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Euro leaders criticised as Commission sets out debt crisis strategy

Recommendations tread a fine line between budget discipline and stimulating growth.

A passenger at Barcelona airport walks through growing piles of litter due to cleaning staff at the airport going on strike over budget cuts.
A passenger at Barcelona airport walks through growing piles of litter due to cleaning staff at the airport going on strike over budget cuts.

BRUSSELS // The European Commission yesterday issued a series of thinly veiled criticisms of how European Union leaders have handled the continent's economic challenges.

Apart from laying out specific and soon-to-be binding policy recommendations for each member state, the commission also urged closer integration and cooperation to tackle the EU-wide debt crisis.

Frustration with Europe's national leaders shone through in the remarks of the president of the European Commission, José Manuel Barroso, as he presented the recommendations, which trod a careful line between budget discipline and restoring growth.

He called on Europe's leaders to provide "a clear endorsement of the country-specific recommendations without falling for the temptation to water them down". It is the first time that commission recommendations will become legally binding, but only if adopted at a summit of EU heads of state in June.

Mr Barroso was even more blunt in challenging EU leaders to back up their recent rhetoric on stimulating growth, rather than mostly concentrating on austerity and debt reduction. "If certain heads of government want growth we need a European budget that while tight and relatively small, has the means to invest for the future," he said.

Critics cast the commission as an unelected bureaucratic behemoth that is out of touch with the concerns of most Europeans. But in the current financial and economic crisis, particularly of the euro single currency that is in use in 17 out of the 27 EU countries, it has been given more powers to implement budget rules that the countries themselves have signed up to.

Nicolas Véron of the Brussels-based think tank Bruegel told The National that this was a welcome step forward for Europe's ability to deal with economic issues. European governance was "still a work in progress but clearly there is a trend to constrain member states more than before", he said.

Under new rules, the commission has more powers to levy fines on countries that are not in compliance with its deficit targets but it is unclear how this will work in practice.

It was not all deficit reduction and fiscal discipline for the commission this time around. The recommendations also took into account recent calls for a growth strategy for the EU, which has been pushed by among others the newly elected president of France, François Hollande.

Germany was urged to stimulate domestic demand by allowing wages and inflation to rise, something that will help the exports of the more indebted EU countries.

Spain, which is now reeling under a burgeoning banking crisis, was shown some flexibility in meeting its deficit reduction target. European Commissioner for Economic and Monetary affairs, Olli Rehn, said Madrid could get a one-year extension if it reined in the budgets of its local and municipal authorities and submitted a credible two-year budget for 2013-2014.

After Greece, which is holding new elections in June and that may have to leave the euro single currency, Spain is seen as most under threat from the euro-zone debt crisis. It is struggling with low growth, high unemployment and the fallout from a housing bubble.

Mr Barroso said that concerted European action would be needed to tackle the euro-zone crisis. He mentioned euro bonds, loans for the whole of the euro zone rather than for individual countries, and allowing European emergency funds to be used to bail out banks such as Spain's Bankia, without the whole country being placed in a bailout mechanism.

Neither idea is palatable to voters in economically solid European countries, particularly Germany, which would foot most of the bill.

There was little positive news in the Commission's detailed country reports and recommendations. Germany and Bulgaria were deemed to have met budget deficit targets and millions of euros in European development funds for Hungary were released as the Commission found that the country was moving toward compliance.

Italy, under the technocrat prime minister Mario Monti, was commended for the strides it has taken to fix the country's finances. "In the past few months, the policy response to ensure sound public finances and tackle Italy's long-standing structural weaknesses has been determined and wide-ranging," the report stated. But the Commission outlined many remaining challenges for Italy and for most other countries.

foreign.desk@thenational.ae