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Thursday, September 18, 2003

How Not to Reform the Stability Pact

It has been a busy day in the mailbox today, and Joerg has been back a second time, with a critique of this morning's throw away comment about Franco-German plans for a European investment project:

Ah, and then you wrote this: "It wouldn't have anything to do with off-balance sheet liabilities, would it?" Yet you would have me believe that you are not a card-carrying anything! That investment programme is a clear-cut deficit-spending proposal - certainly motivated by a perception that Euroland is in recession and therefore in need of initiatives like FDR´s TVA and similar projects. I don´t quite see how you can spin this into a truth-in-numbers affair - except, of course, if you insist on the EU having no business to increase deficit spending at the height of a recession (or to exist at all, since presumably the smaller members would be better off without the bigger ones - but why should I think that Laos profits from China, whereas Bulgaria is strangled by the EU-core?)

No first let's look at what the FT actually says:

.......as France and Germany spoke of the need for EU funds worth billions of euros to be invested in 10 industrial projects to boost growth across Europe and counter criticism of their flouting of the stability pact. Paris and Berlin called for the projects to be largely funded by the EU, either through co-financing loans from the Luxembourg-based European Investment Bank or from existing EU programmes. The two governments have come under fire for their failure to restrain their budget deficits. Both are set to breach the stability pact, the fiscal rules that underpin the euro, for the third year running in 2004.

The 10 projects, unveiled by Mr Chirac and Gerhard Schröder, German chancellor, will cover information technology and telecommunications, research and development, transport infrastructure and sustainable development. The proposal will benefit sectors ranging from telecoms to engineering and chemicals businesses, and goes far beyond an earlier initiative by Italy to promote investment in public infrastructure. Telecommunication and IT-related projects will include the creation of national broadband networks, the digitalisation of terrestrial television and radio broadcasting, and the development of a network linking research institutions in Europe. Additional funding will be requested for three transport projects: TGV Est, a high-speed link between Frankfurt and Paris via Strasbourg; Galileo, the European GPS satellite; and electronic toll-road systems

Now my objection here is not to these projects per se, nor to the counter cyclical use of deficit financing. My problem is that there is a distinct suspicion that this proposal is to get round the growth and stability pact by the back door. It is the mention of the Luxembourg-based European Investment Bank that caused my eyebrows to raise, and my hands to type the 'off balance sheet liabilities' quip. If this is what is being suggested, then this is the kind of euro politics that the Swedes just rejected. It is 'spin' in another guise. What Europe now needs is a full and open discussion of the stability pact, ie a political process, and not the use of an administrative loophole to avoid this process. Is this what bringing Europe nearer its citizens means? Maybe the pact does need to be reformed, but the EU's citizens also need to be kept informed of the risks involved. We can't woffle-on about the dangers of 'fiscal trainwreck' US style and simply ignore the problems in the EU and Japan. At the same time we could bear in mind: it's always easy to dream up ways to spend money, it's much more difficult to dream up ways to spend it usefully. Here in Catalonia I would certainly prefer more hospitals and old-people's homes to more kilometres of high-speed train. I am not even convinced we are going to need them.

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