• Andor: 'Macroeconomic instability in Europe stemmed predominantly from the incomplete design of the Economic and Monetary Union' (Photo: ec.europa.eu)

EU official says response to economic crisis is flawed

14.06.14 @ 16:38

  1. By Nikolaj Nielsen
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BRUSSELS - The EU’s social affairs commissioner on Friday (13 June) lashed out at the EU’s response to the economic crisis.

Lazlo Andor, in a speech delivered in Berlin, said debt-curbing policies designed to resolve the sovereign debt crisis have wrecked Europe’s social welfare model.

“Austerity policies in many cases actually aggravated the economic crisis,” he said.

He described the EU’s economic and monetary union (EMU) as flawed from the start, forcing troubled member states to make deep cuts in the private and public sectors via internal devaluation.

“Internal devaluation has resulted in high unemployment, falling household incomes and rising poverty – literally misery for tens of millions of people,” he said.

He added the EMU still has no common fiscal capacity and no lender of last resort despite efforts like the recently agreed banking union.

The euro, he said, has become a trap for some member states "unable to adjust to economic shocks through tailor-made monetary policies and devaluation in their exchange rate".

Instead, the EMU is gripped by a social and economic paradox.

“On the one hand, we introduce social legislation to improve labour standards and create fair competition in the EU. On the other hand, we settle with a monetary union which, in the long run, deepens asymmetries in the community and erodes the fiscal base for national welfare states,” he said.

A possible way out, he says, is to disperse some money from national coffers through so-called "fiscal transfers" between member states using the euro.

Some of the pooled money would be used, in part, to fund a European Unemployment scheme to better prop up domestic demand, says Andor.

But fiscal consolidation, aimed at minimising deficits while preventing the accumulation of more debt, is a key component in the overall EU-led strategy to pull Europe out of its economic slump.

The commission in March issued a series of assessment reports on member state’s progress in fiscal consolidation.

It noted some need to step up fiscal consolidation in order to reach their deficit targets.

European Commission spokesperson Pia Ahrenkilde, for her part, said the views expressed by Andor are his own.

“There is a mix of personal views and established policy we have carried out in the past couple of months,” she said.

Ahrenkilde remarked the commission has upheld the principle that more responsibility in the EMU must be balanced by more solidarity.

Around 118 million people in 2010 were in or at risk of poverty or social exclusion. This jumped to 124 million in 2012.

According to the Geneva-based UN agency, the International Labour Organisation (ILO), EU-imposed austerity measures have thrown an additional half million more children into poverty.