Veritas – the mood inside Brussels
In a week when Italian bond yields hit a euro-area high of 7%, and when the leaderships of Italy and Greece were changing, the mood inside Brussels has been sombre.
It was the best, and worst, time to be inside the heart of Europe’s political and economic institutions. Policymakers and parliamentarians alike are working hard, often against their private doubts, to deliver a positive message about the benefits of the European Union and the Eurozone, while the structure appears to be crumbling around them.
It is easy to see why they are hesitant. There is a sense of helplessness against market forces. Every time Europe’s policymakers try to tackle one problem, financial markets flag up another one for them. “Unless we do it ourselves, the ones who will be doing it are market participants. These are the ones setting the deadlines, the sanctions. Essentially, they are market sanctions,” says one EU official.
To its credit, the European Commission is now trying to deal with this by being more pre-emptive. But at what cost?
Delivering the EU’s autumn economic forecast, Commissioner Olli Rehn announced a sudden shift of focus on the economies of Belgium, Cyprus, Hungary, Malta and Poland.
Two days earlier, the so-called “six-pack” agreement was reached between Europe’s economic and finance ministers. At its heart lies a commitment to lowering budget deficits to between three and four per cent, as early as 2012, with a deficit of 3.9% forecast in the EU and 3.4% in the Eurozone as a result of the measures.
But the debt remains, while political control will be enhanced. According to the Commission’s own forecast, debt will rise across both the EU and the Eurozone to 2013, except in Germany, Italy and Slovenia, where it will decrease slightly. “Debt will take time to stabilise despite progress with deficit reduction; on aggregate, it will not decline during the period,” Rehn said.
That is unless the Commission’s policies are implemented, it argues. More financial scrutiny and economic governance is planned, and those profound changes are taking place at a fast pace. Italy is the first “demonstration of the six-pack method”, said Rehn. Belgium, Cyprus, Hungary, Malta and Poland will follow. France is in the firing line: in its Spring forecast next year the Commission will “take a close look” at that country’s economy, and others with deficit reduction targets due in 2013.
The Commission is aware of its main criticism: it has been slow to react. A number of commentators drew attention to the difficulty of getting 27 Member States to agree on an approach, drawing up the details of policy within the Commission itself, getting that approved by the Parliament which often suggests its own tweaks, and finally passing those measures into law.
“[Now] laws can and are being passed quicker and can be implemented quicker,” says an EU official. But taking back power from financial markets can be easily undone by domestic electorates. Both the Commission and the Parliament know that. Selling the message is becoming the hardest part, many inside Brussels admit. “Until now, there has been strong political will. Not only from countries undergoing massive adjustment that is painful for its citizens, but also on the side of those providing solidarity.”
“The Dutch, Finnish, German and Spanish government support is a difficult decision to take and sell to your government, parliament and press. It’s not a piece of cake, and you pay a price for that,” the source says.
Despite the doubts, those in Europe’s power centre will do almost anything because a break-up of the euro and the European Union is inconceivable. “The euro is so symbolic, if it falls it will drag the EU down,” says Hans Martens, head of think-tank the European Policy Centre. “If there is nationalist appetite, and populist xenophobic parties come to power, that is the risk. It is so clear that Germany is willing to go as far as they are because they don’t want this scenario.”