EU Summit set to loosen deficit shackles
European leaders are loosening the economic shackles once demanded by Germany as the recession and mounting unemployment in southern Europe shove aside the debt crisis as the euro area’s biggest headache. A two-day Brussels summit starting today will endorse plans for “structural” assessments of national budgets, according to a draft statement, using code for granting countries such as France, Spain and Portugal extra time to bring down deficits.
“Substantial progress is being made toward structurally balanced budgets and that progress must continue,” reads the statement.
“Substantial progress is being made toward structurally balanced budgets and that progress must continue,” reads the statement. The focus is on “growth- friendly fiscal consolidation.” European politicians are cloaking the shift in language designed to reassure investors who have driven borrowing costs lower since mid2012 that balanced budgets remain the goal. The relative calm was barely disturbed by last month’s inconclusive election in Italy. Another milestone in coming out of the debt crisis was reached yesterday, when Ireland sold 10-year bonds for the first time since its bailout in 2010.
As a result, officials in Brussels, Berlin, Paris and Madrid said yesterday that an aid package for the next problem country, Cyprus, doesn’t even need to be discussed at the summit. It will be dealt with tomorrow starting at about 5 p.m., at a separate meeting of euro-area finance ministers. The group of euro finance chiefs is considering a mix of options to reduce the amount of an aid package for Cyprus to near 10 billion euros ($13 billion), Dutch Finance Minister Jeroen Dijsselbloem, who leads the so-called eurogroup, said late yesterday in The Hague. Dijsselbloem said no potential instrument is being excluded and considering privatizing state- owned companies could be “legitimate.”
The 17-nation economy will follow last year’s 0.6 per- cent contraction by shrinking 0.3 percent in 2013, the first back-to- back decline since the euro’s debut in 1999, the European Commission forecasts. It sees bloc-wide unemployment at 12.2 percent in 2013, with joblessness as high as 27 percent in Greece and 26.9 percent in Spain.
Pressure remains on France, Italy and the countries tapping emergency financial aid to make their economies more productive by reducing labor costs and deregulating professions.
The commission, the Brussels-based enforcer of the budget rules, fended off attacks from southern Europe that it has been too strict and parried warnings from northern Europe that it is becoming too lax.
“The simple allegation that the commission pursues austerity inflexibly does not hold,” Marco Buti and Nicolas Carnot of the commission’s economics department said in a policy paper yesterday. “Nor obviously does the opposite accusation that the framework is being weakened.”