No easy way out for Europe

After a respite of a few months, uncertainty is looming again over Europe. The cause? Elections in France and Greece which produced results that raise concerns.

…fiscal discipline tends to lead to investment and jobs, whereas the lack of it tends to lead to the opposite- Simon Busuttil

In France, voters kicked out Nicolas Sarkozy in favour of the Socialist candidate François Hollande.

In Greece, voters kicked out both mainstream parties of centre left and centre right in favour of a hotchpotch of parties that are finding it difficult to produce a government.

Let me take them one by one and comment on the implications for Europe and for Malta.

The French result raises concerns for two related reasons.

The first is that Mr Hollande has been elected on a platform to renegotiate the EU’s recently signed Fiscal Compact Treaty which imposes tighter rules on fiscal discipline. He wants to do this in order to, supposedly, place more emphasis on growth.

But quite apart from the fact that the Fiscal Treaty does not prevent any emphasis on growth, the very idea of renegotiating it raises fears that France wants Europe to back-pedal on its commitment to sound public finances.

The second is that Mr Hollande comes to power with a host of proposals that sound like a threat to fiscal discipline.

Reducing utility bills, freezing fuel prices and reducing (rather than increasing) retirement age may certainly sound like attractive electoral promises. But they come at a cost and unless taxes are raised – Mr Hollande plans to raise income tax to a staggering 75 per cent for certain categories – the fiscal targets will have to be missed. And then the costs will become higher still.

So Mr Hollande will have to put some of his electoral gimmicks on hold for a while, at least until he reassures Europe that France is not for going back on its commitments.

The situation in Greece is by far more precarious.

The election strengthened the extreme parties to an extent that no majority in Parliament can be formed without them.

This is very scary. Again on two counts.

The first is that Greece was already difficult to govern with a government, let alone without one. There is no one to make sure that Greece will stick to the commitments it agreed to in return for the financial life-line that it is receiving in regular installments.

For all their fiery rhetoric against the bailout agreement, the extreme parties are not able to provide a solution that can secure the continuous flow of financial aid.

For let’s face it, why should the rest of us pump money into a country that does not want to keep its part of the deal? More so, when pensions and the minimum wage are higher in Greece than in many fellow EU countries, including Malta, that are bailing it out.

The second is that fellow EU countries are now becoming so exasperated at the Greeks’ resistance to change that the idea of throwing them out of the eurozone – a “Grexit” – is now gathering pace.

This will not just be catastrophic for Greece but it will also open a fault-line in the eurozone itself.

So it is not in the euro’s interest to see Greece leave. But there is also a limit to how much Europe will be prepared to keep the unreformable Greeks in. It cannot be at any price.

We should be interested in what happens in France and in Greece because we have the same currency in our pockets. And we have a vested interest in the success of our currency as we stand to gain a lot from it.

And there’s a lesson for us too.

We should beware of those who readily shoot down reforms and sacrifices but then offer solutions that sound like a breeze but actually make the situation more painful.

At least in France the Socialists campaigned on real proposals – objectionable as they may be. In Malta we do not even have the luxury of knowing what the Opposition plans to do if it is elected to power in less than a year. This is a very serious situation.

But try as we might, we cannot escape reality and there is no easy way out.

If reality dictates that we need to control our public finances and eventually start paying back our debt, we need a government that has the political courage to do it. The sooner you do it, the smoother it will be because you will avoid the real painful austerity. And you can also afford to balance the sacrifices with parallel measures that promote growth.

The longer we take the more painful it will be and the more stifling it will be for growth.

This is why fiscal discipline tends to lead to investment and jobs, whereas the lack of it tends to lead to the opposite.

Malta is a case in point. But Greece is just the opposite. And it should focus our minds on what kind of government we ought to have.

Either one that gets things done or one that promises everything to everyone like there’s no tomorrow.

If we choose the latter, we will go on a short joyride. But the real austerity will be waiting for us right there at the end.

simon.busuttil@europarl.europa.eu

Dr Busuttil is a Nationalist member of the European Parliament.