Thursday, March 25, 2010

European leaders bicker over Europe’s economic future

Just what is going in the EU at the moment? The elation felt at the end of last year with the ratification of the Lisbon Treaty, after almost a decade of difficult negotiations and three failed treaty referenda, has quickly given way to discord amongst European leaders on the biggest political issues it’s facing.

Bickering has characterized the weeks leading up to today and tomorrow’s European summit of leaders. One of the big disputed issues is how to deal with the Greek economic crisis – and more generally eurozone governance. With the euro at an all-time low against the dollar – betraying a loss of market confidence in Europe’s ability to manage its own economic problems – many EU leaders including France’s Nicolas Sarkozy, believe there needs to be a mechanism for supporting distressed eurozone economies like Greece, for the long-term viability and strength of the single currency.

Others, led by the redoubtable Angela Merkel of Germany, simply don’t want to bear the financial implications of a bailout mechanism, despite the chaotic impact on the euro. Staunch fiscal disciplinarians in Germany believe such a mechanism would encourage wayward spending behaviour and simply want to expel countries from the eurozone for not meeting the deficit limits of the Stability and Growth Pact.

So what of European solidarity, one of the key cornerstones of the EU project? The European Commission President Barroso has now taken the extraordinary step of reminding European leaders that the treaty does not allow the expulsion of any Member state from the eurozone. But despite vague proclamations on EU commitment to Greece, there appears to be no resolution to this deep-seated divergence. It’s doubtful today’s summit will make any progress, as evidenced by Angela Merkel’s refusal to agree to a special meeting of eurozone heads of government today, proposed by Presidents Zapatero and Sarkozy.

European leaders – in addition to political parties, trade unions and business lobbies - also appear to be in disagreement over the fundamentals of another big item on today’s agenda, a new ten-year strategy for growth and jobs, the so-called Europe 2020 strategy. The European Commission has proposed five headline targets for employment, R&D spending, climate change, for early school leavers and those participating in tertiary education, and for poverty reduction. Policy warnings would be issued to countries failing to meet the targets. The other major element of the proposal is to synchronise the coordination mechanisms of Europe 2020 with the Stability and Growth Pact so as to make deficit-busting compatible with pro-growth investments.

But Chancellor Merkel has again put a spanner in the works by complaining that setting targets for education could infringe on Germany’s federal competences (despite the fact that Europe already boasts more than one education target). Merkel also claims that synchronizing the coordination mechanisms would “politicize” the Stability Pact. At the same time, finance ministers also issued a joint statement last week criticizing both the 3% GDP R & D target and the target for taking 20 million people out of poverty, stating that a wider indicator should be chosen for research and innovation, while the “principle and the correct design” of the social inclusion target should be further considered.

Criticisms of Europe 2020 from outside Member governments further create the impression that there’s a long way to go to create the necessary momentum for a successful ten-year economic strategy. Europe’s federation of labour parties - the Party of European socialists – believes there is little in the current proposal to incentivise investment and job creation initiatives needed to turn around Europe’s economic fortunes. The European Trade Union Confederation is similarly scathing, claiming that Europe 2020 should really be addressing crisis-related initiatives for 2010, without which it will be impossible to pull out of recession and create jobs once more. While Europe’s main business lobby, Business Europe, has criticised the lack of urgency and focus in the strategy, arguing for a “Go for Growth” target of 2% by 2014.

For a proposal that was meant to generate a new drive amongst Member States and stakeholders to boost Europe's growth and competitiveness, the European Commission’s proposal has left many underwhelmed.

And with so much disagreement on the fundamental next steps for the European project, there appears little prospect for success – beyond the usual political platitudes - at today and tomorrow’s European Council.

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