Word: european
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There's an odd game going on in Europe. As European governments dip into their coffers and borrow madly in an attempt to repair their economies, the European Union is cheering and jeering at the same time. The cheers are for the economic-stimulus packages; the jeers come because all that spending is blowing budgets by margins that E.U. rules expressly forbid...
...simultaneous applause and admonition reflect the paradoxical role of the European Commission. Often described as the engine of European integration, the Commission also is responsible for disciplining individual member states that violate E.U. rules. The rules in question are part of Europe's Stability and Growth Pact set up in 1997 amid German concerns over budgetary discipline in countries about to join the euro zone. Designed to discourage governments from destabilizing the euro zone by borrowing too much, the rules limit national deficits to no more than 3% of gross domestic product. Countries that go over that limit can face...
...ceiling from time to time, while many have breached the pact's other main criterion: that national debt stay below 60% of GDP. Germany, the pact's main proponent, has been one of the most consistent abusers of the budgetary rules. In 2002, then president of the European Commission Romano Prodi even described the rules as "stupid...
...threaten countries now? Simon Tilford, chief economist at the London-based Centre for European Reform, says any attempt to stick with the pact through the global economic crisis could unleash a political crisis. "Against a backdrop of recession or economic stagnation, painful spending cuts would be extremely difficult for any government to sell to voters," he says, questioning whether such reductions would even succeed. "Drastic cuts in spending or [raising] tax risks deepening the recession, which would in itself prevent an improvement in the fiscal position...
...Luxembourg) of the E.U.'s 27 members expect to break the deficit ceiling in the coming year. In such circumstances, the E.U. should suspend the pact immediately, says Daniel Gros, director of the Brussels-based Centre for European Policy Studies. "It means it doesn't break - it bends. And it is ready to bounce back," he says. "We could then reaffirm them when we have a better idea of where the economy is going." Not that anyone knows when that will...