6th Jul 2022

'EU risks talking its way back into crisis'

  • Brussels: Belgium's lengthy government crisis meant it was not taking any austerity measures while other EU partners were (Photo: aldask)

The EU's excessive tendency to talk itself down risks becoming a self-fulling prophecy, says the Belgian finance minister, who sees his country as something of a template for surviving the global economic crisis.

With the eurozone broadly agreed to have put the most frenetic days of its crisis behind it, Steven Vanackere said at a think-tank meeting in Brussels on Tuesday (27 March) that one of the great risks for the bloc is that "pessimism and irrationality will find their way back."

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"If you have a look at the the deficit problems of the European Union member states and you compare it to the deficit problems of the United States, you wonder why the financial markets are not all on the back of some other countries."

Referring to a recent meeting of euro finance ministers on Greece, Vanackere noted that all the scenarios on the table predicted that the debt-ridden country's real GDP would be lower in 2020 than in 1996: "So we were expecting that they would not be able to get back to a logic of economic growth. Is that an ambition?"

"Too much prudence in order to be credible towards the financial markets at one point shoots in your own foot."

He said that people have become "accustomed" to a grim outlook, adding that among finance ministers themselves confidence is "quite high" because they can see the measures they are taking.

Meanwhile, Belgium itself is feeling quite bullish. From being one of five countries singled out in November last year as at risk of being sanctioned under tough new EU rules for not bringing its budget deficit down, it is now "back in the game."

Vanackere - in "no doubt" that his country will achieve a balanced budget by 2015 - believes the country has lessons to offer others.

"Raising taxes and spending taxes were not to be excluded but what we did not want was one giant tax increase or a very far-reaching spending cut. That is why we chose a great number of small measures."

He made a strong case for the country's generous welfare system.

"At the height of the financial crisis we experienced how much the Belgian social security system has worked as an automatic stabiliser preventing purchasing power from being too heavily affected.

"It explains now that when you look at the jobs situation in our country, they are no less than in 2008."

At the same time, temporary unemployment schemes kept lots of people in the market in "the heat of the crisis." Average growth is similar to that of the eurozone's powerhouse Germany, while consumer confidence is picking up.

Yes, but

This is all very well, Peter De Keyzer, chief economist at bank BNP Paribas Fortis, told this website, but many of the factors contributing to the country's quick return to pre-crisis level economic activity were external or even accidental.

The country's more than 500 days in the hands of a caretaker government until autumn last year meant that, unlike many of its neighbours, it was not undertaking any austerity measures so that Belgium "borrowed some growth for the future."

And the country's lowered borrowing rates - down from a dangerous 6 percent high last year - are due more to the calming debt-buying measures undertaken by the European Central Bank and the change of leadership in Italy, two eurozone developments viewed favourably by the markets.

"That in turn pushed down Belgian spreads as well," noted Keyzer, adding that in the long run Belgium's sluggish growth predictions will be a problem.

"Balancing the budget that's important but the structural reform is key," the Belgian economist said, pointing to too-high salaries and low activity rate in the labour market.

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