John Bruton

Opinions & Ideas

Category: Mario Draghi

THE SOURCE OF ECONOMIC SUCCESS IN THE 21ST CENTURY….EACH COUNTRY WILL HAVE TO RELY ON ITS CHILDREN’S SKILLS AND INGENUITY IN AN INCREASINGLY COMPETITIVE WORLD

A lot of attention is being given to the competition Europe and the United States will face from economic growth in Asia over the next 25 years.

A survey conducted by the World Economic Forum shows that Asia is the most optimistic part of the world about its economic future. And optimism is essential to investment!

The OECD has estimated that between now and 2060, GDP per capita will increase eightfold in India, and sixfold in Indonesia and China, whereas it will merely double in OECD countries, which include Europe and North America. This will affect the balance of power in the world. It is interesting to note that two of the top three Asian dynamos are democracies, India and Indonesia. And both of them have substantial Muslim populations.

The source of economic growth can be summed up in two words…innovation and population.

UNBLOCKING EUROPE’S ARTERIES TO RELEASE INNOVATION

If a country has an innovative and well educated population, open to trends in the global market, able to understand them and identify the needs of the world that it can meet, and with an economic and governmental structure that allows speedy allocation of resources to those needs, and  away from less efficient uses, it will have a higher growth rate.

This is why there is so much emphasis on “structural reform “ in OECD,IMF and EC advice to countries. Structural reform is designed to clear the arteries of the economy, and allow blood to flow more quickly to the activities that will yield the best return.

For example, if a country has disproportionately expensive, slow or overly elaborate legal system that will be a blockage in the arteries. If a country has disproportionately high electricity prices because it uses electricity prices to subsidise uneconomic generation for regional policy purposes, that will block arteries. Likewise if it has disproportionately costly or slow broadband communications, avoidable skill shortages, unwillingness to recognise genuine foreign qualifications, work disincentives for particular groups, or a distorted market for credit that does not favour productive activities,  all these things are blockages in a country’s economic arteries.

Such blockages can also apply at supranational level too. It has been estimated that the lack of a single market for digital services in the EU is blocking the arteries of the EU economy to the tune of 260 billion euros, the lack of a true single financial market is doing so to the extent of 60 bill euros,  the lack  of an integrated energy market to the extent of  50 billion euros, and  the lack of a single services market (including non recognition of skills certified in other countries) is blocking the arteries of the European economy to the extent of  235 billion euros.
Interestingly, a European Parliament staff paper shows that one of the slowest countries to implement the structural reforms urged by Heads of EU governments since 2011, is Germany. And one of the fastest, on paper at least, is Greece. These are reforms that Germany’s own Chancellor recommended along with her colleagues. One of the problems is the delays at the level of the Lander.

To put it all another way, and using some economic jargon, Europe has a choice. According to the EU Ageing Report, the EU can stay on its present course, and, as in the last 20 years, have a total factor productivity growth rate of only 0.8% pa. 

Or it can make changes which could lift its total factor productivity growth rate to 1.1% per annum up to 2020 and 1.4% per annum thereafter. A slow, longterm, return perhaps, but a real one all the same.  And in the long run, enough of you will be around for that to matter!

STRUCTURAL REFORMS HAVE DIFFERING POTENTIAL BETWEEN COUNTRIES

Some countries, not Ireland, have been artificially held back by top heavy bureaucracy, that prevents their societies from allocating resources to where they will get the best return.

Societies can fail to allocate resources well, or block good reallocation of resources, by political vetoes, and constitutional limits. 

The reforms necessary  include reforms to the labour market, but to a much greater extend they involve freeing up markets for the sale of goods and services, from electricity, to professional services, to government services, as I have mentioned already.

Of course, freeing up the arteries will not solve the problem, unless there is blood flow of commercial innovations based on good R and D, accompanied by an innovative and flexible culture within Government, within educational institutions and in the general population.

Between now and 2060, according to the OECD,  the countries with the biggest upside potential, for extra  growth  that might come about as a result of the implementation of structural reforms,  are China, Slovakia, Poland, Greece, India, Indonesia, Italy and Russia. 

At the other end of the scale, some countries that already have relatively efficient systems, and are  getting the benefit of reforms made in the past. These countries include the UK, Netherlands, Ireland and the USA. 

It is good that Ireland is in that position and that is an indication that the reforms we made over the last 40 years or more have yielded fruit. And this is despite the fact that Ireland still has, to a degree , many of the  rigidities I mentioned earlier, and has room to improve in those areas.  

On the other hand, other competitor countries, like China, Poland, Slovakia and Greece have even more room to improve, or  more upside potential than we do , and may thus pose a bigger challenge to us,  as soon as or if  they get their act together.

Already comparatively efficient countries, like Ireland, the Netherlands, the US and the UK,  will have to look elsewhere than structural reforms on their  own, if they are make extra gains. They will have to run faster and faster just to hold their current relative position.

STRUCTURAL REFORMS ALONE NOT ENOUGH……THE NUMBER OF YOUNG PEOPLE WILL MAKE A KEY DIFFERENCE

In every society, young people are the innovators. My own sense is that the crucial determinant, of  relative success in the 21st century as between countries, will be the proportion of young people in a country, and the relative mental agility of those young people, in comparison to those in other countries .

Their potential will be influenced by formal education, but not only by education. It will also be influenced by what happens to them as children, before they ever go to school.

Other things being equal, a country with a large elderly and middle aged population and few young people, is unlikely to produces as many innovators as a country with a large youth population. It is also likely to have more political veto points.

To an extent, each society decides the sort of future it wants to have, when it decides how many children it will have. Societies in many European countries, including Germany, Spain, Italy and many East European countries have decided to have few children, and that is a choice they have made, perhaps unconsciously, about the future profile, and potential, of their country. 

For example, partly as a consequence of differences in past birth rates, the OECD calculates that from 2018 to 2030, Ireland’s potential employment growth rate will be 1.2% per annum, and France’s will be 0.2%.

In contrast, Germany over the same period, will experience a potential employment decline of 0.6% a year, and Finland faces a potential employment decline of 0.2% per year. 

These differences partly explain why Germans and Finns see limits to their ability to bail out other countries, like Greece. They know will soon have fewer people at work, supporting an increasing number of retirees, and they will want to hold their money back for that. Unfortunately for it, Greece has a similar problem of an ageing and diminishing workforce, and an increasing elderly population.

Pensions are already 14.5% of Greece’s GDP, 13.8% of France’s GDP and almost 11% of Germanys’, as against just a little over 5% of  GDP in the UK and Ireland. That difference explains a lot, at least as much as the supposed doctrinal differences between German “ordo-liberalism” and  Anglo Saxon Keynesianism!

It is true, as Keynesian economists argue, that coordinated demand stimulus, by countries that can afford it, would help Europe’s economy achieve its jobs potential, without risk of inflation, and that can  come from countries whose fiscal positions are strong, but the judgement as to which European country can do that, has to take some account of differences in the ageing profile of each country.

Incidentally these differences also illustrate the foolishness of anti immigrant sentiment in Germany.  Germany’s 6.6 million immigrants paid in 22 billion euros more in taxes and contributions, than they took out in benefits, and some of that surplus is helping pay the pensions of native born Germans. I expect the same may apply in France.

In fact, the EU Ageing report, to which I referred earlier, estimates that 55 million immigrants will have to come into the EU by 2060, to make up for the decline in our native born workforce because  past decisions on family size. That can change, of course.
Meanwhile, Africa’s population will have increased by 28% by 2060 and Asia’s population will have slightly declined.   

EUROPE’S YOUTH PROBLEM……..A WASTED GENERATION?

In the next fifty years, on unchanged present trends, the overall working-age population of Europe will drop considerably, from last year’s peak of about 300 million to 265 million. This will be a significant blow to nearly every aspect of the Eurozone economy.

At the same time, the old-age dependency ratio–a fraction or percentage expressing the ratio of residents over the age of 65 to those under that age–will rise from 28% (recorded earlier this decade) to a staggering 58% by 2060.

The causes of this challenge are in Europe are manifold: declining fertility, advances in old-age care, the residue of baby-boom demographics. But the impact will be serious.

This is made even worse by the fact that so many of today’s youth in Europe are unemployed. The longer they are unemployed, the less relevant their skills become, and the harder will it be for them ever to get a well paying job. Their life time earning potential is being radically diminished.

The experience of long term unemployment is devastating.  That is a huge medium term problem. I heard a representative of the Gallup polling organisation, who do in depth polls that the experience of long term unemployment was worse, for the person involved, than of opinion and studies of public psychology, say that his organisation’s finding was the death of a spouse.  Imagine what that also does to future earning potential and self confidence!

Mario Draghi has recognised this, as the central European problem of today.

He said in his  speech at Jackson Hole last year

“The stakes for our monetary union are high. Without permanent cross country transfers, (which he did not expect will happen), a high level of employment in all countries is essential to the long term cohesion of the euro”

I would emphasise two words in that sentence….. “all” and “essential”…..

“ ALL” countries in the euro must have a high level of employment. 

And the head of Europe’s Central Bank says this is “ESSENTIAL”  for the euro.

Not the sort of language you would expect from a Central Banker of the subject of employment, which shows that solving Europe’s unemployment problem is essential to the survival of the euro, and thus the avoidance of immense financial instability and wealth destruction, that would flow from a break up of the euro.

Even economists, like Martin Wolf, who opposed the creation of the euro, argue that its break up would be an unmitigated disaster at this stage. The break up of the euro could herald an era, between the countries now in the EU, of  arbitrary savings destruction, of national protectionism, of competitive devaluation,  and  of mutual litigation and recrimination, that would destroy the interdependence that has allowed the European Union itself to be a structure of peace in Europe for 60 years. 

We would not be going back to the 1980’s, but to the 1930’s. 

And Mario Draghi has linked finding a solution to high unemployment is some European countries(like Greece and Spain) to finding a way to avoid that. That is what is at stake.

TODAYS PRESCHOOL CHILDREN WILL HAVE A HEAVY ECONOMIC BURDEN TO BEAR……, 

But, in the longer run, we have another problem. We will soon not have enough young people at all in Europe.

From 2030 on, Europe’s working age population will decline and the number of retired people depending on them will increase. There are four Europeans of working age today for every one retired person. By 2060, there will be only two.

To be precise, Europe’s labour supply will remain stable up to around 2023, and decline thereafter, by about 19 million people, up to 2060.

As a result of these trends, Europe’s relatively small number of pre school and primary school children of today, will, later in their lives, have to support a proportionately much larger retired population, than will their competitors in India, China, and Indonesia.

Europe will be like a horse carrying extra weight in the “global competitiveness horse race” of the mid 21st Century.

In Europe, the OECD projects that, from 2014 to 2030, the increases in public expenditure on health, long term care, and pensions, will range from increases of 6.3 percentage points of GDP in Luxembourg, through 5.6 percentage points in Belgium,  and 4,8 points in Finland to 2.7 points in Ireland, down to  1.4 points of GDP in the UK, to a mere 0.8 points in Italy and 0.7  points in Poland. This is the difference made by pension and entitlement reforms in the latter countries.

If young people are to be able to have  the future earning capacity to bear these extra burdens ,it is essential that as small children today get every developmental educational advantage now, no matter what the present income status of their family.

That is not just a matter of social justice, although it certainly is that, it is a matter of pragmatic self interest for today’s, eventually to be retired, workforce and electorate.

But what sort of educational investment will make a difference?

Increasing the teacher /pupil ratio may help, but the evidence on that in ambiguous. Some countries with high teacher ratios do less well than do others with proportionately fewer teachers.

In fact, it  may be before children go to school at all that the  biggest improvements in intellectual ability can be achieved.

…………SO THEY NEED EXTRA SUPPORT FROM THE EARLIEST AGE

I recently read a report prepared for Vietnam by the World Bank on how that country could improve its educational performance.

The report said bluntly

“Much of the inequality in learning outcomes, between different types of young Vietnamese observed in primary education and beyond, is already established before the age of formal schooling”
This may be caused by physical poverty, including bad or insufficient nutrition, which will stunt a baby’s mental development. Similar poor nutrition will be found in a minority of homes in rich countries too.
But things, like that,  that can be explained by lack of money, are not the only factors affecting a child’s mental development.

The World Bank Report goes on

“The brain development of young children’s highly sensitive to stimulation and interaction. The more parents and care givers interact with a young child, for example through talking, singing or reading, the better are the conditions for brain development”

The report suggests that, in Vietnam, babies from better off families have more of this sort of stimulative inter action with parents and care givers, than do babies in poorer families.

But the general  point about what makes a difference applies at all income levels, and if very small children , as they develop, only see their parents for an hour or so each day, and spend the rest of the time away from them, they may lose out on mental development, no matter how well off they may be materially.

If these World Bank views about intellectual development are true, they deserve an urgent response from parents, crèches, and government at all levels here in Europe.

If we are going to depend on a smaller number of children to support our welfare systems over the next forty years, we must do everything we can now, to enhance their earning capacity, especially by ensuring that they have a happy and stimulating childhood, from the earliest age.

That may be the most important long term economic stimulus of all!
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Speech by John Bruton, President of IFSC Ireland, and former Taoiseach, at the dinner  of the Institute of Chartered Accountants in Ireland in  the Convention Centre, Dublin at  8pm on Thursday 29th January
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THE EURO CRISIS—WHAT COULD GO WRONG?

The  European Union is facing a crisis because of the loss of confidence in the debts issued by several member states. This is related directly to the problems and activities of Europe’s banks.
On 9 December in Brussels, the Heads of Government of the 27 EU member states meet, yet again,  to come  forward with a solution to the  escalating loss of confidence in the debts owed by European  banks and  governments. Each time leaders meet, and come forward with proposals that, within days,  prove to be inadequate, further confidence is lost  both in the leaders themselves, and in the  European Union, as a functioning  and competent  political authority capable of managing the  affairs of its peoples. 
This is corrosive. It undermines political solidarity within and between Europeans, and it encourages   reversion to 1930s style nationalism, and to  general  anti politician sentiment, which could eventually erode the tolerance that is essential to democracy itself.
There is a limit to the number of failed government bond auctions we can endure. Many further such bond auctions are due in January and February. In February there will be a General Election in Greece, and the campaign in that election will be critically influenced by the perceived effectiveness of present EU arrangements and the  steps Greeks are having to take to comply  with these arrangements. If there is to be a good result in that election, the EU needs to show electors that it is in control of the situation.
THE ECB CAN ACT NOW, AND SHOULD DO SO

The European Central Bank needs to take note of the situation. It has a mandate under EU Treaties to maintain price stability, defined as around 2% inflation.  There is a growing risk that the problem Europe will face next year will be deflation, not inflation.
If industrial orders and consumer confidence continue to decline, prices and incomes will start to fall, and the situation of those in debt will worsen further because, even if they pay all interest, the real value of their debts  will increase as a consequence of the  fall in prices and incomes relative to the unchanged level of their debts.
If these circumstances are likely to arise, the ECB has a duty, in the interests of price stability, and in full accord with its Treaty mandate, to initiate quantitative easing to prevent it. An immediate statement to that effect from the ECB would go a long way towards resolving the short term crisis.
 
CONSEQUENCES OF A BREAKUP OF EURO
Failure to act could lead to a break  up of the euro. This could be devastating , because a lot of the debts owed by Europeans are owed  in euro to other Europeans. With the euro gone, the uncertainty about who owed how much, in what currency, to whom could lead to endless legal dispute.
Governments trying   to establish new national currencies could face huge problems stopping  outflows, which could  lead to  limitations on bank withdrawals, reintroduction of exchange controls, and  tariff walls against their exports by other countries  in the EU aimed at countering  competitive devaluations of one  new currency against another. 
The legal order on which the EU is based could break down. We should not forget how inherently fragile that legal order has always been. If one country refuses to implement a judgement of the  European Court of Justice in an important matter, and gets away with it, the EU has no  meaning anymore because  the EU has no police force to enforce its  rules. Everything is based on consent.
Against this background, one must ask oneself if further EU Treaty change could be part of the answer.  Treaty change could take, at the very least, a year to effect.  But we do not have that much time.  So the best we can hope for is a political commitment  by Governments to seek consent to a Treaty change from their parliaments or peoples.
SPEECHES OF CHANCELLOR MERKEL AND PRESIDENT SARKOZY

There has  been agreement  that a  proposal to improve the  governance of the  euro zone would be presented by the  President of the European Council, Hermann Van Rompuy to the EU Summit on  9 December. In advance of this, the leaders of the two biggest euro area states have set out their requirements. 
In her speech today, Chancellor Merkel has called for Treaty changes that would make sanctions on  states who breach  debt and deficit limits  automatic and  capable of  being enforced  directly through the  European Court of Justice.  It would take the issue out of politics and make it a legal one. This would require a change in the Treaties.
President Sarkozy, on the other hand, said yesterday that European integration must be pursued, and the problem has to be solved , inter governmentally. This is because he believes that only elected heads of national governments have the required political legitimacy to make the necessary decisions.
These two positions are quite far apart, and there are difficulties  with both of them.
The difficulty with Chancellor Merkel’s approach is that it will involve the European Court of Justice in making economic judgements. 
In the case of a disputes, is  the Court really qualified to judge whether  a deficit is excessive by reference to the point at which a country is at in its economic cycle? Can it adjudicate on whether estimates of future revenue are valid or not?
Even economists have difficulty with these issues.  So the framing of a Treaty change in this area will could be challenging.
President Sarkozy’s preference  inter governmentalism  will bring economic judgements into the realm of power politics, the sort of power politics that prevented any  sanctions being imposed on France and Germany when they became the first to breach the original Stability and Growth Pact. His approach would diminish the role of the European Commission.
Both the Chancellor and the President are paying too little attention to what has been already agreed in the “six pack” regulations. These, which require no Treaty change, will already make it more likely that a state, with and excessive deficit ,will be fined,  because a qualified majority (66%) would have to be found to agree NOT to impose a fine.
Neither  the Chancellor nor the President pay enough attention to the huge failure of  EU wide banking supervision that allowed all this foolish cross border lending to take place within the single currency area. Neither of them addressed the lack of implementation, from the very outset of the euro, of the ECB’s responsibilities in the Treaties , to  supervise the  activities of banks and the impact those  activities have had on the stability of  the European economy. Both of them spoke as if the problem  today was solely one of Government finances ,when it is also a problem of  bank finances

THE GERMAN AND DUTCH PROPOSALS TO CHANGE THE EU TREATIES – HOW RELEVANT  ARE THEY TO THE PROBLEMS WE FACE?


But what of the more  detailed proposals for Treaty change  advanced so  far.  How relevant and helpful are they?  It is suggested that  we must amend  the  EU Treaties, because it is argued that the existing  Treaties either
 
a)    prevent  us doing what is necessary to resolve the situation, or
b)    provide us with insufficient assurance that  we will not get into the same difficulties again.
The German CDU has demanded Treaty changes to provide for

  • automatic sanctions for breaches of the  Stability and Growth Pact( 3% deficit and 60% debt/GDP ratio),
  • a procedure for insolvency of EU states,
  • the direct election  by the people of the EU of the President of the European Commission,
  • taking away the exclusive right to initiate EU legislation from the Commission,  and allowing the Parliament and the Council  an equal  right with the Commission to initiate legislation,
  • more seats for bigger countries in the European Parliament based on their bigger populations.

They also want Europe to unilaterally introduce a tax on financial transactions.
The Dutch Prime Minister has suggested Treaty changes that  would

  • allow a European Commissioner for budgetary discipline to force  states running excessive deficits  adjust their policies and
  • to impose  sanctions  including reduced payments from Cohesion and Structural Funds, national budgets requiring  EU  approval before introduction,  suspension of voting rights in EU institutions,  and  ultimately expulsion from the  Euro  zone. 
It is important that any proposals for Treaty change are based on an honest appraisal of what  our problems actually are, and are not put forward  as  tokens to soothe domestic  opinion in particular countries. Our problems are too serious now for that sort of thing. 
Given that Treaty changes in the EU require all members states to ratify them, the way proposals are put forward is almost as important as the proposals themselves. 
If proposals seem to be one sided, or to emanate from a small cabal of big countries, rather than  from an inclusive process of which all member states have equal  ownership,  then the  proposed Treaty changes may be doomed from the  start, whatever their merits.
On the specifics of the CDU and Dutch proposals, I would  respond as follows.

THE CDU PROPOSALS

The difficulty with automatic sanctions for supposed breaches of the Stability and Growth Pact is that, if the country on  whom they were to be imposed objected, the dispute would go to the European Court of Justice, not to the Council of Ministers for arbitration. Breaches of the Pact would include  questions about whether  assumptions about future economic growth and thus revenue were  too optimistic, the point at which a country was on in its economic cycle, and the like.  These are questions on which economists, who are studying these matter all the time, usually  cannot agree.  There is little chance that the judges in the ECJ, many of whom have no background at all in economics, will make sensible judgements  in such cases.
A treaty provision for the insolvency of states, as suggested by the CDU, will be very difficult to draft and will be highly controversial.  There may be some merit in establishing rules in this field, but I wonder if this is the time to be doing it.  The issue will not be being debated in an academic setting, but in the midst of febrile market conditions. There is a strong risk that the twists and turns  in a public debate on the  state insolvency   will have a  negative and unintended influence on the markets.
 We should not forget that ,when  the issue of so called  private sector involvement in resolving the Greek debt  crisis was first mooted by Germany , it had an immediately damaging effect on the capacity of some other  smaller countries to borrow.

CDU PROPOSAL FOR DIRECT ELECTION OF EU PRESIDENT MOST WELCOME
The direct election of the President of the European Commission by the people of Europe is a vey good idea. I advocated it when I was  President of the European Council in  1996, and again when I was a member of the Praesidium of the Convention of the Future of Europe. Interestingly, the only member of the Convention who gave the proposal any support at that time was George Papandreou. It is very good that the CDU is supporting this proposal now.
A direct election of this  kind is what we need to create a  genuine European  demos, or  sense of shared destiny, among EU  citizens whatever their nationality or language . Without such a demos or  shared  identity, we will be unable to persuade Europeans to make sacrifices for one another, and that is something we need if Economic and Monetary work.

BUT CDU ATTACK ON COMMISSION VERY DANGEROUS

On the other hand, the CDU proposal to take away from the Commission the exclusive right to propose legislation, and  to require it to  share that with the European Parliament and the Council of Ministers,  is a thoroughly bad idea.
It would  weaken the Commission even further than the rampant intergovernmentalism of Europe’s response to the financial crisis has already  done. 
The European Commission seeks to put forward proposals that will command  support  from  all countries , large and  small. It formulates compromises in advance.
If the  Parliament and the Council could table competing legislative proposlas on the  same  subjects as the Commission, this would make the search  for subtle compromises much more  difficult. It would  enhance the power of the bigger delegations of the bigger countries in the  European Parliament  and would encourage  crude nationalistic  majoritarianism in that body. 
The Commission is the protector of the interests of  smaller  member states within the EU, and this  CDU proposal will be seen by them as provocative and subversive of the community method on  which the EU was founded.
CHANGING REPRESENTATION IN PARLIAMENT WOULD UPSET A DELICATE COMPROMISE
The CDU proposal to increase  the relative representation in the European Parliament of  countries with bigger populations, but without reducing the  extra voting weight that bigger countries enjoy in the  voting system of the Council of Ministers,  overturns one of the central compromises reached in the  drafting of the   European Constitution and the Lisbon Treaty.
 The CDU should remember that ,even if the United States which is a fiscal union, all states have equal representation in the  Senate while populations have  equal weight in the House of Representatives.
 Under  the Lisbon Treaty, the EU has struck a similar compromise.  Bigger states have bigger representation in both the Parliament  and the Council, but there is a system of “degressive proportionality” which compensates smaller states by  giving the proportionately bigger representation than their population would strictly  justify.
 I cannot understand why the CDU wants to reopen this  difficult matter, unless of course it want  to use the proposal as a negotiating  weight to gain traction on some other issue. Frankly, I think our situation is serious enough without that sort of gamesmanship being introduced.
A FINANCIAL TRANSACTIONS TAX
The suggestion of a financial transactions tax has populist appeal. It may slow down financial transactions and allow a little more time for reflection in the markets. It would curb automated  transaction systems by making unduly frequent buying and selling slightly more expensive. It could  provide the EU with a new source of revenue, which would be very welcome.
But  It would also lead to  financial sector activities moving out of Europe, and the tax revenues that those  activities generate for  EU states going into the treasuries of   non EU countries. Given that unanimity must be obtained for this proposal to go through, I wonder if it is not, like the proposal to redistribute seats in the European Parliament,  being put forward as a  negotiating  ploy .  Again, one must ask if this displays the sort of seriousness that out parlous situation requires.
THE DUTCH PROPOSALS
Turning to the Dutch proposal to enhance the Commission’s control over the budgets of states running excessive deficits, it is hard to argue against the principle of what they are seeking to achieve.  The CDU has argues that fines for excess borrowing should be automatic.
But one might wonder how urgent  the proposal is.
 Financial markets are already imposing very harsh discipline, through demanding higher interest rates of countries with excessive deficits.
 It will be a long time before any EU country will ever again be able to borrow money at easy rates of interest unless their fiscal policies are demonstrably sound. Do we really need to reinforce what the markets  are already doing with Treaty changes at this stage? 
It is also worth noting that the reverse majority procedure now applies to both the Excessive Deficit and the Excessive Imbalance procedure. So a country, that is liable to be fined for running an excessive budget deficit, or an excessive balance of payments surplus or deficit, will automatically have to pay a  fine,  unless it can persuade a qualified majority in the  Council NOT to let the fine go ahead. Perhaps we should see how that new procedure works before going for Treaty change?
 In any event, levying a fine on a country, that is already in financial difficulty , will add to the difficulties.  It will be too late to be an effective deterrent
CUTTING STRUCTURAL FUNDS?
The Dutch proposal to reduce payments from the Structural Funds to  countries with excessive deficits  will  fall more heavily on poorer countries than on richer ones.
 Excessive deficits or economic imbalances in richer countries can be just as damaging as they can be in poorer countries, perhaps more so. For example, the Netherlands is less reliant on structural funds than is Estonia, so a proposal to reduce structural would hurt  Estonia  proportionately more than it would the Netherlands, even though their  excessive deficits  might be of  the same proportionate scale. That is unbalanced.
The proposal that budgets of deficit countries require advance EU approval is also potentially unbalanced.
 One country can only run a trade surplus if another country runs a deficit. If a country is deliberately managing its economy in order run consistent surpluses, it is contributing to deficit problems of other countries. That needs to subject to EU surveillance too.

DUTCH PROPOSAL TO SUSPEND VOTING RIGHTS IS NEO COLONIALIST

The proposal  by the  Dutch Prime Minister to suspend the voting right in EU institutions of a country which has excessive debts or deficit is tantamount to reintroducing colonialism within Europe, because it  would involve imposing decisions, in which they have  had  no vote, on  countries who joined the EU precisely because they  thought it was a democratic organisation.  The existence in 21st century Europe of a mentality that would make such a proposal is deeply troubling.
I am unclear about the merit of changing the Treaty to allow for the expulsion of a country from the euro zone. It would imply that the euro itself is a temporary expedient. It would aggravate speculative pressure, without any compensating benefits.
CONCLUSION
 
I believe the proposals from the CDU and from the Dutch Governments to  change the Treaties are not adequate to the problems we face, and in some cases are a distraction.
 The so called six pack proposals, recently agreed go a long way to strengthen disciplines on fiscal policy, and do not need Treaty change. They should be given a  chance to work, before we contemplate additional Treaty changes for control of national budgets.
But the CDU proposal for a direct election of the President of the Commission does deal with an important problem that underlies our present problem, namely the lack of a sense ,on the part of ordinary Europeans,  that they can, through their vote, influence the direction of EU policy.
 If citizens could  directly vote the President of the EU  in or out of office , that will give them a much more direct sense of control of the direction of the EU than they get  now from just voting  for their local or national MEPs.
None of the proposals on the table so far deal with the issue of banking, which is at the heart of our economic difficulties today. It was foolish lending decisions be banks that caused our problem.
The original Maastricht Treaty  of 1992 envisaged the ECB taking an overall role in overseeing the prudential supervision of  banks, especially banks that were lending across borders within the euro zone. This provision in the Maastricht Treaty was never brought into effect , because activating the ECB’s powers in this matter required unanimity. Some countries did  want not anyone else enquiring into their banks, and that reluctance continues even  to this day.
 
 Any Treaty change now should include
1.)  much tighter EU wide supervision of  banks,
2.)  restriction on the size of banks, and 
3.)  an EU  wide deposit guarantee scheme.

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