Securing euro’s stability and credibility

Over the past few months, many commentators have called into question the sustainability of the euro.

The Malta Chamber of Commerce, Enterprise and Industry has been monitoring the issue by maintaining regular contact with its European counterparts. Such contact is facilitated by BusinessEurope, the confederation of European business. In the wake of further turmoil in the world financial markets, BusinessEurope communicated with our Chamber to call for further immediate action by European leaders.

In its communication, BusinessEurope attributed the renewed instability to three interrelated sources:

• Increasing concern about immediate prospects for reco-very in the global economy. While there are signs of falling business and consumer confid-ence in both Europe and Asia, the US GDP data released on July 29 showed that modest expect-ations for growth had not materialised.

• Concern about the US fiscal deficit, stemming from the protracted negotiations over the increase in the US debt ceiling in Congress and the subsequent downgrade by Standard & Poor’s of US credit from AAA+ to AA+.

• Concern about fiscal sustainability in euro area countries. While the agreement among euro area leaders on July 21 provided strong support for Greece, as well as additional stability for Portugal and Ireland, it was clear that markets saw little in the package to help strengthen the situation in Italy and Spain.

The decision of the European Central Bank to purchase Italian and Spanish bonds has achieved one goal of bringing down headline costs of borrowing in these countries to more sustainable levels.

BusinessEurope said that the focus should now be on the European Commission, the ECB and the European Financial Stability Facility to work swiftly to clarify and implement the high-level agreement made on July 21, particularly in relation to the increased powers of the EFSF, and on member states taking similarly swift and decisive action to quickly ratify that agreement in a manner that increases market confidence.

At the same time, it is import-ant that rapid agreement is found on the six proposals to improve economic governance. Recent uncertainty underlines the importance of leaving proposals undiluted, for more automatic sanctions and close monitoring of macro-economic imbalances. Agreement is also needed on the details underlying the European Stability Mechanism to remove uncertainty on how to deal with distressed member states after 2013.

There is concern among a number of BusinessEurope members about some of the further options on the table, including both a dramatic expansion of the EFSF/ESM or the introduction of Eurobonds to supplement domestic government bonds. BusinessEurope believes we need to recognise that implementing the July 21 accord may not bring a long-term solution to the euro area’s crisis and, while understanding these concerns, we should be open to options that may, ultimately, be required to stabilise the euro area. Safeguarding the euro is an absolute must. There is no other option but to secure the stability and credibility of our common currency.

At the member state level, BusinessEurope believes Europe needs to continue to make the case for budget consolidation and improvements in the growth-enhancing aspects of public spending and for longer-term structural reforms to liberalise the product and labour market. We have seen in recent weeks that the crisis can be a spur for positive steps forward in this area.

Here, the Chamber has consistently encouraged the government to consolidate public finances and ascertain the right environment for the private sector to generate economic growth.

The Chamber has repeatedly insisted that economic expansion was the answer to difficulties encountered in finance, labour and welfare. For this reason, we have reiterated that wealth generation must take precedence over wealth distribution.

European integration has transformed our nation. Adoption of the euro has possibly sheltered us from the full effects of the 2008 global crisis. It is in our interest to contribute towards the strengthening of the Single Market and the euro. To this end, our Chamber shall continue to cooperate and make the necessary representations within BusinessEurope.

Europe is home to numerous world-leading companies employing highly-skilled workers. The Single Market is the largest in the world while the euro area alone accounts for over 15 per cent of global output. European integration has helped drive our economic success in the last half century and business is confident it can continue to do so, given the right policy support.

The author is president of the Malta Chamber of Commerce, Enterprise and Industry