As the leaders of the member states of the EU met yesterday and will continue with their meeting today, we keep getting contrasting signals about some of the fundamental issues that should underpin policies of the Union in the future.
The main objective of this meeting is to reach an agreement on the EU Budget for the period 2014-2020. On the agenda are also discussions on trade relations with the US. However, whether there will be cuts in the EU Budget or not is not an issue here; the main issue is how to resolve the current economic crisis as soon as possible.
The tone has been set through various interventions. French President François Hollande has warned that major cuts in the EU Budget may extinguish economic growth and put the eurozone back on the edge of the precipice. He also warned against national interests taking precedence. In one speech he managed to attack the positions of both UK Prime Minister David Cameron and German Chancellor Angela Merkel. On his part, Cameron is leading a group of net contributors to the EU Budget – that includes Denmark, the Netherlands and Sweden – in demanding deep spending cuts.
The thrust of Hollande is fairly clear. Economic growth and lower unemployment should be given a higher priority than fiscal austerity measures aimed at reducing the fiscal deficit of the member states. His claim is based on the premise that the EU as a whole requires to take a stance in favour of economic growth in spite of what national interests may dictate. The announcement by Cameron that he would seek to renegotiate ties with the EU and hold a referendum on whether Britain should stay in the Union if the Conservative Party is re-elected, does not help matters.
Hollande went further by claiming that the eurozone needs to develop an exchange rate policy to protect the currency from “irrational movements”. He said that a single currency zone must have a foreign exchange policy, otherwise it will see an exchange rate imposed on it (by the markets) which is out of line with its real competitive position.
Up to a certain extent, he is correct given that other countries seek to manage the value of their currency when compared to other currencies. However, his statement also shows a lack of cohesion on fundamental issues. We have a single currency and a currency union but there does not seem to be a single exchange rate policy for the euro, which is fairly understandable given that Germany is feeling comfortable with the current value of the euro, but others are not.
Another indication that the EU is still grappling with disagreements between member states is the latest position in bank reform. After the start of the crisis in the financial markets in 2008, there appeared to be consensus on the need to regulate the banking system better. The proposal made then was that securities trading operations needed to be kept separate from the normal retail banking operations.
Following the umpteenth report it appears that the European Commission is getting the proverbial cold feet about the idea of ring fencing securities trading operations, an action which is meant to reinstil a sense of prudence in the banking system. The reason given for this U-turn is that such regulation could threaten the fragile economic growth we have today.
So as we wait to find out the results of the discussions on the EU Budget, we have a situation where fundamental issues such as bank regulation, foreign exchange policy and the balance between economic growth and fiscal deficit reduction, remain unaddressed and therefore unresolved. Some have claimed that this inertia on these fundamental issues has hindered the EU economy from growing at a faster pace.
In Malta we have not felt the impact of this so greatly. However, there will come a time when it will and that time could be sooner rather than later. As a country we also need agreement on an EU level of the fundamental economic strategy that the Union should follow – in other words less rule-making and more wealth creation.