Friday

18th Jan 2019

Greek drama heightens debate on economic co-ordination

The Greek drama currently being played out in financial markets across the globe has brought the eurozone's weaknesses into sharp relief, with greater economic co-ordination increasingly touted as a possible solution.

The recent financial crisis has also served to highlight the multitude of structural flaws embedded in the wider EU economy, with the bloc's permanent president, Herman Van Rompuy, amongst those advocating a European 'economic government'.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

  • Rowing together: Greater economic co-ordination is needed say many politicians and analysts (Photo: loic.photo)

Greater convergence of economic policies, it is argued, will boost EU growth and job numbers in years to come, and prevent weaker eurozone members from being forced out of the single currency.

The EU's new economic 10-year plan, currently being thrashed out by national capitals and EU institutions, appears the obvious method to achieve this greater convergence, although tough implementation mechanisms are seen as key to the plan's success.

Last month the Spanish EU presidency declared its support for binding mechanisms to ensure national capitals meet their allotted targets in areas such as research and innovation, although Berlin quickly poured cold water on the idea saying it risked creating further bureaucracy.

Yet with EU leaders recently indicating that a euro area bailout for Greece would be available if needed, some in Europe feel the tide is moving in the direction of greater co-ordination.

Amongst them is Edouard Balladur, a former centre-right French prime minister and close associate of President Nicolas Sarkozy. "We are at a crossroads," he told French daily Le Figaro on Wednesday. Mr Balladur believes each eurozone member should have to submit its annual budget to the 16-country bloc for majority approval.

Others are less convinced of the significance of last week's declaration on a possible Greek bailout. "They didn't spell out how they will do it. Only when they tell us this could you say it was a step towards increased economic co-ordination," Edin Mujagic, a monetary economist at ECR Euro Currency Research and Tilburg University, told this website.

Eurozone track record

Recent research conducted by Mr Mujagic shows the eurozone's track record is far from perfect. Set up in 1999, one of the currency framework's aims was to narrow economic difference between members.

Instead, inflation and growth rates have diverged more significantly, shows the study, with a similar widening seen for other economic variables such as productivity, labour costs, unemployment and debt levels. The European Central Bank's "one size fits all" interest rate policy is partly to blame, says Mr Mujagic.

"The fact that interest rates in the euro area started too low has led to imbalances in southern European states," he stressed, pointing to Spain's current account deficit as an example. He agreed however that economic co-ordination is what is needed. "If we don't establish some form of economic government, I wouldn't be be too optimistic for the survival of the euro area."

During the 1990s, many economists questioned whether a monetary union was possible without first establishing a greater political union. They pointed, and still do, to the different fiscal systems used in member states, and the imperfect movement of labour due to Europe's many languages.

Speaking in Brussels earlier this week, Greek finance minister George Papaconstantinou neatly summed up the dilemma. "For a common currency area to work you need a convergence of economic policy ...or else you need compensation flows between member states," he said.

"In the eurozone they have ruled out option two, but at the same time we also don't have a clear path for economic policy convergence," he added.

Observers say the EU's 2020 economic strategy is the clear path, but few are optimistic EU leaders will agree to the binding mechanisms necessary to make it work.

EU bleeding untold billions to fraud

Over €6bn of EU taxpayers' money was stolen by criminals in recent years and over €130m is still being lost each year, EU auditors said.

ECB takes over ailing Italian bank

Decades of mismanagement appear to have caught up with Italy's Carige bank as the European Central Bank takes control in a move to stave off another banking crisis.

Analysis

China's 2019 growth outlook

As China's growth seems to be slowing, some observers see the country amid what the New York Times called a "severe downturn". As they mistake China's secular deceleration with cyclical fluctuations, they miss the rapid increase in Chinese living standards.

Exclusive

Fines for dangerous ski lifts vary widely across EU

Failure to comply with EU safety requirements for ski lifts is punished very differently across EU member states - posing a problem for the sector, as unscrupulous firms could set themselves up in states where fines are the lowest.

News in Brief

  1. Another referendum 'would take a year', Downing St says
  2. 82-year old Berlusconi to run in EU elections
  3. EU parliament votes to triple funds for democracy promotion
  4. EU parliament backs linking budget payments to rule of law
  5. Verhofstadt voted for Draghi amendment 'by mistake'
  6. 'Plan B' Brexit vote in UK parliament set for 29 January
  7. Verhofstadt wanted Draghi out of G30 group
  8. Putin heads to Serbia amid warnings against West

Stakeholders' Highlights

  1. International Partnership For Human RightsKyrgyz authorities have to immediately release human rights defender Azimjon Askarov
  2. Nordic Council of MinistersSeminar on disability and user involvement
  3. Nordic Council of MinistersInternational appetite for Nordic food policies
  4. Nordic Council of MinistersNew Nordic Innovation House in Hong Kong
  5. Nordic Council of MinistersNordic Region has chance to become world leader when it comes to start-ups
  6. Nordic Council of MinistersTheresa May: “We will not be turning our backs on the Nordic region”
  7. International Partnership for Human RightsOpen letter to Emmanuel Macron ahead of Uzbek president's visit
  8. International Partnership for Human RightsRaising key human rights concerns during visit of Turkmenistan's foreign minister
  9. Nordic Council of MinistersState of the Nordic Region presented in Brussels
  10. Nordic Council of MinistersThe vital bioeconomy. New issue of “Sustainable Growth the Nordic Way” out now
  11. Nordic Council of MinistersThe Nordic gender effect goes international
  12. Nordic Council of MinistersPaula Lehtomaki from Finland elected as the Council's first female Secretary General

Latest News

  1. Brexit delay 'reasonable', as May tries cross-party talks
  2. MEPs allow Draghi's membership of secretive bank group
  3. EU parliament backs Morocco deal despite row
  4. Barnier open to 'future relations' talks if UK red lines shift
  5. German spies to monitor far-right AfD party
  6. On Morocco, will the EU ignore its own court?
  7. UK parliament rejects May's Brexit deal in historic defeat
  8. EU suggests majority vote on digital tax by 2025

Stakeholders' Highlights

  1. Nordic Council of MinistersNordic design sets the stage at COP24, running a competition for sustainable chairs
  2. Counter BalanceIn Kenya, a motorway funded by the European Investment Bank runs over roadside dwellers
  3. ACCACompany Law Package: Making the Best of Digital and Cross Border Mobility,
  4. International Partnership for Human RightsCivil Society Worried About Shortcomings in EU-Kyrgyzstan Human Rights Dialogue
  5. UNESDAThe European Soft Drinks Industry Supports over 1.7 Million Jobs
  6. Mission of China to the EUJointly Building Belt and Road Initiative Leads to a Better Future for All
  7. International Partnership for Human RightsCivil society asks PACE to appoint Rapporteur to probe issue of political prisoners in Azerbaijan
  8. ACCASocial Mobility – How Can We Increase Opportunities Through Training and Education?
  9. Nordic Council of MinistersEnergy Solutions for a Greener Tomorrow
  10. UNICEFWhat Kind of Europe Do Children Want? Unicef & Eurochild Launch Survey on the Europe Kids Want
  11. Nordic Council of MinistersNordic Countries Take a Stand for Climate-Smart Energy Solutions
  12. Mission of China to the EUChina: Work Together for a Better Globalisation

Join EUobserver

Support quality EU news

Join us