From Seoul to Brussels, the G20 and EU solutions on future rules. What about Prague?
Once again, 2 years after the crisis, we talk about exit strategy. There have been discussions in Seoul, at the G20 meeting, in Brussels and at the European Council towards the end of October, in high circles of the Czech Republic and other European States. Once again, we attempt to understand what is going on, by trying to distinguish between mere declarations of intent and concrete steps that have actually been taken.
Let’s start from the G20, which is taking place these days in Korea. In the previous issues of this magazine, we had already considered the decisions taken up by the leading industrialized countries, starting from the first real anti-crisis plan adopted worldwide during the London summit and the successive one held in Toronto. Awaiting the results of the Heads of State Summit of November in Seoul, concrete measures have already been decided on during the meeting of the finance ministers and governors of the central banks. First of all the premise that takes note of the present situation: “global recovery continues, although still fragile and uneven. Growth has been strong in many emerging economies, but the pace of activity remains low in many advanced economies.”
In essence, given the strong interdependence of different countries in the global economy and in the international financial system, despite the effort of reform and adjustment of accounts carried out by the single governments, a non-coordinated response will make any effort fruitless.
The crucial points are always the same: structural reforms to foster and sustain global demand and the creation of new jobs, to complete the financial system and reforms of the regulatory framework, to put into effect the medium-term consolidation of fiscal plans, to carry out monetary policies with the aim of stabilizing prices, continuation of the FMI reform process and that of international financial institutions and increase the capacity to respond to the crisis. The results are positive, but show that, while the injection of capital into the financial system was carried out promptly, for the adoption of regulatory measures, there is still a lot to be done. It is just like saying that it’s better to pay a fine rather than being committed to respecting the speed limit.
European action in this respect, was decided on during the course of the Brussels European Council at the end of October, accompanied by a debate on the different proposed solutions, both for the Euro zone and other Countries. It is a question of learning from the lessons of the past, in order to make the European economies more crisis-proof. The most important agreement was the Stability Reform pact and the creation of a permanent anti-recession Fund to sustain the Euro zone countries in difficulty, with a dual mandate: to the EU Commission to a make proposal on the mechanism and, to president Herman van Rompuy, to evaluate whether or not to amend the Treaty of Lisbon. As always, a compromise solution: between the French-German axis headed by Chancellor Merkel – supported also by the Czech Republic and Slovakia – oriented towards a more rigorous and automatic sanction mechanism and, the “Mediterranean” one of France, Spain and Italy that is more inclined towards a more flexible system. Leaving aside the debate on whether to amend the Treaty of Lisbon with political sanctions – the suspension of the right to vote on the part of the defaulting countries, which is already foreseen for violations to fundamental principles – or by modifying only the secondary legislation, the novelty is represented by the common will to make the agreement more stringent and increase its sanction incisiveness – as well as making the anti-recession instruments permanent, as established for the Greek issue on a three year basis. There remains the definition of the details of this reform: from how to operate a reduction on public debt (numerical criteria to adopt for cutting the debt, the impact of private debt and retirement reforms, etc.) and how to draw up the system of financial sanctions.
The position of the Czech Republic is, as stated, close to the German one and has received Slovak support in the sense of an automatic application of sanctions: “This system for evaluating EU States balances, in order to be truly effective, cannot rely simply on judgements made on a case by case basis, because that gives rise to conditions of inequality”, said the Slovak premier Iveta Radicova, at the end of the meeting with Petr Necas, prime minister of the Czech Republic. This position was reiterated in recent days even by the “V4” countries – the four from Visegrad: Poland, the Czech Republic, Slovakia and Hungary – for which a phase of “high responsibility has begun within the 27 during 2011”, as stated by the Polish premier, Donald Tusk. A new Centre East front ?
As regards the question of the EU balance, the Czech Republic has joined the countries led by Great Britain, according to which, an increase of 6% of the EU budget for 2011 – and relevant national contribution – is to be averted. In response, the European council has proposed a maximum increase of 2.9%.
For Necas, Prague’s priority during this phase of reform is the creation of a mechanism that ensures a compulsory and rigorous fiscal discipline: “the stability of the Euro is of fundamental importance for us even if we are not members of the Euro zone”, declared Necas.
We are to expect, as a consequence, a series of measures of fiscal discipline, in part already announced even for a country that has not hit the bottom. Even if, the forecast of economic growth for 2010 has been re-defined – 2.2% against 1.6% of three months ago – for 2011, the Minister of Finance has corrected the forecast from 2.3% to 2%.
It remains to be seen whether the Czech determination is that of creating rules for a game in which Prague wants to take part, or if it only intends to remain a critical spectator, while remaining outside the Euro zone.
By Luca Pandolfi