THE TAOISEACH WILL be in Brussels today for an informal meeting of EU leaders in an attempt to find a way to promote jobs and growth and to try to keep the debt crisis from spiralling out of control.
Enda Kenny and co are also due to discuss managing Greece amid continuing electoral turmoil in the country, which is threatening to pull apart the eurozone.
It’s expected that German chancellor Angela Merkel will face pressure from all sides on the issue of promoting growth, while France’s new president Francois Hollande has insisted that he will not sign the Fiscal Compact until it includes measures to promote growth.
Borrowing costs are up for the most indebted governments. There is an increasing number of reports of worried savers and investors pulling funds out of banks that are seen as weak. Meanwhile, unemployment is soaring as recession grips nearly half the eurozone countries.
What’s on the table?
After several years of talking about fiscal austerity and strict deficit targets, the predictions of many economists have come true and austerity has dragged down already fragile economies.
As a way out of this problem, economists and politicians have called for measures that would help a country’s economy grow.
Economists recommend pro-growth measures including reducing red tape for small businesses, making it easier for workers to find jobs across the eurozone and breaking down barriers that countries have created to protect their own industries.
Some economists go a step further and say governments should actually increase spending while economies are so weak — and make reining in deficits a longer-term goal
However the question of how to produce growth for Europe is a sticky one. Germany, which led the push for austerity, insists that growth will be the product of tough reforms, like ones it undertook to liberalize its economy over a decade ago.
Others say such reforms will take a while to bear fruit and more needs to be done right now — such as extending the deadline for deficit targets and waving through wage increases.
The EU leaders meeting today are expected to tread a fine line between talking about ways to promote growth and and sticking to commitments to balancing budgets.
Where will this growth come from?
One area could be the better use of the resources already at the European Union’s disposal. The EU has a pot of so-called “structural funds”, many of which are going unused even though several countries are in desperate need of cash.
Countries are also expected to discuss increasing the size of the European Investment Bank so that it can, in turn, lend more money to struggling small businesses.
Diplomats have already agreed to issue EU “project bonds” or Eurobonds— debt issued jointly by the union — which can be used to fund major infrastructure projects.
Hollande campaigned strongly on this idea, and even Germany, which was initially opposed to any jointly held debt, has softened its position. However, only a pilot phase of the project has been approved.
Today’s discussions on this issue will be crucial as they hold the potential to lead to the issuing of so called Eurobonds, which could take significant pressure off troubled EU countries almost immediately.
“Innovative, or even controversial ideas”
EU President Herman Van Rompuy has encouraged participants at today’s meeting to discuss “innovative, or even controversial, ideas.” He has suggested that nothing should be taboo and that long-term solutions should be looked at. That seems to point to a conversation about eurobonds.
Van Rompuy is likely to take the ideas put forward at today’s meeting and come back with an actual growth plan at next month’s gathering of leaders.
But Germany is still staunchly opposed to such as measure. Yesterday, a senior German official stressed that despite the pressure from some other European countries, Merkel’s government has not eased its opposition.
“You can wake me up in the middle of the night, at 3 am, and then I will tell you what our position is — also at 5 a.m., it doesn’t matter. We think that eurobonds are not the right path for many reasons and in our opinion they cannot be part of a growth strategy,” said the official, who briefed reporters on condition of anonymity in line with government policy.
What was needed instead, the official insisted, was work to eliminate the underlying problems by trimming the nations’ high debt burden and restoring their competitiveness through structural reforms.
Will any of the solutions work?
The problem with many of the solutions on the table is that even if they are all implemented, they would likely take years to yield growth. And Europe needs faster answers.
To that end, many economists are pushing for a larger role for the European Central Bank — the only institution powerful enough to have an immediate impact on the crisis. If Europe’s central monetary authority was given the power to buy up country’s bonds, that government’s borrowing rates would be pushed down to more manageable levels.
Why it matters
Taken together, the European Union is the world’s largest economy. If it isn’t growing, that weighs on everyone else. A lack of growth is also hurting the continent’s efforts to rein in deficits and cut debts. When growth slows, so does tax revenue.
That makes it harder for a government to balance their books — which can mean they have to make even deeper cuts. But the cuts themselves eat into growth: when government jobs and state investment projects are slashed, people have less money in their pockets to spend
Breaking that cycle will be key to getting European economies growing again.
- Additional reporting by AP
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