Eurozone’s southern periphery calls for an end to fiscal austerity

ANDRE KOSTERS

(L-R) Greek's Prime Minister Alexis Tsipras, Spain's Prime Minister Mariano Rajoy, French's President Francois Hollande, Portugal's Prime Minister Antonio Costa, Cyprus's President Nikos Anastasiades and Italy's Prime Minister Paolo Gentiloni, attend a press conference after the meeting of the second summit of the European Union Southern Countries held at Belem Cultural Center in Lisbon, Portugal, 28 January 2017. The heads of state and Government of Cyprus, Spain, France, Greece, Italy, Portugal and Malta, are taking part in the second summit of the European Union Southern Countries seeking common politics to Migration, economic growth, investment and convergence, including security and defense.

Eurozone’s southern periphery calls for an end to fiscal austerity


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Europe’s Mediterranean states, except Greece, have written to the European Commission on Wednesday to call for “significant changes in the common methodology” in estimating potential growth and output.

That methodology should affect the way deficits and growth are projected.

France, Italy, Spain and Portugal wrote to the European Commission on Wednesday requesting that economic growth, rather than fiscal consolidation, is made a top priority when monitoring the budgets of eurozone countries.

The addressee of the letter seen by Reuters was the European Commission President, Jean-Claude Juncker.

This list of four states has often been at the center of controversy, as they have violated stringent deficit rules Germany has violated five times in the past. In the Eurozone, the excessive deficit champion is France (11 times), followed by Italy (8). Politically thinking, in May 2016, President Juncker offered Spain and Portugal a reprieve from EU fiscal rules. In 2015, France was offered a similar waiver.

Every one of President Juncker’s waivers had a political rationale, be it the Spanish elections or French security considerations. Meanwhile, these states have rising debt-to-GDP ratios. Spain has reached the 100% debt-to-GDP ratio, while Italy and Portugal are in the 130% region. That is roughly the level of debt Greece had in 2009.

For fiscal hawks, such as Bundesbank’s President, Jens Weidmann, and the German Finance Minister, Wolfgang Schäuble, the European Commission should hand over its role as a fiscal watchdog to an “independent body,” and penalties should become automatic.

That is precisely why the man who drafted Emmanuel Macron’s electoral platform, Jean Pisani-Ferry, told Die Zeit on Wednesday that Germany’s idea that “others” want its money has clouded its view on the need for euro zone integration.

But, on Wednesday, the four finance minister called on the European Commission to prioritize growth and employment over fiscal consolidation. “Authorities should use all economic policy instruments at their disposal to ensure that economic growth and employment return to sustainable levels,” they said.

The question is now how Berlin will respond and when, before or after the German elections.

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