essentially deal with the European banking crisis. Loans provided on the basis of austerity conditions funnelled through state coffers to the banking system - and funded for by taxpayers through national austerity programmes - will not work, never mind the horrific social costs. A banking union is one necessary part of economic union, in order to divorce the European banking system from a patchwork of sovereigns too individually small to prevent its collapse. This will be the easy part; the second part is much, much harder.
Closer economic and political union in the Eurozone is needed to ensure that there is enough solidarity and support between Member States so that states can recover from economic and state finance crises without threatening the Eurozone system, and also ensuring both the responsibility of the Member States and securing the social cohesion of national societies (and therefore the Eurozone as whole politically). This requires a delicate balance between the democratic rights of the Member States to determine their own economic and social policies, and on the democratic rights of the Member States not to be punished for the democratic decisions of other Member States and their fall out.
Merkel and the German government are coming from the point of view that discipline and austerity are necessary, otherwise solidarity will be taken advantage of, with the problem being that the sort of austerity and discipline being demanded is asking the impossible. As brilliantly explored over on the Social Europe Journal, Greece has undertaken more "adjustments" in a year than Germany did during its entire programme of reforms in economically good times. The focus on the Fiscal Stability Treaty is also a narrow-minded approach which overlooks the actual course of the crisis in many countries: countries like Ireland and Spain had surpluses, while Germany and France broke the rules, and this has not translated into a deeper crisis in France and Germany than in Spain in Ireland. Holding ever more rigidly to the rules will not solve anything.
On the other hand, there cannot be a blank cheque of solidarity, it needs to be built through a system where there is true give-and-take. Everyone will make concessions, and Member States will have to undertake to keep government debt in general low as well as federalising certain policy areas, in return for fiscal support and stimulus in times of trouble.
France, and other countries, have trouble with the European F-word, but there needs to be more democratic accountability at the European level, and the system needs to be reliable, transparent and agreed upon for it to gain public trust. Hollande seems to be moving towards thinking of the political side of the union, though it could also force an answer to the West Lothian question in the European Parliament.
The step-by-step approach of Merkel is a failure. We cannot continue with a drip-drip trickle of treaties, summits and agreements that edge us towards a solution without ever getting us there - a method corrosive to public trust. It's time to be clear about the options and to discuss how far we are willing to go in the Eurozone. In the end the public needs to be brought along in all Member States, so we all need to confront the concessions we need to make.
After last week's summit the German papers have turned to rage - how could Merkel give in to Hollande on banking union?! - to pride - aha! of course Merkel tricked Hollande into a banking union with supervision from the ECB! This is the most depressing part of European summitry: the debates are so childish and miss the point entirely.
The deal made last week (PDF) is the same as the deal that stands this week. The same deals are known, there have been no further explanations. But the point-scoring narrative rumbles on for days afterwards, instead of actually asking if the proposed system will work, or if something else needs to be done.
The Eurozone leaders are slowly, ever so slowly, inching their way towards closer economic and political union in order to deal with the crisis. Clearly the weight of the financial sector of the Eurozone cannot be contained in the periphery, which does not have the fiscal firepower to essentially deal with the European banking crisis. Loans provided on the basis of austerity conditions funnelled through state coffers to the banking system - and funded for by taxpayers through national austerity programmes - will not work, never mind the horrific social costs. A banking union is one necessary part of economic union, in order to divorce the European banking system from a patchwork of sovereigns too individually small to prevent its collapse. This will be the easy part; the second part is much, much harder.
Closer economic and political union in the Eurozone is needed to ensure that there is enough solidarity and support between Member States so that states can recover from economic and state finance crises without threatening the Eurozone system, and also ensuring both the responsibility of the Member States and securing the social cohesion of national societies (and therefore the Eurozone as whole politically). This requires a delicate balance between the democratic rights of the Member States to determine their own economic and social policies, and on the democratic rights of the Member States not to be punished for the democratic decisions of other Member States and their fall out.
Merkel and the German government are coming from the point of view that discipline and austerity are necessary, otherwise solidarity will be taken advantage of, with the problem being that the sort of austerity and discipline being demanded is asking the impossible. As brilliantly explored over on the Social Europe Journal, Greece has undertaken more "adjustments" in a year than Germany did during its entire programme of reforms in economically good times. The focus on the Fiscal Stability Treaty is also a narrow-minded approach which overlooks the actual course of the crisis in many countries: countries like Ireland and Spain had surpluses, while Germany and France broke the rules, and this has not translated into a deeper crisis in France and Germany than in Spain in Ireland. Holding ever more rigidly to the rules will not solve anything.
On the other hand, there cannot be a blank cheque of solidarity, it needs to be built through a system where there is true give-and-take. Everyone will make concessions, and Member States will have to undertake to keep government debt in general low as well as federalising certain policy areas, in return for fiscal support and stimulus in times of trouble.
France, and other countries, have trouble with the European F-word, but there needs to be more democratic accountability at the European level, and the system needs to be reliable, transparent and agreed upon for it to gain public trust. Hollande seems to be moving towards thinking of the political side of the union, though it could also force an answer to the West Lothian question in the European Parliament.
The step-by-step approach of Merkel is a failure. We cannot continue with a drip-drip trickle of treaties, summits and agreements that edge us towards a solution without ever getting us there - a method corrosive to public trust. It's time to be clear about the options and to discuss how far we are willing to go in the Eurozone. In the end the public needs to be brought along in all Member States, so we all need to confront the concessions we need to make.
Thursday, 14 June 2012
Choppy waters for the Fiscal Stability Treaty in the Bundestag
BY CC norbert_blech
It's interesting to see the politics of passing the Fiscal Stability Treaty in the German Bundestag over the last few weeks. Angela Merkel's government needs the opposition for the two thirds majority needed to pass the Treaty, and the opposition Social Democrats and Greens are trying to extract concessions on a growth agenda for Europe that echoes some of François Hollande's proposals.
The opposition wants:
- The strengthening of the European Investment Bank.
- Bonds for the indebted countries of the EU (I understand this to mean bonds that cover the debts in excess of the 60% of GDP-limit).
- Better use of the EU structural funds.
- Project bonds.
- A financial transaction tax.
(There is also an issue of how it will affect the Bundesländer, or the states, and local government).
The biggest clash lately has been over the financial transaction tax (FTT). Initially the government said that it would be impossible for an FTT to be brought in before the end of the legislative period, but now the Commission has come out contradicting the German government. The Süddeutsche Zeitung reports that it could be possible to pass a law on FTT by the end of the year, and collect the tax in 2014 (in the next German legislative period). If the FTT is to pass this year, it will be under enhanced cooperation between at least 9 Member States, given that taxation is still subject to the veto and the UK refusal to sign up to an FTT. Die Süddeutsche notes that the finance ministers of Germany, France, Spain, Italy, Greece, Portugal, Finland, Belgium and Austria signed up to the principle of an FTT in February, though obviously there would be a lot of detail to hammer out between them, and there's no guarantee an FTT coalition will look the same when it comes to passing the law.
It's worth noting that the Süddeutsche also reports that the German finance minister, Wolfgang Schäuble, seems to be considering another extra-EU treaty if it would be a faster way of achieving an FTT. What could this mean for the talking point of the month, the Banking Union? If an FTT was seen as a way of financing support of the financial sector without burdening the taxpayer, then it could be dangerous for other Eurozone countries to sit out talks on this FTT if it could be expanded to fit into the Banking Union or be taken as a model for it. Another extra-EU treaty would be a bad direction to go in: the EU provides a procedure for further integration of a group of Member States, and circumventing the EU institutions further poisons the trust in the rules and procedures agreed to by all Member States being respected.
The Fiscal Stability Treaty is part of a piecemeal approach that is rightly open to criticism: it doesn't solve the crisis in itself, and without a comprehensive deal on what a fiscal union will look like, these half-measures will erode confidence in the ability of the Eurozone to get its affairs in order. Hopefully this initiative of the German opposition will help push a more balanced and fairer approach to the Eurozone crisis, but it would be better if the left started cooperating across borders on what it wants to see from a fiscal union.
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