EU eases bud­get rigor as re­ces­sion bites, job­less­ness up

The Pak Banker - - COMPANIES/BOSS -

Euro­pean gov­ern­ments loos­ened the shack­les on na­tional bud­gets as the eu­roarea re­ces­sion deep­ens and un­em­ploy­ment climbs, with pro- growth ap­peals coming even from Ger­man Chan­cel­lor An­gela Merkel, the leader most closely as­so­ci­ated with aus­ter­ity.

Euro­pean Union lead­ers en­dorsed “struc­tural” bud­getary as­sess­ments, us­ing code for grant­ing coun­tries such as France, Spain and Por­tu­gal ex­tra time to bring down deficits. Still, balanced bud­gets re­mained the goal and there was no talk of large-scale spend­ing pro­grams or bond is­sues.

“If there is too much aus­ter­ity, there will be too much un­em­ploy­ment,” French Pres­i­dent Fran­cois Hol­lande said at an EU sum­mit in Brus­sels late yes­ter­day. “Flex­i­bil­ity is nec­es­sary if we want to make growth the pri­or­ity.” The euro zone’s eco­nomic slump has shoved aside the fi­nan­cial cri­sis as the bloc’s big­gest headache, lead­ing the EU to push back deficit-re­duc­tion dead­lines and mak­ing it per­ilous for politi­cians to wrap them­selves in the flag of aus­ter­ity. Euro­pean lead­ers are cloak­ing the eas­ing up on the fis­cal reins in lan­guage de­signed to re­as­sure in­vestors who have driven bond yields lower since mid-2012. They la­belled the pol­icy “dif­fer­en­ti­ated growth­friendly fis­cal con­sol­i­da­tion,” with deficit tar­gets set on a coun­try-by-coun­try ba­sis.

“I’m in fa­vor of con­sol­i­da­tion, but the bud­getary ad­just­ment mea­sures we take shouldn’t pose a risk to growth,” Lux­em­bourg Prime Min­is­ter Jean-Claude Juncker said. “There should be a cer­tain in­tel­lec­tual and prac­ti­cal flex­i­bil­ity.”

A mile­stone to­ward over­com­ing the debt cri­sis came on March 13, when Ire­land sold 10-year bonds for the first time since its bailout in 2010. The rel­a­tive calm in mar­kets was barely dis­turbed by the elec­tion in Italy, which still hasn’t pro­duced a government.

The 10-year bonds of both Italy and Ire­land ad­vanced to­day, and Ger­man bunds were set for a weekly gain. Ital­ian 10year yields fell three ba­sis points to 4.61 per­cent, par­ing this week’s in­crease to two ba­sis points. With growth the dom­i­nant theme, Euro­pean of­fi­cials sought to keep an aid package for the next prob­lem coun­try, Cyprus, off the agenda of the sum­mit and of a smaller meet­ing af­ter­ward of heads of the 17 euro coun­tries. Cyprus will be dealt with at a sep­a­rate meet­ing of euro-area fi­nance min­is­ters that starts at 5:00 p.m. to­day. Thou­sands of pro­test­ers against bud­get cuts and the per­ceived dic­tates of fi­nan­cial mar­kets con­verged on the EU head­quar­ters, car­ry­ing ban­ners say­ing “Euro­pean Aus­ter­ity = Mis­ery.” About 10,000 peo­ple gath­ered in a park close to the sum­mit, Brus­sels po­lice said.

Care­taker Ital­ian Prime Min­is­ter Mario Monti found out that bud­get cut­ting can be a ca­reer-en­der when he man­aged only 10 per­cent of the vote in an elec­tion last month. He ar­rived at his last EU sum­mit call­ing for “mar­gins for flex­i­bil­ity” on bud­gets. In a nod to Italy, the sum­mit state­ment said eu­roarea rules pro­vide space for “pro­duc­tive pub­lic in­vest­ment” by coun­tries with deficits un­der the limit of 3 per­cent of gross domestic prod­uct. Italy was one of eight euro states to pass that test last year.

Merkel, run­ning for a third term in Septem­ber, came to Brus­sels de­ter­mined to fight youth un­em­ploy­ment, now over 50 per­cent in Greece and Spain. The jobs pri­or­ity eclipsed her rou­tine mes­sage about elim­i­nat­ing deficits, some­thing Ger­many man­aged to do last year.

“With the avail­able money, we now have to find the best ways of giv­ing younger peo­ple and also older peo­ple a chance,” Merkel said. She said “solid bud­gets” go hand-in-hand with un­der­pin­ning growth and bring­ing down un­em­ploy­ment.

The 17-na­tion cur­rency re­gion will fol­low last year’s 0.6 per­cent 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.

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