EU ‘will not imitate US’ in fighting the financial crisis

Europe should not change its policy and in no way imitate the US while dealing with the international financial crisis, Luxembourg Prime Minister Jean-Claude Juncker said on 17 September. He strongly rejected US-style fiscal stimulus packages aimed at reviving growth and regaining voters’ confidence.

Despite the financial turmoil, Juncker, who was recently re-elected for the third time as Eurogroup President, denied that Europe was in recession, addressing an audience at an event entitled ‘Reviving growth in the eurozone’ organised by the European Policy Centre (EPC). 

“I don’t think the eurozone is on the brink of the dark hole of recession. I would say we have a technical recession, as two successive trimesters will be characterised with negative growth. But still, a yearly growth of 1.3%, even if it is not robust, will allow us to escape from the danger of recession,” he said, pointing to Eurogroup projections for the eurozone economy this year. 

He said the German economy was still performing well, with an estimated growth rate of 1.6-1.8%, adding that labour markets in other countries were reacting well to the crisis. 

“The main worry we have is inflation,” the Eurogroup President explained. Although the ECB is considered to be the main means of keeping inflation under control, Juncker pointed out that governments and social partners also have a responsibility in this respect. He especially pointed the finger at governments that have modified their fiscal policies in the context of higher energy prices, in spite of earlier agreements not to do so. 

US ‘not a model’ 

Indeed, according to Juncker, fiscal stimulus packages and rescue operations similar to those in operation on the other side of the Atlantic are not a solution for Europe. 

“I am often asked why Europe does not react [to the financial crisis] the way the United States reacts: Why don’t you start a plan for conjectural re-launch in Europe, imitating what the US administration did with its fiscal package? But we have decided that we will not start such a plan,” Juncker said, explaining that previous experience in Europe, notably in Germany in the 1970s, had only resulted in higher deficits, higher public debt and higher taxation of citizens for years to follow. “We will not repeat the same mistakes again,” he stressed. He also hinted that he was rather sceptical as to the success of the US fiscal package. 

Instead, Juncker called for EU countries to stick to the bloc’s traditional policy of financial consolidation, keeping inflation at bay and reducing their budget deficits. “Don’t change policy, don’t give in to panic,” he stressed, saying countries that have reached their mid-term objective of financial consolidation would have “a sufficient margin of manoeuver to cope with the conjuncture,” he said. 

Nevertheless, he warned that countries that had been less successful in the previous favourable conjuncture would likely be forced to increase the weight of their public debt. 

“Everything should be done to boost the growth potential,” he stressed, adding that the EU’s Lisbon Growth and Jobs Agenda remained fully relevant. In particular, he called on leaders to place the issue of demographic decline higher up the political agenda, stressing that Europe must become more open to immigrants. 

Single EU seat in the IMF? 

Juncker also believes the EU would be able to react more effectively to such financial crises if it had a real coordinated response which, he jovially stressed would also require the bloc to have a single EU representation in the International Monetary Fund, which oversees the global financial system. 

“As Eurogroup chief, I sit on the third row, somewhere behind the seat of the Belgian minister, who represents the entity of which Luxembourg is a part, keeping an eye on Didier Reynders to see if he stands for a brief moment so I can rush to the empty seat and make my statement. This is not very serious and requires gymnastic efforts of me of which I am no longer capable. This is why I want the Eurozone to be recognised a single seat, which logically would mean that the Belgian, Finnish, German and other representations would disappear,” he said. While conceding, amid laughter and applause from the audience, that this “would no doubt shatter the national egos of those who, with their flags and their weight, occupy the seats at present,” he insisted that the only seat “should be mine and mine only”. 

But Juncker also hinted that he was disappointed with French President Nicolas Sarkozy for failing to keep a promise made during his election campaign to push for a single EU representation at the IMF, implying that other leaders have also had second thoughts about keeping their national seats. 

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