The Brief – Europe’s fiscal groundhog day

The Brief is EURACTIV's evening newsletter

Centrist parties, particularly those on the centre-left, were hammered at the European elections in 2014, in part because of their handling of the eurozone debt crisis. Social Democrat governments found themselves imposing Europe’s deepest spending cuts.

Back then, the economic recovery from a double-dip recession and a succession of eurozone bailouts was just beginning. As the correspondents on this site from across Europe reveal, not much has changed five years on. While the GDP numbers are a bit better, the European economy faces most of the same problems.

Across much of Europe, real-terms wages are still much lower than they were in 2007-08; youth unemployment, particularly in the Club Med countries, is very high; nations in East Europe are still seeing many of their best and brightest leave for other countries.

Add to that mix the prospect of further trade conflicts with the US and China, and it is not hard to see why many economic analysts are anxious that the European economy could be heading towards another storm.

If that gives the sense of an economic Groundhog Day so, too, does the ongoing row between Brussels and the Italian government over the plans of the Five Star/Lega government to run a budget deficit of 2.4% in 2019 rather than the 0.8% committed to by the previous government.

This time five years ago, then Prime Minister Enrico Letta, a Social Democrat, complained that ‘ayatollahs’ in the European Commission were seeking to impose deeper spending cuts on his country’s fragile economy.

That is a phrase that could easily have come from the lips of Italy’s far more pugnacious new leaders, Matteo Salvini and Luigi Di Maio. Letta eventually backed down, his young successors will almost certainly take the fight to Brussels.

Like its economy, the eurozone’s banking union has barely moved forward since 2014, and the EU remains self-constrained by poorly designed fiscal rules.

The 3% limit on budget deficits in the Stability and Growth Pact gives governments so little room for manoeuvre that it effectively enshrines austerity in a future recession. That fiscal strait-jacket, in turn, was tightened further in 2012 and 2013 by the ‘six-pack’ and ‘two-pack’, which added the threat of fines and other sanctions for non-compliance with economically flawed rules.

Signing up to the EU’s austerity economics tarred Social Democrats with the same brush as conservatives, helping to create the political conditions that have allowed populist parties of the left, and particularly on the right, to flourish.

Yet the EU does not appear to have learned. Last week’s euro-summit underscored the ideological divide between EU leaders on economic policy, as centre-right leaders from the Netherlands and Austria, Mark Rutte and Sebastian Kurz, lined up to bash Italy’s budget plans.

On Tuesday, the Commission formally requested Rome to re-draft its budget for 2019. Common sense should prevail, especially since Italy’s spending plans would still keep them within the 3% limit. Unfortunately, it won’t. This row is now set to run on and on, another gift to Eurosceptics.

The Roundup

 Poland’s Supreme Court chief justice has asked 23 of the court’s judges to return to work, days after the European Union’s top court ordered Poland to “immediately suspend” their retirement under a disputed law.

Romania continues to lose many of its best talent despite its economy recording one of the EU’s strong growth rates. EURACTIV Romania’s Bogdan Neagu has the story in the latest of our series on the European Parliament elections.

In Brussels, meanwhile, the European Commission has criticised its fellow EU institutions over the lack of progress in negotiating its proposal for a mandatory transparency register.

Across the Channel, the ever beleaguered Theresa May insists that Brexit is ‘95% done’ and faces down speculation that her Conservative party is ready to challenge her leadership.

Elsewhere, an unrepentant Jeroen Dijsselbloem defends his treatment of Greece during his tenure as Eurogroup Chief, while Gerardo Fortuna has the insight on the Commission’s recently announced bioeconomy strategy and Sam Stolton has the skinny on the latest with killer robots.

Look out for…

MEPs will vote on the European Commission’s landmark single-use plastics proposal.

Views are the author’s

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