A big fiscal splash still a step too far for Europe

LONDON: Prodded by worries about the worst global economic outlook in a decade and electorates still smarting from years of austerity, euro zone governments are starting to loosen their budgetary purse strings.

Don’t expect “new deal” investment programs

to transform the region’s economy, however, or even the fiscal shot in the arm that European Central Bank chief Mario Draghi says is needed-at least, not until things get much worse.

“There is a shift towards talking about stimulus but there is no dramatic leap forward,” said Philippe Legrain, adviser to the European Commission during the aftermath of Europe’s 2009 sovereign debt crisis and author of the book “European Spring”, a diagnosis of Europe’s economic failings.

“There is no sense of urgency so far ... That might happen when the euro zone enters recession.”

Economists now see a one-in-four chance of a euro zone recession in the coming

year. The possibility of a no-deal Brexit in the coming weeks or months should also be concentrating minds across the 19 countries that use the euro. Advocates of progrowth policies are pegging their hopes on France’s Emmanuel Macron emerging as the region’s pre-eminent politician and incoming ECB chief Christian Lagarde doubling down on Draghi’s lobbying of debt-averse northern governments.

Europe’s response to the crisis of a decade ago-protracted austerity combined with massive central bank stimulus and stillunfinished banking reforms-saved the euro but has left many of its economies numbed. Euro zone growth was just 0.2 percent in the second quarter of 2019.

While the ECB’s 2.6 trillion euro stimulus program may have helped kick-start a post-crisis recovery of sorts, deep cuts to public spending are blamed for exacerbating poverty and shredding Europe’s welfare safety nets. Stung by the rise of antiestablishment parties across the continent, and with regional powerhouse Germany on the brink of recession, governments are starting to act.

In Angela Merkel’s last months as German chancellor, politicians in Berlin are for the first time in years publicly questioning a self-imposed balanced budget rule and exploring ways to spend off-budget.

In its first budget since the “yellow vest” street protests began last year, France will this week offer 9 billion euros of tax cuts and put on hold some earlier debt-cutting promises. “The priority now is to address the totally justified anger of those who are not making ends meet,” Budget Minister Gerald Darmanin told Le Parisien daily.

Even more eye-catching was last week’s announcement by the Netherlands, one of the euro zone’s fiercest advocates of fiscal probity, of new spending on health and housing. An ambitious national investment fund will be launched there next year. And Italy’s new government has signalled it will deliver an expansionary 2020 budget while it drums up support for its campaign to refocus the EU’s budget rules to promote growth.