Ambassador's Corner

WEEKLY MESSAGE FROM CHARGÉ D'AFFAIRES ANGELOS PANGRATIS

March 5, 2010

The Challenge of Fiscal Sustainability 

As it is obvious from the press coverage around the world, there is an enormous interest in the global economic crisis and particularly in issues related to public debt. Often the question is asked what the European Union is doing to help Member States, like my native country of Greece, who are clearly in difficulty in their management of their public debt.

At the Bretton Woods Committee Annual Meeting last Friday, I was on a panel over lunch, alongside former World Bank President James Wolfensohn and Matthew Bishop of The Economist. Our task was to talk about global imbalances and how to manage them. In the morning the audience had the privilege of listening to WTO Director General Pascal Lamy, World Bank President Robert Zoellick, and IMF Director Dominque Strauss Kahn.

I really welcomed the opportunity to speak on this panel because the EU has been inviting a more in-depth debate about the emerging global imbalances for some time. For example, we strongly supported the International Monetary Fund's 2005 initiative to bring together all the main parties, including the United States and China, in the Multilateral Consultation on Global Imbalances.

In my remarks, I also referred to the EU's response to the downturn, which was swift and decisive. It has encompassed monetary and fiscal stimulus, and measures aimed at ensuring the stability of the financial sector. Regarding specifically the fiscal stimulus, the measures adopted in the EU, in a largely coordinated way among Member States, as well as the effects of automatic stabilizers, amounted to about 5% of GDP in 2009 and 2010.

In Europe, as in the US and other parts of the world, the stimulus must be withdrawn eventually, in most countries in the course of 2011. Europe is working in that direction, and global coordination will be necessary to unwind stimulus measures, just as when the stimulus measures were launched. The G20 provides a useful framework in that respect.

Of course, with the current preoccupation in Greece, I felt compelled to bring some perspective. The threat to the euro has been exaggerated, for many reasons that generally ignore some basic truths about the European Union. I will briefly mention two of those: 

• First, the euro has contributed to very good overall economic results for the EU over the last 10 years. GDP per capita has increased roughly as in the US, 16 million new jobs were created, more than in the US, and the euro's importance in international markets and as a reserve currency expanded beyond the weight of the legacy currencies it replaced. 
• Second, in the most recent crisis, the euro has been an anchor of stability. Imagine the crisis we would have had if speculative runs had been made on national currencies of countries now in the eurozone. Sixteen Central Banks would have had to struggle for a coordinated liquidity provision while trying to keep exchange rates and inflation in check, or engage in negotiations about currency swaps.

Some commentators have predicted disaster at every step of the integration process, including before and after the euro, and have been proven wrong every time. They usually overlook a key fact about the EU, which is a Union of sovereign states and not a state itself. That is why in many respects, the EU integration process, involving the pooling of sovereignty among member nations, has always rested on principles of first responsibility and then solidarity. That is why we have seen such solidarity from other Member States when Greece, and before that Ireland, took their responsibilities and announced measures to bring their fiscal houses in order and restore their economies to a sounder footing. 

One of the expressions in high usage these days is, "It's a pity to waste a good crisis." This is true in this case, too. There are important lessons learned from this crisis. In the EU, we are improving monitoring and surveillance mechanisms clearly oriented towards, on the one hand, fiscal policy coordination and fiscal sustainability on the longer term and, on the other hand, convergence of competitiveness of national economies and sustainable growth of the 16 eurozone countries. All that is included in the extraordinary effort that Greece is doing and their success will mean not only that the country will be able to deal with the short-term fiscal challenge concerned but also with the conditions underlining its current difficulties, i.e., its longer-term competitiveness and thus sustainable growth. The lessons learned are in fact allowing the EU to improve its unique institutional framework and to assist more efficiently the Member States concerned - and in fact all others - to deal with one key challenge of the whole developed world, notably, to face with real policy responses the long-term sustainability of public finances.

Yesterday, European Commission President Barroso, welcomed the new measures announced by the Greek Government to bring its deficits under control. "This announcement confirms the Greek Government's commitment to take all necessary measures to deliver the programme's objectives and in particular to ensure that the 4% of GDP deficit reduction target for 2010 will be met." You can read the full message here: http://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/10/61&format=HTML&aged=0&language=EN&guiLanguage=en .

This week, President José Manuel Barroso launched the Europe 2020 Strategy, which outlines how the European Union can emerge from the financial crisis and create a greener and more prosperous economy within the next decade. The Commission identifies three key drivers for growth, to be implemented through concrete actions at EU and national levels: smart growth (fostering knowledge, innovation, education and digital society), sustainable growth (making our production more resource efficient while boosting our competitiveness), and inclusive growth (raising participation in the labor market, the acquisition of skills and the fight against poverty). 

"Europe 2020 is about what we need to do today and tomorrow to get the EU economy back on track. The crisis has exposed fundamental issues and unsustainable trends that we can not ignore any longer. Europe has a growth deficit, which is putting our future at risk. We must decisively tackle our weaknesses and exploit our many strengths. We need to build a new economic model based on knowledge, low-carbon economy and high employment levels. This battle requires mobilization of all actors across Europe," President Barroso said. 

For more on Europe 2020 please visit our website at: http://europa.eu/rapid/pressReleasesAction.do?reference=IP/10/225&format=HTML&aged=0&language=EN&guiLanguage=en .

Working with Congress

This week, the European Parliament sent a delegation led by MEP Elmar Brok to meet with US counterparts on the Transatlantic Legislators Dialogue to establish the mechanisms for more frequent communication and coordination on issues of common concern. As I mentioned in an earlier message, this is a natural development given the expanded legislative role of the European Parliament since the entry into force of the Lisbon Treaty. 

Helping Haiti and Chile Deal with Earthquakes

Following last week's devastating earthquake in Chile, the European Commission released an initial 3 million euros to provide for immediate assistance. Mobilizing our emergency response system, we also deployed humanitarian aid and civil protection experts. Our individual Member States have also been quick to react and in addition to financial assistance and personnel, they have offered everything from generators, to field kitchens and tents. EU High Representative for Foreign Affairs and Security Policy Catherine Ashton follows the situation closely and coordinates so as to ensure that all relevant European actors are working closely together.

In her first post on her new blog, EU Commissioner for Humanitarian Aid and Crisis Response, Kristalina Georgieva, wrote "…words can't capture the feelings of loss in such tragic circumstances, but I think it is important to convey the message that we are thinking of those who are suffering; that we are at their side." She noted that the initial 3 million euros in aid to Chile should be seen as an act of European solidarity. Once Commissioner Georgieva receives reports back from our experts on the ground, she plans to travel to Chile herself as early as next week.

On a personal note, from my time as Ambassador and Head of the Euroopean Commission Delegation to neighboring Argentina, I can say that Chile is a well organized country that has resilience and a high level of readiness for earthquakes and natural disasters. This is of course a tragic challenge of extraordinary magnitude, and any country of the world would need external support to deal with the short-term emergency but also to restore on the longer term the country's infrastructure and everything that is needed in order to bring life back to normality ASAP.

The EU is also continuing our relief efforts in Haiti where the focus now has shifted to the reconstruction phase. EU Development Commissioner Andris Piebalgs this week released an initial 100 million euros to help the Haitian authorities repair roads and rebuild government buildings and schools. Part of the grant funding will also be used to cover government salaries and to support Haiti’s civil protection and fire fighting capacities. "Today's plan leverages on Commission's expertise in budget support, infrastructures and technical assistance," said Commissioner Piebalgs. "It has been prepared with the Haitian government, who must be in the driving seat of the reconstruction process."

This first instalment of more than 300 million euros committed by the European Commission for Haiti’s reconstruction comes on top of the more than 600 million euros in aid to Haiti now committed by the European Union and its Member States. Both High Representative Ashton [on right, below] and Commissioner Georgieva [on left, below] were in Haiti this week to evaluate the development of European humanitarian aid, assess future needs and to "reaffirm the EU's commitment to help the Haitian people cope with the crisis and rebuild their country," as High Representative Ashton noted.

Please send me your comments about this or any of my weekly messages or other EU matters. I look forward to hearing from you!