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EUROPA NEWS

Barroso:

EU budget rules are

'adaptable'



BRUSSELS - The European Commission has indicated it is prepared to give struggling countries some leeway to bring their debt back in line with EU rules but continues to insist that member state cannot spend their way out their problems.



The issue is central to the EU's dance with the markets as the commission tries to find a balance between being credible with nervous investors by enforcing the rules underpinning the euro, while not pushing countries into a downward spiral of debt-reduction measures.

Spain, the eurozone fourth largest economy, is the first country to really test the beefed-up rules. It is supposed to reduce its budget deficit from 8.5 percent of GDP to 5.3 percent next year. EU rules say the budget deficit must be no bigger than 3 percent of GDP.

But next year's target, agreed with the commission, is in doubt with the already strong budget cuts seen as insufficient given the country's low growth prospects. Meanwhile, the social effects are becoming clearer. Unemployment among Spain's youth is hovering around 50 percent.



Speaking less than a month before the commission is due to give its verdict on Spain and other member states' budget policies, president Jose Manuel Barroso suggested his institution will be less than dogmatic in applying the rules.

"The rulebook allows for adaptability while remaining firmly focussed on sustainability," he said.

Flanked by economic affairs commissioner Olli Rehn for a "growth" pep-talk to mark Europe Day on 9 May, Barroso noted that the stability pact, governing the euro, is designed in an "intelligent way."

For his part, Rehn said the pact implies "differentiation among the member states according to their fiscal space and macroeconomic conditions."

But both were insistent that spending and greater debt is not the way out of the crisis. Barroso said it would be "completely irresponsible" to advise Greece, Ireland and Portugal - all recipients of an EU-International-Monetary-Fund bail-out - to "try to restore growth by increasing their deficit."

The commission president also blamed member states for the lack of growth-oriented initiatives, pointing to the "bickering" which hinders the single EU patent coming into place as an example.

He also said he wants countries to agree to projects bonds - a private sector-focussed way of financing infrastructure - during June's traditional summit, as well as increasing the lending capacity of the European Investment Bank.

While not accepting any political responsibility for the recent electoral outcomes in Greece (where fringe anti-austerity parties scored well) and France (where a socialist was elected), Barroso said that there was a "new consensus" that consolidation policies must be combined with growth.

EU leaders are once more to discuss growth at an informal meeting on 23 May. The occasion will be the first time that France's new president Francois Hollande, who has said austerity is not "inevitable," will also be around the table.



source

euobserver.com



IMF tells Germany to

do more for eurozone







BRUSSELS - Germany's economy is doing well in its recovery, but the country should be more "active" in helping the rest of the eurozone cope with the crisis, the International Monetary Fund has said.



"As the euro area’s largest economy, Germany can play a pivotal role in addressing the challenges posed by the crisis. Articulating more clearly the Economic and Monetary Union’s shared vision of an appropriate post-crisis architecture will help in restoring market confidence," the Washington-based body said in a country report published on Tuesday (8 May).


As exports are picking up again, "the conditions are in place in Germany for a domestic demand-led recovery," driven by consumption and investment.
The IMF also said that the EU's economic powerhouse should allow for its workers to get higher wages. This is in line with France and other southern countries' criticism about Germany's well-performing economy: That it keeps its wages low to boost production and exports, at the expense of less "competitive" euro-states.

"Looking ahead, a pickup in wages and some asset prices would be part of the natural process of rebalancing the sources of growth. Allowing these developments to proceed, while adhering to Germany’s macroeconomic policy framework, will also help to appropriately further reduce Germany’s high current account surplus," the IMF suggested - with German finance minister Wolfgang Schauble recently indicating he is open to a hike in the country's wages.
An intensification of the euro-crisis would hurt Germany as well, as it would "spill over directly through real and financial channels and indirectly through dampened business and consumer sentiment."
So while southern states are implementing harsh austerity measures, which the IMF refers to as "ambitious structural reform agendas", Germany should rebalance its economy to alleviate some of the "imbalances in the euro area."
The international lender suggests Berlin should accept a somewhat higher inflation rate to be pursued by the European Central Bank, which would help the "periphery economies" - meaning Spain, Italy, Greece, Portugal, Ireland - get out of recession.
Meanwhile, Fitch ratings agency said that Germany's stake in the eurozone is so high that even a Greek exit would not derail the single currency.


"A Greek exit does not mean the end of the euro. Germany above all has a fundamental interest to keep the common currency," Paul Taylor, head of Fitch, told Spiegel magazine in an interview published Tuesday.
"If the deutschmark were reintroduced, it would appreciate considerably against other currencies. Export industries, which are the motor of the German economy, would suffer. Germany isn't going to tolerate that, even if one or more countries leave the eurozone," he explained.
His comments came as Greek politicians were struggling to form a leftist government opposing the terms of a €130 billion bail-out agreed earlier this year, following Sunday's elections.
German and EU officials have warned that the austerity programme linked to the bail-out is non-negotiable, raising again the prospect of a Greek exit from the euro.




source

euobserver.com 

The promise and

challenge of

Francois Hollande





BRUSSELS - The election of Francois Hollande as President of France could be an important turning point for Europe, but only if he broadens his agenda beyond the rhetoric of his campaign.



On the campaign trail, Hollande rallied his supporters in France and sympathisers abroad with a simple call to reject the logic of austerity embedded in the EU’s fiscal treaty. As the election approached, though, Hollande replaced his more strident rhetoric with a strikingly moderate four-point proposal. Instead of vetoing the treaty, he would urge France’s European partners to promote growth and job creation by adopting a financial transactions tax, making better use of EU structural funds, expanding the resources of the European Investment Bank, and launching ‘project bonds’ to promote infrastructure development. Though a welcome departure from the Merkel-Sarkozy obsession with fiscal discipline, these proposals will not suffice to restore Europe’s economic vitality.



The financial transactions tax is a non-starter because the EU would never adopt it without British support, and David Cameron has been unyielding on this point. Reforming the allocation of EU structural funds including making them more accessible to small and medium-sized enterprises could help promote job creation, but given the small size of this budget (less than 0.3% of EU GDP), the macroeconomic effects are unlikely to be huge. Expanding the lending capacity of the EIB (currently about 1% of EU GDP) would also be beneficial, but given the bank’s project cycle, the macroeconomic effects are likely to be spread over time.


Potentially the most important of the measures in Hollande’s plan is his endorsement of project bonds to stimulate private sector funding of energy, transport and telecommunications projects across Europe. (These should not be confused with ‘Eurobonds’ often proposed to mutualise sovereign debt, which Germany has steadfastly rejected.) Project bonds have been in the EU’s policy pipeline since 2010 and with strong support from France, they may achieve final approval in time to launch pilot projects later this year. But while Hollande’s four-point plan is pointing in the right direction, it’s unlikely to bring about significant improvement in growth and job creation in the short-medium term – the time period that matters for angry voters and impatient financial markets.

 source

euobserver

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