Mindset change vital to Eurozone health
- Published on Tuesday, 18 October 2011 11:10
- Posted by Scott Buckler
Varying degrees of dissent over the measures being put in place to tackle the Eurozone's troubles were voiced by all guests at a hearing on economic governance and crisis management held by the Economic and Monetary Affairs Committee on Monday
Changes are needed in the EU's crisis and fiscal consolidation plans, and further economic coordination is essential, MEPs were warned by academics and European Central Bank (ECB) Executive Board member Jürgen Stark. Speakers also clashed on the role of the ECB and the issue of focussing exclusively on austerity, to the possible detriment of growth.
Kay Swinburne (ECR, UK) asked Mr Stark the question that was on everyone's lips: "What are the real reasons for your stepping down from the ECB during such a crisis?". He refused to be drawn, but said that he would explain his position at the end of the year.
Out of the hole
Two speakers were especially critical of attempts so far to control the crisis. Ricardo Cabral, of the University of Madeira, argued that the EU-IMF programmes for Greece, Portugal and Ireland should focus on correcting trade deficits, not on austerity, which would stifle the private sector. "The programmes are using a sledgehammer to crack a nut and are bound to drive us into a recession", he said.
Jérome Créel, of the Parisian think tank OFCE, called for fiscal stimulus to rebuild trust and emerge from the crisis, arguing that Europe's private sector debt was nowhere near as deep as those of the US or Japan and that there was therefore room for further spending programmes. This was strongly contested by Mr Stark and also some MEPs. Wolf Klinz (ALDE, DE) likened it to "drinking more to avoid a hangover".
André Sapir, of the Brussels Breugel institute, said that in these exceptional times, the ECB should play an exceptional role. Mr Stark strongly contested this too, arguing that if the ECB were to take on any further role, it would be overstepping its mandate and taking responsibilities away from the Member States. Mr Sapir also criticised Member States, for not committing enough to the bailout fund: "If we say that we will do everything it takes to deal with the crisis then why is the fund limited to €440 billion and operated by unanimity?" he asked.
The future of monetary union
Mr Stark advocated deeper economic governance, as the only way to ensure the Eurozone's long-term health. "The six-pack is good and I have to thank the Parliament for this. However there is still a significant implementation risk because surveillance has been less than stellar. We need a changed mindset on surveillance and we cannot have this change without more reform." One reform that Mr Stark proposed was that countries benefitting from financial assistance and failing to undertake the reforms should be placed in receivership.
Mr Sapir argued that a fundamental shift was needed for monetary union to be a success: "Germany was the only country to have given up some sovereignty with the adoption of the Euro since all others were already tied to the Deutschmark. The future for monetary union will be one where everyone agrees to give up something. For some it will be more control of their fiscal policies."
The European Commission is always going to struggle to control Member States", Werner Langen (EPP, DE) said, expressing doubts about improved surveillance. "If we are not to have Eurobonds imminently and no extra role for the ECB then we have no other tools to strengthen the Eurozone", said Udo Bullman (S&D;, DE) in response to Mr Stark's long-term recipe.