Common actions within the EU needed but no economic government

Centre d’Etudes et de Recherches Européennes Robert Schuman
A European response to the financial crisis and challenges of global governance makes sense to all politically and economically relevant actors in Luxembourg. As a very small country, whose economy is almost totally dependent on foreign trade relations and whose present prosperity is largely tributary to its financial services exports, Luxembourg is primarily hit by the financial crisis. But not for even one second can the Luxembourg government and parliament imagine reacting on their own behalf to the crisis. They can only act in cooperation with Luxembourg’s neighbours, within the Euro group, or in all EU coordinated actions. As Luxembourg’s Prime Minister and Minister of Finance, Jean-Claude Juncker is the current President of the Eurogroup, Luxembourg’s voice in this matter is most audible through the declarations of its Prime Minister.
As President of the Eurozone and as Luxembourg’s Minister of Finance, Jean-Claude Juncker wants a strong political message to be sent which should take in to account a global approach. The answer has to be decided on within a short term and must be limited in time. These measures must work within the framework of the Stability and Growth Pact decided during the Luxembourg Presidency in 2005.[1] But Juncker is well aware that “the new year is bringing serious tests to the economic framework of the European Union and the European currency zone”.[2] According to Juncker’s personal predictions, positive growth will be seen again in 2011 only.[3]
The French President, Nicolas Sarkozy, who was holding the EU-Presidency in the second half of 2008, pushed forward the proposition of an ‘economic government’ for the Eurozone: regular meetings of heads of state and government of the member states of the Eurozone – similar to those that had been hosted by the French President under the extraordinary circumstances of the financial crisis and that has pushed Europe’s banking sector to the verge of total collapse. In the European Parliament, Sarkozy declared that this new forum could serve as a form of Eurozone ‘economic government’. Luxembourg’s Minister of Finance, Juncker, was not amused and declared that this idea was not new and that Sarkozy had argued in favour of it “on a number of occasions before” and “most members did not agree with that idea” of an economic government.[4] Juncker’s stand is supported not only by the German cabinet members, but also by the Czech government holding the EU-Presidency in the first half of 2009, which feels offended because of the fact that the Czech Republic is not a member of the Eurogroup.[5]
Juncker made several propositions within the framework of the European stability pact amended and reformed under the Luxembourg Council Presidency in 2005. This pact provides for flexible regulations for economic situations like the one “we are unfortunately in right now”.[6] Increasing deficits will be allowed temporarily. After an economic recovery it is essential, according to Juncker, to return to the strict course of budget consolidation. Countries now taking exaggerated austerity measures in order to fulfil some of the stability pact criteria would run the risk of suffocating their economies. Juncker argues that budget measures taken beyond the three percent deficit limit should be strictly confined to the area of public investment and specific tax cuts, where they seem to be appropriate: e.g. further spending on research and development. “At the end of the day we will see that the stability pact has reasonably adapted to the situation”[7].
Juncker called for EU treasury to bolster up the Eurozone. He could imagine the creation of a European agency able to emit ‘Euro-bonds’. Of course Juncker knows very well that Germany would lose today’s advantages under such an arrangement because it enjoys a higher level of confidence than that of other member states in the Eurozone. But in Juncker’s view, this would not be the case after two or three years[8].
Evaluation of EU’s performance in the financial crisis so far
The role of the European Commission in the present financial crisis was criticised in Luxembourg, with the European Commission reacting too slow and timid. The 200-billion Euro package proposed by the President of the European Commission José Manuel Barroso to relaunch the European economy was not accepted by everybody. Juncker called it a guideline.[9] Not every member state can really spend 1.5 percent of its Gross Domestic Product. Some will spend less. For Luxembourg’s Communist newspaper “Zeitung vum Lëtzebuerger Vollek”, those 200 billion Euros are merely taxpayers’ gifts to the big European corporations.[10] Even the independent newspaper “Quotidien” reflects a far-spread opinion: “The Barroso relaunch plan is not ambitious enough”, whereas the Luxembourg-based European Investment Bank’s idea of a 31 billions loan on a two-years basis for 2009 and 2010 finds strong support.[11]
Shifts in the international power constellation expected?
The shifts in the international power constellation caused by financial and economic crises are difficult to predict. They may have serious consequences on the internal cohesion of the EU according to Jean-Claude Juncker, because the Southern states of Eurozone and Ireland cause problems. Differences in the interest rates suggested by the different member states of the Eurozone may well lead to internal tensions. Juncker has already called for the emission of ‘Euro-bonds’. The wages evolution and the fiscal policies of several Eurozone countries strive into opposite directions and cause rising problems to the European Central Bank.[12]

[1] Luxemburger Wort: EU–Gipfel im Zeichen der Finanzkrise, 11 December 2008.

[2] Dow Jones Newswires: Juncker on EU, 8 January 2009.

[3] Luxemburger Wort: Wirtschaftskrise dauert bis 2011, 10 December 2008.

[4] Juncker rejects Sarkozy’s “economic government” for Eurozone, 4 November 2008.

[5] Global Insight Daily Analysis: French government to hold Financial Summit after EU presidency, 20 November 2008.

[6] Deutschlandfunk: Luxembourg premier on German role in European economic stimulus plans, radio interview, 9 December 2008.

[7] Ibid.

[8] The Daily Telegraph: Luxembourg calls for EU treasury to bolster Euro zone, 5 January 2009.

[9] Luxemburger Wort: Prognose von Premierminister Juncker vor dem EU-Gipfel, 10 December 2008.

[10] Zeitung vum Lëtzebuerger Vollek: 1200 Milliarden Euro für die Konzerne de EU, 3 December 2008.

[11] Le Quotidien: Le plan de relance soutenu timidement, 3 December 2008.

[12] Süddeutsche Zeitung: Europa driftet auseinander, 21 January 2009.