Social Europe: Not (yet) up to the task: how eurozone members are gambling away post-Covid economic recovery

Action at the European level is key to rein in the economic shockwave following the Covid-19 outbreak. As the former president of the European Central Bank, Mario Draghi, recently affirmed, economic recovery will be easier the more public treasuries step in and relieve the private losses of workers and firms. The goal is to ‘keep the lights on’— to prevent the production system sinking under the accumulating burden of debt and losses until workers can get back to work and consumers can buy again under safer conditions. [...]

While these measures allow public and private debt to increase, the Eurogroup was supposed to provide a final safety net for public finances as the linchpin of the package. Such a safety net would have to meet two bottom-line requirements. [...]

Stagnation and further macroeconomic divergence will be the most likely outcome. Besides the predictable upsurge of political discontent and populist temptations, financially weaker members will likely be subject to speculative attacks, and therefore be even more dependent on long-term ECB support than before.

read the article

Social Europe: Here we go again: Europe’s inability to face the coronavirus crisis

On March 16th, the president of the European Commission, Ursula von der Leyen, proposed a 30-day closing of the union’s external frontiers. Many governments have however locked national borders, with no European co-ordination. The same day, a meeting of eurozone finance ministers—with a co-ordinated economic response anticipated—failed to take significant action. The chair, Mário Centeno, merely expressed a general will for fiscal stimulus while emphasising the permanence of European rules: ‘[T]he Stability and Growth Pact has all the flexibility needed to cater for this situation … We welcomed the commission guidance on the scope for supporting firms that is available within state aid rules.’

In fact, such rules are openly—and wisely—being broken by all governments facing the pandemic. Europe’s attitude leaves open the possibility that damaged countries are again asked to follow a stricter path of adjustment of public expenditure, leading to a new round of austerity. [...]

Policy action in the face of the pandemic is indeed difficult. Monetary-policy tools are less effective than in previous crises. On the day of von der Leyen’s announcement, new liquidity announced by the US Federal Reserve and the ECB failed to prevent a stock-market collapse. The indirect stimulus of expansive fiscal policies and tax relief is crucial to rescue damaged economies. But the most effective tool for containing the crisis is probably a large direct increase in public spending—on public services, the purchase of domestically produced goods and investment in new production activities. [...]

In fact, a key lesson from the pandemic is that health is a global public good, vulnerable to deficits in its supply and to the emergence of epidemics from any point on the planet. Another lesson is that public-health systems—with universal and egalitarian coverage—are the best protection from the pandemic. A third is that the model of Europe’s welfare state, with public responsibility for providing fundamental services—health, education, universities, research, pensions, social assistance—to all citizens, regardless of their ability to pay, is an effective alternative to the operation of markets.

read the article

Bloomberg: Now Comes the Fight Over Europe’s Future

Last week, Mario Centeno, the new group head for the euro region’s finance ministers, said that the coming months offer a “unique window of opportunity” to strengthen the common currency. He called for agreement by the EU’s June summit to unify banking and capital markets regulation, and to increase fiscal burden sharing. [...]

Euroskeptic nationalist politicians now run Hungary and Poland. In March, Italy is expected to hold elections that could produce a less pro-European government in Rome. Meanwhile, the far-right Freedom Party of Austria recently joined a coalition government in Vienna. Its party members or affiliates head the foreign, interior and defense ministries. [...]

If border guards were put to work under the canopy over the Brenner Pass, “we’d have 15 to 20 kilometer tailbacks,” said Peter Mock, commissar of the highway police based in Sterzing, a small medieval town 11 miles into the Italian part of Tyrol. The number of trucks crossing the pass has increased by at least eight or nine times since 1995, he said. [...]

Support for rejoining Austria is marginal, but hardened borders and resurgent nationalism could change that, he said: “This is a little Europe within Europe.”

read the article

openDemocracy: How Mario Centeno could change Europe

Two years ago Mario Centeno was yet another finance minister of the Eurozone trying to convince his European counterparts that austerity was not working. Portugal was emerging from a severe economic crisis and an equally challenging bailout. Pensions were slashed, education suffered a 23 per cent cut and unemployment reached 17.5 per cent in 2013. The former centre-right government zealously followed the treatment recommended by the IMF and the European Union. But the results were far from satisfactory. Deep cuts were not after all the answer to improve our economy and the life of our citizens. However, things changed dramatically when Antonio Costa´s government assumed office in 2015. After finding an unorthodox formula to govern, the socialists showed Europe that there is an alternative: the solution lies, politically, in reaching broader consensus. Economically, in boosting demand, not suppressing it. [...]

Mr. Centeno’s metamorphosis from outsider to European leader started when Portugal left the EU´s excessive deficit procedure in May. The decision gave Portugal margin to ease austerity and to push away the threat of future sanctions. The decisive moment for Mr. Centeno, however, came the day after. Mr. Schäuble, then Germany´s finance minister, called him the “Ronaldo of Ecofin” and praised him in public. Many understood Mr. Schäuble words as an endorsement. However, few believed Portugal´s finance minister could be on his away to replace Jeroen Dijsselbloem. [...]

Every leadership position in Europe is chaired by the European People´s Party. The exception is the Eurogroup. And there was a gentlemen agreement between conservatives and socialists ensuring that the Eurogroup should be presided by the latter. There was also consensus around the idea that the President of the Eurogroup should come from a smaller country. Another decisive factor was the electoral calendar in Italy – elections will take place during the Spring – and the political instability in Spain. Nonetheless, Portugal´s role as Europe´s success case was a key factor. Whether we like it or not, economic results determine the perception of politicians and governments. And financial stability in a country used to the contrary is a sign of competence. And a synonym of political success, even if the results in other areas are not favourable at all.  

read the article

Politico: Eastern Europe strikes back at EU establishment with Eurogroup bid

Kažimír had fallen out of favor among his fellow eurozone socialists, who overlooked him amid concerns about his unpredictable nature. Several eurozone officials told POLITICO that the Slovak has a tendency to “speak without thinking,” with one person questioning whether Kažimír would be able “to do the job without insulting people.”

But Slovakia’s curveball comes less than two weeks after its capital, Bratislava, lost out in the race to host the European Medicines Agency (EMA) which must relocate from London after Brexit. Amsterdam edged out Milan for the EMA, with Bratislava not even getting past the first round of voting despite having been considered a leading contender. [...]

The Commission, Parliament and Council are all headed by conservatives from the European People’s Party (EPP), which deliberately didn’t field its own candidate for the Eurogroup race to keep political peace with socialists in Brussels. Spain’s Finance Minister Luis de Guindos orchestrated that EPP strategy, which should have paved the way for the socialist candidate to win the Eurogroup presidency. [...]

The winner will exert significant influence over economic and monetary policy across the 19-country bloc as it embarks on ambitious reforms to strengthen its foundations. Another immediate task facing the next Eurogroup president will be the delicate process of shepherding Greece toward the exit from its €86 billion bailout program next summer.

read the article