EU sets out ambitious plans to tackle financial crisis

The European Commission announced on Wednesday (October 29) it will outline late November an economic recovery plan for the European Union to guide it from the present “financial crisis” to the “sustainable development” to avoid the prospect of recession.

“We will bring forward on November 26, a comprehensive EU recovery plan, based on the framework we have approved today,” Commission President Jose Manuel Barroso told journalists, adding, “that recovery plan will include targeted short-term actions to add to the medium-term reform agenda.”

Outlining a four-pronged framework as the basis of the plan, Barroso highlighted pragmatic measures to help families and households across Europe, coordination and solidarity among member states, full use of flexibility allowed by EU rules and global governance.

SOCIAL RESPONSIBILITY

"Our top priority is to minimise the impact on jobs, purchasing power and prosperity of our citizens," he said. “We must keep unemployment to the absolute minimum and support those who have lost their jobs," Barroso added.

In a commission communication relating to the financial crisis, released after the press conference, the Commission stressed the need for social solidarity, saying that households and employees need to be cushioned from the full effects of the economic downturn.

The communication stated the chances for reviewing the terms for releasing money from the European Social Fund, which aims to provide educational opportunities and improve job skills, and review the effectiveness of the Global Adjustment Fund, which was established in 2007 to help workers laid off by companies that have moved their operations outside Europe.

Addressing a joint press conference with Barroso, European Economic and Monetary Affairs Commissioner Joaquin Almunia said, “We are now facing not only a financial crisis but a serious slowdown in our economies that is hitting households, businesses and jobs.”

FLEXIBILITY IN APPLICATION OF RULES

Calling on member states to use flexibility provided in European fiscal rules in the case of sharp slowdowns, Almunia said, “They should use the room for manoeuvre they have to cushion the impact," adding, “we have red lines, we cannot put an excessive burden on the next generation.”

Almunia said: "Given that inflationary pressures are now easing, monetary and fiscal policy can contribute to supporting demand ... member states can now use the room for maneuver they have created.”

Almunia insisted that the Stability and Growth Pact is the appropriate policy framework for the EU, adding that in case of extra-ordinary condition like present, the pact will be interpreted flexibly, allowing budget deficits to exceed three percent of gross domestic production provided the deviation is small and temporary.

“The pact is about peer support in a difficult situation as the one we are living in and not only about peer pressure,” he said.

Echoing Almunia, Barroso said EU countries should use to its full potential the flexibility that exists within the EU fiscal discipline, as well as within the competition, state aids and internal market rules.

Warning, “We need to swim together or else we will sink together,” Barroso also acknowledged that the member states held the "main instruments" for reviving growth and not the European Union adding, “Europe must confront the economic downturn with the same robust and coordinated approach we have taken on the financial crisis.”

Commission President Barroso, however, cautioned against using the financial crisis to bring in protectionism saying, “Trade barriers shut out prosperity and open the gates instead to short-term, economic populism. So yes to pro-activism, but no to protectionism.”

ENHANCING ROLE OF EIB, EBRD

Barroso and Almunia also urged the member states to look at the possibility of strengthening supranational financial institutions. Barroso said governments should also consider giving more money to the European Investment Bank that could direct funding to infrastructure projects or provide loans for small businesses hit by the credit crunch.

The European Bank for Reconstruction and Development (EBRD) could also receive more capital. The commission communication stated, “The EBRD has been playing a key role in financial sector reform and in financing the private sector in our newer member states. In the current financing environment its activities in these countries could be strengthened.

FINANCIAL SOLIDARITY

In the spirit of solidarity, EU governments agreed late Tuesday (October 28) to lend Hungary 6.5 billion Euro in a joint bid with the International Monetary Fund (IMF) to help the country deal with the financial crisis.

Barroso said the EU stands ready to provide substantial medium-term financial assistance to other member states experiencing balance of payments pressures or serious financial stability risks saying, “we need to be prudent but also vigilant.”

Amid fears that several new EU member states and other countries might eventually need assistance, Commissioner Almunia confirmed that no other country has asked for a rescue package similar to one provided to Hungary.

Hinting at the crisis-situation in Ukraine and others, Commission President Barroso said, “neighbours are under stress but EU institutions are ready to provide.”

INTERNATIONAL COOPERATION

Barroso promised EU support to improve cooperation and coherence at international level saying, “When you have global interdependence, you need global governance.”

Commenting on the Summit of Group of 20 in Washington on November 15 to reform the global financial system, Barroso said the summit must deliver the first results so as to rebuild a climate of confidence, which is part of the solution to the current crisis.

Urging China to be part of the solution, Barroso said, “China has been benefiting from this globalisation and has made big financial reserves and its time to show that they can help in this time of crisis.”

Barroso called on the IMF to be prepared to intervene with emergency financing as there were signs that the crisis is spreading to emerging markets. China and the Gulf countries could do more to help the IMF support countries hit by the financial crisis, Barroso said adding, “The idea put forward by (British) Prime Minister Gordon Brown, and I completely agree with him, is that China and others could help more the IMF ... Not only China but also the Gulf countries could maybe give a concrete demonstration of their sense of responsibility.”

On the subject of overhaul of the relevant financial institutions, the commission communication stated, “Europe is well placed to play an active role in designing the new global architecture and making it work effectively,” based on key principles of efficiency, transparency plus accountability and representation.

LACK OF CONFIDENCE
   
Commenting on the plunging stock markets even with the pumping of liquidity in the banking system, Barroso blamed it on lack of confidence in the economy, Barroso said, “People are expecting the negative effects on the so-called real economy and that's why it's important ... that we are acting in a coordinated way to address the problems of the real economy.” Barroso sounded positive as he declared, “Europe will come through this financial storm and will emerge stronger.”

Almunia said that he had made a proposal to raise the maximum EU aid to member states facing financing troubles to 25 billion Euro as according to a 2002 rule, the EU can provide up to 12 billion Euro in total financial assistance to member states that do not use the Euro when they run into a balance of payments crisis.

"We sent to the council (of member states) proposals for increasing this ceiling to 25 billion Euro," Almunia told journalists. EU officials later said that it will be on the agenda of the meeting of the EU finance ministers on Tuesday (November 4) in Brussels.

Politicians step in as ECB fights inflation

Brussels, July 21 - Inflation took central stage on the European Continent with European lawmakers joining the fray with calls to the European Central Bank to reconsider its fiscal policies. In a non-binding parliamentary report, Member of European Parliament suggested the ECB should reconsider its inflation ceiling, upping political pressure on the ECB while it struggles to damp rising inflation amid signs of slowing economic growth.

The ECB, which makes monetary policy for the 15 countries that share the Euro currency, has fixed the target to keep Eurozone inflation just under two percent. The draft report by Werner Langen, a German member of the EP, and Pervenche Beres, head of the EP’s Economic and Monetary Affairs Committee urged the ECB saying that level “should be examined in the context of a new age of globalization characterised by rising energy and food prices.”

Reiterating the European Parliament’s “strong commitment to the independence of the ECB,” the report supported, “the de m a - n d for a stronger public debate on the fut ure common monetary and currency policies.’’ The draft report also recommended that the ECB’s six-member Executive Board be enlarged to nine saying, “...(its) important that a variety of backgrounds be represented among executive board members.”

With no official EP jurisdiction over the ECB, the final report — which will be put to a parliamentary vote in October — will be nonbinding but the financial pundits commented that the timing of the report is sensitive as the ECB raised its key interest rate to a seven-year high of 4.25 percent earlier this month. There has been political pressure also from several Eurozone politicians suggesting that the bank’s inflation focus jeopardises economic growth.

Earlier on the eve of Eurozone finance ministers’ meeting, German Finance Minister Peer Steinbrueck said inflation is a matter of ‘deep concern’, adding a joint effort beyond the scope of the European Union is needed to safeguard citizens’ waning purchasing power.

Luxembourg Prime Minister Jean- Claude Juncker, head the Eurozone echoed the German sentiments saying, “Inflation is a serious concern, both for the ECB and Euro governments.’’ With the present Eurozone inflation rate hovering around four percent which is double the target rate, there are signs that the Eurozone economy is also slowing amid global market turmoil.

Commenting on the subject, European Monetary Affairs Commissioner Joaquin Almunia said, “The future (of inflation) depends solely on what happens on the global markets. It is anyhow possible that next year inflation could be close to the ECB target level.”

Quoted in the Finnish daily Kauppalehti last Friday, Almunia said, “Although there is a risk of stagflation and I am worried about it, I hope we can avoid the difficult situation,” adding that economic growth in the EU had weakened in the second quarter and that inflation and market uncertainty had an impact on growth.

Although the ECB did not issue official comment on the EP report, ECB President Jean-Claude Trichet said policy makers must prevent the commodity-price shock from pushing up other prices, telling Germany’s Frankfurter Allgemeine Zeitung that, “the latest rise in unit labour costs is a piece of data that we need to take into account.”

Moreover, the policy makers were not ready to yield to political pressure became evident as ECB Governing Council member Nout Wellink was cited in the Dutch weekly magazine Elsevier last Thursday as saying that slowing growth may not damp inflation. Wellink added, “if you fail to halt inflation before it increases further ... you will have high inflation at a time of low growth.”

Across the Atlantic also the inflation got the focus with the stark warning from the US Central Bank chief Ben Bernanke last week. Addressing the US Congress, Bernanke minced no words declaring that inflation could continue to threaten the economy and rocketing petrol prices gave impetus to his words as the US inflation in June hit the largest year-over-year increase since 1991. There is, however, a marked difference as the US Federal Reserve aims to promote growth and control inflation while the ECB’s single mandate is keeping prices steady.

Leaked documents suggest CAP reform just a whitewash

Big farms get taken care of, dairy farmers unhappy


European Union agriculture ministers meeting this week in Brussels are set to rubber stamp a middle path of not antagonising major beneficiaries like Germany and France while keeping the hopes of free market advocates like United Kingdom alive with cosmetic reform proposals to the EU’s Common Agricultural Policy (CAP).

The alarm for urgent need for CAP modification was sounded earlier last week when Joaquin Almunia, European Commissioner for Economic and Monetary Affairs said prior to a meeting of Eurozone finance ministers: “For the weakest sector of our society, inflation is the main problem. They are suffering a loss of purchasing power, and must pay more for food and other necessary goods.”

Among the measures that governments can take to help their poorest citizens is an improvement to “the functioning of our common agricultural policy (CAP),” he told journalists, adding that the EU should also promote measures aimed at tackling “tension” on the international commodity markets.

The CAP, one of the most hotly-debated policies in the EU, is going to pay out nearly 43 billion Euro in 2009, which amounts to more than one-third of all payments going out of EU coffers. Although there was a CAP reform in 2003 to slash subsidies, but with food prices in the 15-member Eurozone now rising at an annual rate of six percent, market analysts predict dire straits ahead.

According to leaked documents ready for presentation at the “Health Check” of CAP on May 20, “First indications from the assessment of the 2003 reform are in general positive, and indicate that a fundamental reform of the CAP for the remaining horizon of the present financial perspectives (until 2013) is neither necessary nor desirable.”

Another two major areas of concern directly affecting farmers are “set-aside obligation” and “milk quotas.”

The document states: “Removal of the set-aside obligation would likely bring back into production an area corresponding to roughly half the area currently under mandatory set-aside. It has been suggested that the environmental benefits of set aside could be retained by introducing a fixed percentage of total area as an “environmental compensation/priority” area, containing certain landscape features.

According to a reliable source who wanted to remain anonymous, there is allegedly a compromise on the ceiling of individual farmers earning more than 300,000 Euro where the beneficiary stands to lose 70 percent of the subsidies while those earning lower amounts will lose far less.

The earlier proposal was to drastically cut the subsidies to big farms but the pressure from lobby groups seems to have paid off, the source pointed out.

On the subject of milk quotas, the document is more critical saying, “Milk quotas hold back the sector from achieving the objectives of CAP reform since they still reflect concerns of two decades back, instead of responding to present opportunities.” “In terms of agricultural markets, the phasing out of milk quotas and removal of set-aside will allow the farmers to better respond to market situations.”

The milk farmers claim that they will lose up to 300 million Euro from these cuts and they want the system to continue, but there is also friction between old 15 and new 10 farmer lobbies and that is affecting the proposals.

Moreover, on the subject of disposal of pesticides to farmers, the European farmers are facing tough challenges as the number of active substances is going down with the new REACH regulations coming in whereby companies are reluctant to do the necessary tests for all pesticides as its cost and time consuming.

The agriculture insiders predicted that even with compromises already agreed, the ministers are set to have a bitter political battle as each side tries to prove that the food crisis makes its preferred policy the only safe one to adopt.

The two divergent view point were crystal clear as the British Finance Minister Alistair Darling wrote to EU counterparts saying it is “unacceptable that, at a time of significant food price inflation, the EU continues to apply very high import tariffs to many agricultural commodities,” while Germany’s Agriculture Minister, Horst Seehofer, argued that “we have to make sure that we can provide this continent with food sustainability. This cannot be done by taking away subsidies from European farmers.”

The CAP, a complex and expensive system of subsidies designed to protect European farmers’ interests, has often been blamed for keeping European food prices artificially high.

With world markets booming, it is time for Europe to remove quota system and go for liberalisation of the European markets which in turn will help bring down the prices but the documents said, “The continuation of present CAP policies shows that the current policy framework, as reformed in 2003, contributes positively to fulfilling the principal CAP objectives.”

A decade of the Euro

Financial pundits want one Euro voice internationally

With the launch of Euro a decade ago, much was written in the pro-dollar media and the EMU, as the Eurozone is called, was compared with “EMU,” the bird that cannot fly. But then compared to the launch and subsequent drop as the nascent currency took baby steps, the Euro has come of age today gaining nearly 50 percent against the American dollar, the so-called Universal currency.

Financial pundits participating in the annual Brussels Economic Forum conference unanimously voiced the opinion that the Euro, the single European currency, is proving to be a blessing for the Eurozone during the rough turbulent times in the international financial scenario. Pointing out the benefits, European Economic and Monetary Affairs Commissioner Joaquin Almunia told the audience last week, “EMU has created a zone of macroeconomic stability in Europe.

From day one, the Euro put an end to traumatising exchange rate realignments. Were we without the single currency today, the present dollar weakness would be placing enormous strains on the Euro area economies- for some more than others- and would be having a serious impact on trade and investment. We ought to recall this simple fact, for those who forget our past monetary turbulences.”

Going down memory lane, the Commissioner highlighted how the unifying force of the Euro was helping the Eurozone weather the financial storms, “Indeed, we are much more resilient to external shocks thanks to EMU. This has enabled us to withstand the economic consequences of, among other events, the 9/11 terrorist attacks and the bursting of the dotcom bubble. And let there be no doubt that without the shielding effect of the single currency, we would be feeling much more strongly the impact of the current financial turmoil and soaring energy and food prices.”

“And EMU’s successes extend beyond the Euro area. We can be proud to share a currency that is now the second most important in the world. This international status, plus the economic weight of the Euro area, with its credible macroeconomic framework, has allowed EMU to become a pole of stability in the global economy, particularly during the recent period of turbulences.”

In addition to tightening the internal system by reforms, the Commissioner called for “a strong case for the Euro area to increase” its presence in the global arena.

“Our currency is the second most important in the world. Our policy decisions have a global impact and increasingly the Euro area is helping to support the stability of the global economy and financial system. This role brings undoubted advantages, ranging from seniorage revenues and a capacity to place securities among foreign investors at lower interest rates, to certain competitive advantages for Euro area exporters and financial institutions.”

Warning about “risks and responsibilities,” that come with “the exposure of the Euro area – including its financial system – to shocks originating in other parts of the world and to disruptive portfolio shifts between key international currencies,” the Commissioner said, “the Euro area must build an international strategy so that it can play a full part in pursuing global stability and project and defend its interests in the world.”

Urging the Eurozone nations to join hands to put a unified front on the international financial scenario, Almunia said, “This means first developing common positions on international issues so that we can speak with a strong single voice. Once accomplished, the logical next step will be to consolidate our representation and obtain a single seat in international fora.”

At the conference, Almunia was joined by the head of the International Monetary Fund, Dominique Strauss-Kahn, in these calls for unifying Eurozone voices in the international arena. “While the ECB has established itself in a number of international fora, Euro area member states have not yet made as much progress in developing and articulating a common view on broader macroeconomic issues. As a result, too little attention is paid at the global level to the Euro area’s economic challenges.”

Strauss-Kahn told the select gathering of financial experts. “At 10 years old, the Euro area is still a club that people want to join. This is perhaps the strongest indication of its continued success and good prospects,” Strauss-Kahn added, appealing to the EU member states to overcome their political and economic differences and added that the Eurozone lacks the political clout that it should have had by now.

Jean-Claude Juncker, the Prime Minister of Luxembourg and the voice of the 15-member Eurogroup voiced optimism at the Forum saying, “In the long term, the Eurozone will be represented in the IMF by one single seat.”

Lamenting the fact that incoming Eurozone finance ministers talk of a single representation at the IMF but forget all about it once in office, Eurozone Chairman Juncker challenged the French President to keep his word, “Mr (Nicolas) Sarkozy, also talked about a single representation in the IMF before he became president (of France). He still has four years (in office). I would encourage him to come back to this soon.”

Today, each of the 15 Eurousing European countries has individual representations at the IMF, an international organisation overseeing the global financial system with a key role in the global economic arena.

On the sidelines of the Forum, political pundits told New Europe, “Let us not forget that Euro has replaced 15 European currencies and some of them like the German mark, French franc and Italian lira were backed by strong economic and industrial giants of the world.

“With the Euro surging not only in value but also as a dependable currency, the world commodity markets, especially relating to oil, will start contemplating a switch to Euro to protect themselves against instable or falling dollar,” they said, and that a strong political will is needed to give the required unified voice to the Eurozone, argued some of the best visionaries in the field.

Almunia aptly concluded with the call for a broad debate to chart out a more unifying fiscal policy to guard interests of ordinary European citizens saying, “EU citizens face a future of rapid changes and greater uncertainty. Economic and Monetary Union must provide stability, prosperity and a platform to represent their interests in the wider world. In the next years we must update our vision of EMU and re-focus the policy framework to achieve this goal.”