European economic policy and the financial and economic crisis: mixed responses

The finance package for Greece: a façade agreement.

French offi­cial posi­tion regard­ing the finance pack­age for Greece remained rather unclear. On the one hand, Pres­i­dent Sarkozy sup­port­ed since the begin­ning the idea of Euro­pean ini­tia­tives in favour of Greece. He assumed that “we could not drop a mem­ber of the Euro­zone, oth­er­wise the Euro would be mean­ing­less.”11AFP: Ne pas aban­don­ner la Grèce, 06/03/2010. On the oth­er hand, and part­ly fol­low­ing the Ger­man posi­tion, the Min­is­ter for the Econ­o­my, Chris­tine Lagarde, assumed that Europe should not be indul­gent towards Greece.22Lagarde, C.: Le Jour­nal du Dimanche, 25/04/2010. This posi­tion was strong­ly crit­i­cised by the Social­ist Par­ty (PS), regret­ting the “dis­ap­pear­ance of polit­i­cal Europe” and the return of “nation­al ego­isms, where­as we were expect­ing a deed of gen­eros­i­ty from most of Euro­pean gov­ern­ments.”33Le Figaro: Le PS déplore la fin de l’Europe poli­tique, 26/04/2010 The agree­ment that was final­ly reached at the Euro­pean Coun­cil (25 and 26 March 2010) was con­sid­ered a “façade agree­ment”. Accord­ing to Jean-Pisani Fer­ry from eco­nom­ic think tank Bruegel: “what mar­kets want, is a con­fir­ma­tion that the Euro­zone mem­bers will not drop Greece, and this will only hap­pen if they lend it mon­ey and if inter­est rates decrease, not before that.”44Libéra­tion: Le plan de sauve­tage a fait pschi­i­i­i­i­i­i­itttttt, 09/04/2010.

React­ing to the nature of this agree­ment, Jacques Delors, for­mer Pres­i­dent of the Euro­pean Com­mis­sion, con­fess­es that he is “wound­ed by the inter­ven­tion of the Inter­na­tion­al Mon­e­tary Fund (IMF) […]. The Euro­pean Union has the means to solve this cri­sis by her­self and to demon­strate that the Euro foun­da­tions are strong.”55Delors, J.: Inter­view to Paris Match, 21/04/2010. Econ­o­mists from the French pro­gres­sive think tank Ter­ra Nova share this admis­sion of fail­ure from the Euro­pean Union. More pes­simistic than Jacques Delors, they also assume that this cri­sis reveals the weak­ness of the EU. Accord­ing to them, legal mech­a­nisms to res­cue Greece did not exist. There­fore, this agree­ment appears as an arrange­ment ad hoc that only avoid­ed the worst sce­nario: a traditional/classical inter­ven­tion from the IMF.66Chalumeau, T./Léris, J.: Les leçons de la crise finan­cière ou l’impossible statu quo européen, Note de la fon­da­tion Ter­ra Nova, 06/04/2010.

The Stability and Growth Pact strongly criticised: the need for reform

Many crit­ics have emerged against the Sta­bil­i­ty and Growth Pact. Accord­ing to left-wing dai­ly Libéra­tion, the Greek cri­sis has demon­strat­ed that both the Maas­tricht Treaty and the Sta­bil­i­ty Pact have par­tial­ly failed.77Libéra­tion: La Grèce pousse l’Europe à chang­er de régime, 26/02/2010. French econ­o­mist Michel Agli­et­ta assumes that, although Euro­pean mem­ber states must dis­play sol­i­dar­i­ty, the Sta­bil­i­ty Pact rep­re­sents a seri­ous con­straint for all mem­bers of the Euro­zone. It is nec­es­sary, he says, not to try to decrease the pub­lic deficit too rapid­ly. It would be impos­si­ble to come back to the rules of the Sta­bil­i­ty Pact before 2013. The pri­or­i­ty is to reach a growth rate high­er than the real inter­est rate.88Agli­et­ta, M.: Inter­view to Les Echos, 08/02/2010. As a mat­ter of fact, the Min­is­ter for the Econ­o­my, Chris­tine Lagarde, spoke out for reform of the Sta­bil­i­ty Pact, con­sid­er­ing that all the cri­te­ria, notably the deficit and debt-to-GDP (Gross Domes­tic Prod­uct) ratios, are not in them­selves suf­fi­cient to fos­ter eco­nom­ic con­ver­gence with­in the Euro­zone.99Lagarde, C.: Inter­view to Le Monde, 03/05/2010. Econ­o­mists from the pro­gres­sive think tank Ter­ra Nova agree whole­heart­ed­ly with her, even con­sid­er­ing both cri­te­ria as “paper tigers, that are tem­porar­i­ly for­got­ten when a big state (France, Ger­many) might be sanc­tioned for an exces­sive deficit.”1010Chalumeau, T. /Léris, J.: Les leçons de la crise finan­cière ou l’impossible statu quo européen, Note de la fon­da­tion Ter­ra Nova, 06/04/2010. As a con­se­quence, there is a need to rein­force the Sta­bil­i­ty Pact, for exam­ple, by open­ing the pos­si­bil­i­ty to audit nation­al bud­gets or apply­ing sanc­tions to exces­sive deficits. Such an option con­sid­ers that the Sta­bil­i­ty Pact rep­re­sents the best com­pro­mise between nation­al auton­o­my and the dis­ci­pline need­ed to pre­vent free-rid­ers strate­gies. How­ev­er, accord­ing to both French experts, this option, which is close to the 2005 reform of the Sta­bil­i­ty Pact, will not alone allow the Euro­pean stale­mate to break.

Consensus on a need for a strong coordination of economic policies in Europe

A cru­cial expla­na­tion for this cri­sis lies, accord­ing to Jacques Delors, in the imbal­ance in favour of the mon­e­tary pil­lar, on which the Eco­nom­ic and Mon­e­tary Union was found­ed. In the absence of real coor­di­na­tion of eco­nom­ic poli­cies, lit­tle atten­tion has been paid to the finan­cial evo­lu­tion of many coun­tries.1111Delors, J.: Inter­view to Paris Match, 21/04/2010. Thus, accord­ing to Dominique Strauss Kahn, IMF Man­ag­ing Direc­tor, the Euro­zone needs to make struc­tur­al reforms and give a polit­i­cal sig­nal to the mar­kets. Con­se­quent­ly, this cri­sis pro­vides an oppor­tu­ni­ty for Europe to strength­en and deep­en its inter­nal inte­gra­tion and coop­er­a­tion in the eco­nom­ic field. This implies that not only a stronger coor­di­na­tion of eco­nom­ic poli­cies is nec­es­sary, but also an inte­grat­ed frame­work for cri­sis pre­ven­tion and man­age­ment and a con­cert­ed effort to stim­u­late growth and cre­ate jobs.1212Eurac­tiv: Sum­mit paves the way for com­mon EU eco­nom­ic pol­i­cy, 29/03/2010.

For­mer right-wing Prime Min­is­ter Edouard Bal­ladur shares this point of view. Euro­zone mem­ber­ship, he assumes, can­not be restrict­ed to the man­age­ment of the cur­ren­cy, but must also include the eco­nom­ic man­age­ment of the mem­ber states. The econ­o­my of the Euro­zone will main­tain its dynamism only if the sin­gle cur­ren­cy is sup­port­ed by coor­di­nat­ed eco­nom­ic and bud­getary poli­cies. The time has come for the Eurogroup to step in to approve gov­ern­men­tal finan­cial plans before the respec­tive gov­ern­ments sub­mit them to their nation­al par­lia­ments. It is not a mat­ter of going into the details of every sin­gle mea­sure: assess­ing the glob­al vol­ume of pub­lic spend­ing will suf­fice. The Eurogroup should be called upon to assess the valid­i­ty of the fig­ures that are pre­sent­ed. The mem­bers of the Eurogroup should reach a deci­sion through a qual­i­fied major­i­ty vote. It should be the “real” sec­ond step of the Eco­nom­ic and Mon­e­tary Union.1313Bal­ladur, E.: Mieux gou­vern­er l’Europe, Le Figaro, 17/02/2010.

Econ­o­mists from the pro­gres­sive think tank Ter­ra Nova also con­sid­er the coor­di­na­tion of eco­nom­ic poli­cies as a pol­i­cy option, observ­ing that the Open Method of Coor­di­na­tion (OMC) that was used until now did not per­mit sig­nif­i­cant progress. Many options are iden­ti­fied in order to rein­force this coor­di­na­tion:

Inte­grat­ing new com­pe­tences that have been, until now, pre­served by mem­ber states (e.g., giv­ing a com­pul­so­ry objec­tive for bud­get bal­ance) or sub­mit­ted to OMC (e.g., struc­tur­al reforms such as labor mar­ket or high­er edu­ca­tion). A con­sen­sus is, how­ev­er, lack­ing on this issue. Get­ting the Com­mis­sion involved into the sur­veil­lance of mem­ber states’ macro­eco­nom­ic poli­cies and not only of its pub­lic finance. Fur­ther­more, the ECOFIN Coun­cil could be invit­ed to dis­cuss the cohe­sion of the Euro­zone more often. Rein­forc­ing the Eurogroup by organ­is­ing steady meet­ings of heads of state and gov­ern­ment, for­mal­is­ing its pro­ce­dures, or even giv­ing the pres­i­dent of the Eurogroup the com­pe­tences to rep­re­sent the group at the G8.

Europe 2020 Strategy: the story of an announced failure

The Europe 2020 Strat­e­gy did not occu­py a cru­cial posi­tion in French pub­lic debate, and the Greek cri­sis is not the only expla­na­tion for this. Accord­ing to Lau­rent Cohen-Tan­gui, the main rea­son is that the Europe 2020 Strat­e­gy is noth­ing but the same as the Lis­bon Strat­e­gy that it is sup­posed to replace.1414Cohen-Tan­gui, L.: La stratégie européenne de l’Europe manque tou­jours autant de crédi­bil­ité, Les Echos, 27/04/2010. Con­sid­er­ing the con­di­tions of its for­mu­la­tion, econ­o­mists from the think tank Ter­ra Nova do not see how this fail­ure could be avoid­ed. Once more, it is to be expect­ed that this strat­e­gy will remain a jux­ta­po­si­tion of nation­al poli­cies and rely on the mem­ber states’ good will. Con­cern­ing the con­tents, the main issue should be the bud­get of the EU (increase of the bud­get, imple­men­ta­tion of EU resources, etc.), but the Europe 2020 Strat­e­gy skips over it.1515Sénès, B./Roselbi, A./Barthez, V.: UE 2020: L’Europe n’a pas les moyens de ses ambi­tions, Note de la fon­da­tion Ter­ra Nova, 20/04/2010. Pas­cal Can­fin, a Green MEP, also crit­i­cis­es this strat­e­gy, which is “again only based on more growth.” Rather than com­pe­ti­tion, Europe should have qual­i­ty of life as an objec­tive and build its strat­e­gy on sus­tain­able econ­o­my and social wel­fare.1616Com­mu­niqué de Presse Europe Ecolo­gie, 03/03/2010. Thus, there seems to be a con­sen­sus on a glob­al decep­tion regard­ing this new project of the EU. Con­sid­er­ing not only the con­tents but also the imple­men­ta­tion pro­ce­dure of Europe 2020 Strat­e­gy, its glob­al assess­ment could be sum­marised by an expres­sion giv­en by Bruno Vev­er: “nev­er change a loos­ing strat­e­gy.”1717Vev­er, B.: Fenêtre sur l’Europe, 01/04/2010.

    Footnotes

  • 1AFP: Ne pas aban­don­ner la Grèce, 06/03/2010.
  • 2Lagarde, C.: Le Jour­nal du Dimanche, 25/04/2010.
  • 3Le Figaro: Le PS déplore la fin de l’Europe poli­tique, 26/04/2010
  • 4Libéra­tion: Le plan de sauve­tage a fait pschi­i­i­i­i­i­i­itttttt, 09/04/2010.
  • 5Delors, J.: Inter­view to Paris Match, 21/04/2010.
  • 6Chalumeau, T./Léris, J.: Les leçons de la crise finan­cière ou l’impossible statu quo européen, Note de la fon­da­tion Ter­ra Nova, 06/04/2010.
  • 7Libéra­tion: La Grèce pousse l’Europe à chang­er de régime, 26/02/2010.
  • 8Agli­et­ta, M.: Inter­view to Les Echos, 08/02/2010.
  • 9Lagarde, C.: Inter­view to Le Monde, 03/05/2010.
  • 10Chalumeau, T. /Léris, J.: Les leçons de la crise finan­cière ou l’impossible statu quo européen, Note de la fon­da­tion Ter­ra Nova, 06/04/2010.
  • 11Delors, J.: Inter­view to Paris Match, 21/04/2010.
  • 12Eurac­tiv: Sum­mit paves the way for com­mon EU eco­nom­ic pol­i­cy, 29/03/2010.
  • 13Bal­ladur, E.: Mieux gou­vern­er l’Europe, Le Figaro, 17/02/2010.
  • 14Cohen-Tan­gui, L.: La stratégie européenne de l’Europe manque tou­jours autant de crédi­bil­ité, Les Echos, 27/04/2010.
  • 15Sénès, B./Roselbi, A./Barthez, V.: UE 2020: L’Europe n’a pas les moyens de ses ambi­tions, Note de la fon­da­tion Ter­ra Nova, 20/04/2010.
  • 16Com­mu­niqué de Presse Europe Ecolo­gie, 03/03/2010.
  • 17Vev­er, B.: Fenêtre sur l’Europe, 01/04/2010.

The reports focus on a report­ing peri­od from Decem­ber 2009 until May 2010. This sur­vey was con­duct­ed on the basis of a ques­tion­naire that has been elab­o­rat­ed in March and April 2010. Most of the 31 reports were deliv­ered in May 2010.

The EU-27 Watch No. 9 receives sig­nif­i­cant fund­ing from the Otto Wolff-Foun­da­tion, Cologne, in the frame­work of the ‘Dia­log Europa der Otto Wolff-Stiftung’, and finan­cial sup­port from the Euro­pean Com­mis­sion. The Euro­pean Com­mis­sion is not respon­si­ble for any use that may be made of the infor­ma­tion con­tained there­in.