EU sets yearly targets for growth in member states


To help countries get their budgets in sync, the European Commission on Wednesday (12 January) unveiled its first annual list of growth targets. Member states will use these benchmarks to jawbone nations with risky spending policies to change their flagrant ways.

All 27 members of the bloc have agreed to concrete goals in eight areas, including employment, climate and energy, education and poverty.

The objectives dovetail with the 'Europe 2020' strategy and are designed to help the continent recover from the worst recession in decades.

"We are initiating what can be a new phase in European integration," said Commission President José Manuel Barroso.

But even the Commission acknowledged that achieving the targets within the decade could be difficult for countries – such as Spain, Ireland and Portugal – that are slicing spending and forcing dramatic changes in the labour market. And faced with violent street protests and strikes, some politicians may have weak stomachs for the necessary long-term pain.

"There is a risk of a relatively low level of ambition in setting national targets and of an excessive focus on the short term," the Commission wrote in the report. To keep countries on track, there will be a midterm review in 2014.

Clearly, some political leaders are still focusing on their immediate survival or the future of the euro currency.

More money for bailout fund

Barroso confirmed the Commission wants member states to pour more money into the €440 billion temporary bailout fund, which will potentially help countries like Portugal and Spain deal with deteriorating finances.

"We are consulting with member states at this point," Barroso told reporters, adding the "financial capacity [of the European Financial Stability Facility] must be reinforced and the scope widened".

Negotiations ahead of next week's meeting of finance ministers reportedly include a possible aid package for Portugal that could include a loan and debt guarantees, though Portugal's prime minister insists the country doesn’t need a bailout.

National programmes to be approved in July

The draft of the national reform programmes, published Wednesday, will be debated and formalised by the Council in March. Specific national recommendations and guidance on 2012 budgetary policies will be submitted by June and adopted by the Council in July. The process will be repeated in the first half of each year.

This peek-a-boo strategy aims to get countries back in line with targets of the Stability and Growth Pact, which mandates that countries keep their annual budget deficits below 3% of gross domestic product and their national debt levels below 60%. Currently, all but a handful of EU members are in breach of at least one threshold.

The limits were primarily designed to harmonise the economies that use the euro, and therefore surrendered their control over interest rates and other monetary tools to the European Central Bank. And the sovereign debt crisis has taught political leaders the painful lesson of what happens when their fiscal policies are out of whack.

At a summit last month of EU leaders, German Chancellor Angela Merkel said: "We need a more common approach in our economic policies and we will have to talk about this in the coming months, especially in the euro zone. It's not just important to have solid budgets and stable finances but it is also important that we have a common economic policy. Step by step. It will be a long process."

Green MEPs criticised the European Commission's recommendations for their narrow focus on austerity and failure to outline measures for economic recovery.

Greens/European Free Alliance group spokesman on economic and monetary affairs, Belgian MEP Philippe Lamberts, said: "While the Economic Semester and the Annual Growth Survey may be new tools, the economic analysis behind them remains unchanged."

He continued: "The flawed neoliberal approach has clearly showed its limits, yet the Commission wants member states to persist with and intensify austerity measures ignoring their potentially negative macroeconomic impacts, as well as the consequences for wages and welfare."

The Greens/EFA group's economic and finance spokesman, German MEP Sven Giegold, added: "The Commission fails to outline measures to ensure the fair contribution of corporations or fight against tax fraud. It also completely ignores the potential economic impact of punitive interest rates for borrowing on member states, which may not be able to bear this burden."

"In its focus on specific measures in member states, the Commission fails to make any recommendation as to how stronger EU-level economic governance can contribute to strengthening the economy.  In short, a missed opportunity for the Commission to lead the European economy out of the crisis," Giegold concluded. 

The Socialists & Democrats (S&D) group rejected the economic analysis and policy recommendations of the Commission, calling on the European Council to agree on a different set of policies.

In a letter to Commission President José Manuel Barroso, S&D group leader Martin Schulz and group vice-president for economic and employment affairs Stephen Hughes said the annual growth survey "includes economically misguided, socially unacceptable and politically dangerous policy recommendations for Europe".

The MEPs called for a "more differentiated and careful approach to fiscal consolidation on a country-by-country basis, a broad-based and ambitious system of Eurobonds and the creation of a European-wide financial transactions tax, in order to create new room for manoeuvre for national budgets". 

They urged the Commission to review its recommendations in time for the European Council summit in the spring.

Under proposals presented by the European Commission in May, EU countries will review each others' draft annual budgets before they are adopted at national level, with an early peer-review system aimed at preventing a repeat of the Greek sovereign debt crisis.

The system – later backed by EU leaders in June – applies as of 2011 and would introduce closer economic surveillance to the bloc.

The surveillance would be carried out in the first half of the year during a 'European semester,' before EU governments prepare their national budgets and economic reform programmes. Member states will be required to present their draft budgetary plans in April of each year to give the Commission time to analyse them and possibly suggest "country-specific policy guidance" in early July.

Member states would then finalise their budgets in the second half of the year (for more, see EURACTIV's LinksDossier on economic governance).

  • March 24-25: EU summit to debate and finalise national reform programmes.
  • June: Commission to assess programmes and make country-specific recommendations.
  • July: Recommendations to be adopted in Council.

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