The euro zone’s top official gave a vote of confidence on Monday (18 January) that Greece would pull itself out of a debt crisis and called for better coordination of their economies.
Luxembourg’s premier Jean-Claude Juncker, who was reappointed yesterday to chair the Europgroup for another term, also announced an overhaul of how the 16 nations using the euro coordinate their economies, calling for countries to be formally warned if they are running much higher inflation or average wages than their neighbors.
Greece last week laid out an austerity programme of deep spending cuts and tax hikes aiming to assure financial markets – and other EU governments – that it will reduce debt after its borrowing costs rocketed on fears that it could default or seek a bailout, a first for the euro zone.
Juncker said the Greek people “will need to be brave” and that he believed the Greek government would do whatever is necessary to tackle a problem that he said was also a problem for the euro zone.
He said he was sure that Greece “will be able to re-establish balance [to its public finances] within a reasonable time.” He would not comment on the details of the Greek budget programme, saying ministers would discuss it in February.
The European Union’s economy commissioner, Joaquin Almunia, said the European Commission planned to carefully monitor how Greece is implementing the debt reduction measures, and that EU officials would check the government’s policies at three stages, starting in June.
He also said the EU’s executive would seek the power to audit Greece’s statistics, following a damning EU report last week that said Greece falsified data to make its budget deficit look smaller last spring and that statistics collection may be open to political influence.
Greece’s problems show the flaws in the loose way that the eurozone countries handle their economies. They are supposed to stick to strict limits on deficit and debt – but have rarely done so, allowing their economies to diverge.
Towards a more flexible labour market
Juncker said finance ministers need to wade into wider issues on how the economy is run, urging them to influence their own government’s policies on structural reforms – such as making the labour market more flexible.
From next month, they would be warned by the European Commission if their countries differ too much from the rest of the euro zone on broad policy guidelines or on specific areas such as inflation, wages or current account deficit. That warning would not be backed by any penalty.
“We need to broaden surveillance in the euro area,” Juncker said, adding that closer monitoring should also extend to European countries whose currencies are linked to the euro and who hope to join the currency zone, such as Estonia and Latvia.
Despite market worries over other debt-laden eurozone countries, such as Ireland, Juncker said he didn’t “see another country entering into a situation similar to that of Greece”.
He set out plans for tighter management of the eurozone, saying the countries should hold an informal summit, publish statements after their talks and seek advice from think-tanks.
A closer eye on the economy will be crucial as governments start withdrawing stimulus programmes that have largely driven growth over the last two years.
Almunia warned that Europe’s recovery is still fragile, despite a better-than-expected rebound in trade. He said he was worried at the low level of loans to companies and households – which point to sluggish domestic demand.
The head of the International Monetary Fund, Dominique Strauss-Kahn, warned Monday that governments should carefully time the end of stimulus programmes that are driving economic growth because the global recovery “remains very fragile”. Finance ministers from all 27 EU nations meet for talks Tuesday that will likely criticise Greece for its shoddy statistics and call on Athens to make reforms – which the new centre-left Greek government has already promised.
(EURACTIV with Reuters.)