Who won Europe?
Ambrose Evans-Pritchard really hates Jean-Claude Junker, and he’s on sparkling form with this piece about how Juncker’s accession to the Commission presidency, as a result of the craven backsliding of, in turn, Italy, France Germany, is very bad news for everybody, but for France and Italy in particular; Austerity will be for ever, says Ambrose, and neither France nor Italy can withstand such absurd self-imposition of harmful economic policy:
This status quo is ruinous for France and Italy, yet Francois Hollande and Matteo Renzi have gone along meekly, leaving David Cameron to make quixotic stand against a decision that is nearly suicidal for the EU itself. They think they have secured breathing-room on austerity as a quid pro quo, but there was no substantive change on EU deficit rules in the summit conclusions. “The threat of more flexibility in EU fiscal policy has been avoided,” said Holland’s premier Mark Rutte, shooting their fox stone dead before they had even returned home.
Greater forces are at work in any case. Perma-slump is already written into law under the EU Fiscal Compact. Each country must cut its public debt mechanically for twenty years until the ratio reaches of 60pc of GDP, regardless of monetary policy or the state of the world. This is already haunting France as it slips deeper into a debt-deflation trap, with zero growth causing the debt trajectory to spiral upwards, despite one austerity package after another.
French debt jumped to 93.6pc of GDP in the first quarter from 91.8pc a quarter earlier. Gilles Carrez, head of the French parliament’s finance committee, says it will probably punch through 100pc by next year. This means that the debt will have to be cut by 40 percentage points, or 2pc a year, in the midst of an unemployment crisis.
It is worse for Italy, with debt ratcheting above 133pc. Mr Renzi can try to gain a little leeway for extra investment, but the task is beyond any political leader at this point. The EMU straight-jacket imposes obliges him to run a primary budget surplus of 5pc of GDP for year after year even if the European Central Bank meets its 2pc inflation target, which is it failing to do. At the current 0.5pc inflation rate , Italy has to run a surplus near 7pc to comply.
I agree completely with Ambrose on how ruinous such mechanical austerity would be. After all, I wrote about how mad it was two years ago.
But where I differ is on whether it’s actually going to happen. This is what the European Council summit conclusions Amborse refers to actually say:
The European Council welcomes the abrogation of the excessive deficit procedure for several Member States. The possibilities offered by the EU’s existing fiscal framework to balance fiscal discipline with the need to support growth should be used. Given the persistently high debt and unemployment levels and the low nominal GDP growth, as well as the challenges of an ageing society and of supporting job-creation, particularly for the young, fiscal consolidation must continue in a growht-friendly and differentiated manner. Structural reforms that enhance growth and improve fiscal sustainability should be given particular attention, including through an appropriate assessment of fiscal measures and structural reforms, while making best use of the flexibility that is built into the existing Stability and Growth Pact rules. In this context, the Commission will report to the European Parliament and to the Council on the application of the EU governance framework by 14 December 2014, as foreseen in EU law (‘6-Pack’ and ‘2-Pack’).
Now, I grant that this isn’t yet a “substantive change” to the austerity rules, but then that’s not what this European Council was about. This was about setting the priorities for the Commission for the 2014-19, and this agreement closely reflects the Council president Hermann Van Rompuy agenda paper, in which he called for a refocusing on growth, employment and “social protection systems that are efficient, fair and fit for the future”.
So while Rutte is, presumably for his own domestic purposes, claiming that austerity still holds firm, the opposite appears to be the case. Juncker has been instructed by the European Council to report back to Council and to Parliament in six months on how, without the faff of rewriting the SGP rules and rescinding EU law, those stupid rules and laws can be best ignored.
That, frankly, is confirmation of a huge victory for the centre-left governments in France and Italy, won from under the nose of Cameron, Rutte and others. Not only does it set the agenda for a post-austerity Europe, it also very deliberately holds Juncker’s feet in the fire: the clear message is “do what we say, or Article 234 of the Treaty on the Functioning of the European Union may be coming to get you and your buddies”:
If a motion of censure on the activities of the Commission is tabled before it, the European Parliament shall not vote thereon until at least three days after the motion has been tabled and only by open vote.
If the motion of censure is carried by a two-thirds majority of the votes cast, representing a majority of the component Members of the European Parliament, the members of the Commission shall resign as a body and the High Representative of the Union for Foreign Affairs and Security Policy shall resign from duties that he or she carries out in the Commission. They shall remain in office and continue to deal with current business until they are replaced in accordance with Article 17 of the Treaty on European Union. In this case, the term of office of the members of the Commission appointed to replace them shall expire on the date on which the term of office of the members of the Commission obliged to resign as a body would have expired.