Tag: Euro Crisis
Germany reports the biggest fall in new business orders since records began, manufacturing in France is at a three-year low with Italy experiencing the fastest rise in unemployment for three years. On the other hand, Ireland’s output is beginning to increase – although they did start from a lower base.
The Eurozone’s overall manufacturing activity is at a three-year low although the markets continue their comatose drift whilst traders try to make the best of a bad job.
Expect more fine Eurowords over the next few days with a market rise towards the end of the week if Draghi manages to pull a rabbit out of the ECB hat.
José Manuel Durão Barroso is a very able, bright and distinguished politician. He is the lawyer-economist who is President of the European Commission.
His speech of 12 October 2011 to the European Council was going to tell the world what was going to be done about an issue which for the past two years, even during Middle Eastern revolutions, earthquakes and hurricanes , has consistently been one of the TOP THREE news items: The European Economic Crisis.
During that time, politicians, economists and bankers have adopted a strange general, non-specific tone, laced with metaphor and euphemism and we have all become seduced by this new trick of being told nothing, yet imagining that we have been told everything.
Last week, I analysed Bank of England Governor Mervyn King’s latest statement and found that true to form, it was flooded with generalisations and platitudes with a sprinkling of occasional metaphor.
Mr Fact has become a stranger and fear appears to have driven away the the art of realistic economic ambition and goal-setting.
Most of us have come across the goal-setting model S.M.A.R.T.
A goal has to be structured as follows. It has to be SPECIFIC, MEASURABLE, AGREED, REALISTIC and TIME-BASED.
So, if a politician says that “something will be done as soon as possible”, it fails on all counts. However, if a politician says (and the figures do not matter!):
” It has been agreed with all members of the Eurozone as well as the IMF and the ECU that the European Central Bank will hand-over $250 billion to the Greek Government on November 1st 2011 with an additional $50 billion on March 31st 2012″, then we have a definite statement of intent – a goal.
If a Chancellor said “The Austerity programme is NOT an open-ended precaution. On January 1st 2013, the VAT rate will be reduced to a zero rate until the end of the First Quarter 2014 and every viable SME with a turnover of less than £100,000 will be given a grant of £20,000” would also be a goal.
“Boosting Capital”, “Rebuilding Balance Sheets”, “Banks have to lend more” etc. are further examples of empty non-goal-based rhetoric.
The text of Mr Barroso’s speech is reproduced below. I have highlighted certain phrases.
Brussels, 12 October 2011
Presidency in office of the Council,
The European Council of 23 October will be held against a backdrop of urgency over the threat of systemic crisis now unfolding. There are many issues on the European agenda. The Minister of the Polish Presidency mentioned most of them. I will not of course go into detail of the many important challenges, from the conference in Durban to very important external items. I will today focus on the urgent response needed to the financial and economic crisis.
To break the vicious cycle of uncertainty over sovereign debt sustainability and over growth prospects, we need comprehensive solutions now.
In my State of the Union address to this Parliament two weeks ago I promised responses. Today we are delivering. I can announce that the Commission has just adopted a roadmap to stability and growth. And we have set out concrete terms and timelines to implement it. You are the first to whom I communicate the main elements of this roadmap. I am sending to the President of the European Parliament the document that we have first adopted some time ago.
Over the last three years, the European Union has come out with specific responses to different aspects of the crisis. Now is the time to bring them all together. To once and for all meet the depth of the crisis with a full comprehensive and credible response.
The elements in this roadmap are interdependent. They must be implemented simultaneously. They must be implemented immediately. This is the only way that the European Union can convincingly:
- Give a decisive clear response to the problems of Greece;
- Enhance the euro area’s backstops against the crisis;
- Make a coordinated effort to strengthen the banking system including through recapitalisation;
- Frontload stability and growth-enhancing policies and;
- Build a more robust and integrated economic governance.These are the five points of the roadmap I put before this House today and that I will take to the European Council on October 23rd as a coherent and comprehensive plan for Europe that embodies a Community approach.
Here is how.
First, on Greece, we need a decisive solution. Doubts and uncertainties over Greece’s future jeopardise stability in the entire euro area and beyond. The time has come to definitively remove these doubts. This means three immediate and sustained actions:
- paying the sixth tranche of the loans to Greece. The result of the Troika mission has sent a positive signal in this respect;
- deciding a sustainable solution for Greece within the euro area. This should be through an effective second adjustment programme, based on adequate financing through public and private sector involvement, backed up with robust implementation and monitoring mechanisms;
- We also understand that Greece must fully carry out its programme in a timely manner, with continued support from the Commission’s Task Force and maximised disbursement of structural funds focused on growth.
But there is a more general problem in the euro area.
Despite the assurances given by Heads of State or Government on 21 July to support countries under programmes, and despite their assurances that private sector involvement would be strictly limited to Greece, contagion risks have not been contained. To decisively put a stop to this threat that is hampering all our efforts, we must strengthen the euro’s firewalls. We must have credible, stronger instruments.
At the European Council I will strongly urge Heads of State and Government of the euro area to complete and complement the measures they agreed on 21st July.
This is crucial to give a much-needed injection of confidence to market participants.
It means making operational the agreements taken to increase the flexibility and effectiveness of the EFSF and the future ESM, to allow for precautionary programmes based on conditionality, on which the Commission and ECB should be consulted in advance. Stronger monitoring and surveillance could be included as part of the Stability and Growth Pact.
But, the EFSF must be more than just a firewall.
It should have real firepower. We should maximise its capacity.
And, to further cement the expression of unity and responsibility inherent in these crisis resolution mechanisms, we must accelerate the adoption and entry into force of the permanent ESM – preferably to mid-2012.
We must trust that the European Central Bank will continue to provide the background of financial stability necessary for all this to be done.
The strengthened and more flexible EFSF is in the interest of all euro countries, including the Slovak people. Our common currency plays a crucial role in investment decisions, in growth, in jobs, all over Europe. I commend those in Slovakia who have risen above partisan attitudes and voted in favour of what is important for all Slovak citizens, for the euro area and for the European Union as a whole. And I call upon all parties in the Slovak Parliament to rise above the positioning of short term politics, and seize the next opportunity to ensure a swift adoption of the new agreement.
The third element of the roadmap is the need for a coordinated approach to strengthen the banking system. Let us be clear – over the last three years huge efforts have been deployed to this end. Billions of euros in aid and guarantees. An overhaul of banking supervision. Boosting capital requirements and protecting citizens’ deposits.
However, all this has not yet been sufficient to lift the weight of uncertainty hanging over the banking system, or to halt the volatility and pressure on the European banks. While these doubts persist and spread, sufficient confidence cannot be restored to allow liquidity to flow again and to oil the growth that our economies so badly need. For confidence to return we need to fix the sovereign debt problem, which can only be done through a coherent package.
We must therefore urgently strengthen the banks, because in fact those two issues – the sovereign contagion and the banks are now, whether we like it or not linked. This must be coordinated through the Member States, the European Banking Authority, the ECB and the Commission. The strategy should comprise 5 key steps:
- It should include all potentially systemic banks identified by the European Banking Authority across all Member States;
- It should take account of all sovereign debt exposure in full transparency;
- It should involve a temporarily higher capital ratio after accounting for exposure;
- Banks that do not have the required capital should present and then implement plans to have it in place as swiftly as possible. And until they have done so, they should be prevented from paying out dividends and bonuses by the national supervisors.
- Banks should use private sources of capital first. If necessary the national government should provide support as a next step, as a last resort, drawing on a loan granted from the EFSF. Any public support should be compatible with the state aid rules. The Commission intends to extend the existing state aid framework for bank support beyond the end of 2011.
Naturally, details on capital ratios and evaluation methods should be proposed by the EBA with national supervisors, who are best placed to judge on this.
At the same time, the ongoing work on a new financial regulation system should be completed as swiftly as possible. To that end, the Commission will present its remaining proposals to implement the full G20 commitments by the end of this year. We also urge rapid adoption of the Financial Transaction Tax I presented to you two weeks ago.
The fourth element is to frontload policies that consolidate stability and boost growth.
We all know that most Member States do not have much room for fiscal stimulus. Those who have should use it. However, all Member States do have at their disposal means to implement structural reforms, to focus spending on priority areas, and to remove obstacles to growth.
As I said to you in my State of the Union address, growth is within our reach if we can break down the barriers that stop money, services and people flowing through our Union as they should.
This means first – getting more out of what has already been agreed at the – European level.
I am talking about implementing for instance the services directive, delivering on the digital agenda. I’m talking about maximising our trade agreements.
These are measures we can take today, that don’t require significant additional investments or budgetary effort, but that can have immediate and significant benefit for our companies, for our citizens, for our economy.
This means second – accelerating adoption of what is on the table. There are many proposals on the table that we can fast-track for adoption. I am talking about unitary patent protection. I am talking about the energy savings directive. I am talking about concluding ongoing trade agreements.
And it means third – fast-tracking the most urgent growth-boosting proposals. I am talking about the Single Market Act, about forthcoming proposals to facilitate access to venture capital because today there is a lack of venture capital in Europe and this is especially felt by SME’s. I am talking about the Young Opportunities initiative to increase youth employment.
And where agreement on fast-tracking proves difficult, we should be able to use enhanced cooperation so that those who want to move forward are not held back. Frankly dear members of the Parliament it is time to say that the speed of the European Union should not be the speed always of its slowest member. We need sometimes to use reinforced cooperation.
All this should be done in conjunction with targeted investment at European Union level, such as through the Europe 2020 Agenda where we propose also our Project Bond Initiative, the Commission will propose it next week, and will maximise the resources of the European Investment Bank so that it can lend to the real economy.
So reforms, implementation of everything we have agreed and also try to fund some of these efforts through new sources of investment using the appropriate instruments we have and some we can create like the Project Bonds.
The fifth and final element of the Commission’s proposed roadmap to stability and growth is the pursuit of sound economic policies by the Member States, especially of the euro area, reinforced by stronger Community governance.
We now have the six pack– and I thank you for your support in getting the ambitious proposals approved. We have the European Semester and all that it entails in strengthening governance. But we must go further to match the ambitions of our monetary policy with those of our economic policies. As we have said we have to complement the monetary union with a real economic union. The future of the single currency also depends upon it.
In its roadmap, the Commission is proposing a much stronger euro-area dimension in planning, implementing and assessing national policies. This dimension is backed up by strict constraints enforceable at the Euro-area level and is based on an enhancement of the Community approach, which will reinforce the role of the European Parliament in economic governance. We will further reinforce the role of the Commissioner for economic and monetary affairs in full respect of the Treaty.
There are other actions we can take very quickly, without change in the Treaty:
- We must improve working methods and crisis management between the European Commission, the European Council and the Eurogroup. Proposals to this end will be made soon, in line with the agreements of 21 July, by the President of the Council, Commission President and President of the Eurogroup and the aim is to have a more streamlined process between the Euro area summit, the Eurogroup and the Euro area working group.
- Second, we should streamline and reinforce the instruments we have. Not only by rapidly implementing the six-pack, but also by strengthening the European Semester by intensifying surveillance and integrating the Euro Plus Pact into the Semester – hence reinforcing the Community method in the Union.
- And we must also go further than the measures set out in the six-pack, by setting out provisions for strengthening the economic and budgetary surveillance of Euro area Member States requesting or receiving financial assistance from the EFSF, ESM, or other institutions. The Commission will make a proposal to the Council and the European Parliament under Article 136.
- We must monitor the national budgetary policies of Member States in excessive deficit procedure or countries under programmes through a Commission-Council procedure which will enable the European Union to intervene. For example, in serious cases it could request a second reading of draft budgets, to suggest amendments in the course of the year and to monitor budgetary execution. The Commission will make a proposal to the Council and the European Parliament under Article 136 setting out the graduated steps and conditions that should apply in such cases. You see, honourable members, that we are really speaking seriously when we mention we urge for more discipline, more integration. It means more Europe that, I think, should be the goal of all of us.
- All this is in addition to the proposals on a more unified external representation for the Euro area and options for ‘stability bonds’ the Commission will bring forward by the end of this year.
One final point on governance – In the State of the Union address I said the Commission would present a single, coherent framework for better economic governance based on the Community method. We are developing that right now.
The proposal will ensure the compatibility between the euro area and the Union as a whole. It will be done in a way that aims to integrate the Euro Plus Pact because coordination and integration must be carried out on a single, Community level. How can we speak about coordination and integration in a disintegrated manner. It is obvious that we need a Community approach to do that. Yes, we need stronger governance. Yes, we need the Euro area heads of government to meet more frequently. But no, we do not need to create yet more institutions or yet more titles, when we already have the structures in place to do the job.
It is essential that we do not create a division between the 17 members of the euro area and the 27 members of the European Union – most of whom wish to join the euro. Such a division could deeply harm the European Union as a whole, put in question the Single Market, be an invitation for renationalisation of Community policies. That is why we need to have stronger governance for the countries that are in the euro area, but have it in full compatibility with the rules and the acquis for the European Union as a whole. This is why it is essential to keep the Community institutions – this European Parliament, the European Commission – at the core of the process of coordination and integration.
The role of these institutions is also to guarantee this link, to guarantee that no Member State is jeopardised, to guarantee that Europe remains strong and united.
The solutions to Europe’s crisis, I believe, are known by most of us. But to grasp them requires courage and political will. To do so is to fully acknowledge our interdependence and to take a bold leap towards further integration. The problem of Europe is not too much integration. It is in fact a lack of a European approach. Such changes to the nature of our Union may need to be enshrined in changes to the Treaty. Changes that must keep the Community method at their core.
But one thing is for sure – as the crisis narrows in on us, I see no other option but to act now, so the fact that we are considering for the future more ambitious changes should not be an excuse not to adopt the decisions now and this is why we need to act together in a unified and coherent way.
This crisis is not partial. The response cannot be partial. Our responses cannot be piecemeal. That is why this roadmap is a single, comprehensive approach and all its elements must be implemented in parallel.
This is the message I intend to take to the European Council on 23rd October and for which I would like to have your support – the support for a united and stronger Union.
Thank you for your attention.