October 20, 2014
Mr Pierre Moscovici takes office in less than 10 days, after a tumultuous hearing a couple of weeks earlier. During this month, stock markets were shockingly destabilized with distrust over Eurozone to put again into the spotlight. Recent reports unveiled the weaknesses of the German economy, while Britain is heading into the sixth day of protests due to constant income squeezing. In the meantime, the Greek government has declared its will to exit from IMF’s surveillance into its public finances and policy, with international reports focusing on the next day in Greece, after the almost-proclaimed national elections in the first months of 2015. In this respect, it Eurozone recovering?
Paris is in talks with Berlin with reference to the German backing towards the “exceptionality” that French economy should enjoy. As President Hollande wants to increase public debt and escape the threshold of 3% of public deficit agreed under the Stability Pact, the question of equal treatment of all member-states comes again into surface. France’s public debt is now 92% and it is expected to grow and reach almost 97% by the end of 2015. Meanwhile, Spain’s public debt is 94%, Belgium’s 102%, Portugal’s 128%, Italy’s 133%, and Greece’s 170%. From these countries, only Greece is faced with increasing distrust from the markets, with Portugal and Spain having gained significant confidence, and Italy having escaped the turmoil for the moment due to its Presidency in the Council of the European Union. But hard days are coming for Mr Renzi and his government. Nonetheless, all the above member-states have decreasing trends when it comes to public deficit – except for France.
The problem with the exceptionality of France is that it is hard to avoid it. Even if the Commission might call France to make the necessary amendments – i.e. meaning more job and income cuts and possibly higher taxation- it is quite irrelevant for a country with the power and influence of France to push further any austerity policy. What we have seen so far from President Hollande in his tenure in office is a decision-maker that can hardly accommodate his electoral promises a couple of years ago with the ongoing economic reality in Eurozone.
Having this in mind, the following question comes again: as long as Eurozone cannot deal with austerity and stabilize its economies long-term, why EU leaders do not think the opposite way and push for a more flexible monetary policy? ECB’s President Mario Draghi has already pinpointed such a possibility one year ago, at least in the context of a more expansionist policy in the short run, but still we are faced with a mix of restrictive policies that bring Eurozone closer to instability. Again.
The case of France and the expectations from the hardliners in Eurozone can certainly give us the lesson we did not learn these four years. In 2010 and in 2012 Eurozone had to deal with increased distrust from the markets, with Portugal, Spain, and Greece swept down to tough monitoring and in need of bailing-out. Now, in 2014, we risk to watch again the same scene and a really exhausting play for the people of Europe and the young generation. If we are to avoid another flash-back, the European Commission should revisit the normative approach of the Stability Pact and relax any measures taken or agreed. It might be time for more inflationary policies and less austerity, at last.Dimitris Rapidis