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Eurozone crisis: Lamberts reacts to December European Council

EGP co Chair Philippe Lamberts, MEP gave his synopsis this week of the December meeting of the European Council, and the agreement on economic governance that emerged.

"Tonight, the European Council has given birth to a limited agreement which fails once again to accomplish the quantitative and qualitative leap that is essential to halt the runaway crisis in the eurozone.

In the light of findings published by the Heads of Government of the euro area, we can observe a triple failure:

  • No credible economic strategy: Obsessed with Greece - the only serious example of budgetary misconduct - the Council continues its headlong rush towards austerity as the only response to the crisis. The golden rule that will require budgets to be balanced, however, can not serve alone as an economic strategy. Even if it had been in place before the crisis, it would never have avoided the macroeconomic problems faced in Ireland, Spain, Portugal and the collapse that ensued. In addition, the Council's conclusions omit any reference to a European taxation integration strategy, essential if the financial sector and transnational corporations are to pay their fair share and to advance the fight against fraud and tax evasion. This will leave the Member States no option but to balance their budgets through spending cuts. It was already the target of the Stability and Growth Pact adopted in September. Last night's decisions thus confirm again the only line of thought from the Council: austerity, austerity and even more austerity. The economic and social damage associated with such a strategy are already visible: Europe has entered into recession and the only area of growth is income inequality.
  • No firewall for runaway public debt markets: The European Council continues to ignore the need for a credible guarantee of liquidity to restore confidence in the markets for sovereign debt. This guarantee can be provided - directly or through a European Financial Stability Fund (EFSF) with a banking license - by the ECB. However, the Council still adheres to the line adopted in October, which is to multiply the firepower of the EFSF through financial tricks. Yet, according to Klaus Regling, head of the EFSF, this "solution" will not bring the desired effect and in any case will not deal with any possible default by Italy or Spain. As for Euro-bonds, a key element of a lasting solution that would enable Europe to pool their public debts, they are not even mentioned in the Council conclusions. In the eyes of European leaders, the moral hazard associated with such a provision – under which states would be able to avoid the expensive but “virtuous” mutual guarantee systems - would indeed be intolerable. However, since the beginning of the crisis, the ECB has effectively operated as the lender of last resort ... but only for banks. In the latter case, the argument of moral hazard - that casino banks can benefit from collective guarantees - do not appear to pose problems for member states.
  • A weakening of European democracy: It's probably the most disturbing political development at European level at the moment. In the Council's decisions, as in the proposals tabled by the Commission two weeks ago, political decisions on the budget, but also the labor market and social security were confiscated by the European Council, operating behind closed doors in close cooperation with the Commission. National parliaments, in turn, are assigned the role of rubber stamp, under the control of the European Court of Justice. The same applies to the European Parliament which, after providing its assent to the introduction of some elements of the new system will be removed from their implementation. Although it is clear that major reforms are needed in Europe (including within taxation and investment policy), they have no chance of being socially accepted in the absence of strong democratic legitimacy.

Certainly, Europe now more than ever needs a break to give the Union government collective means to ensure the sustainability of public finances, which is essential to ensure social cohesion and to engage in an ecological transition ("Green New Deal" ). If Europe behaves like an integrated player, the economicfundamentals of the EU that make the current crisis manageable: the biggest market in the world, a positive balance of trade, a public debt that is high but largely held by the EU member states, and a strong capacity for innovation. However, being considered as a unified group requires us to act as such. In other words, a monetary union is not viable without the establishment of a common and democratic fiscal policy. But will the current heads of government ever be able to understand it?"

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