Labour must take tougher line on ‘mass migration’ from Europe Miliband told
Party is losing working class, say senior MPs, as shadow foreign secretary Douglas Alexander sets out EU reform plan. Read more…
Tory Eurosceptics to support David Cameron until after general election
Rightwing Conservatives expect ‘moment of reckoning’ over Europe in runup to possible EU referendum if party is re-elected. Read more…
Nigel Farage accepts Clegg’s challenge to debate Britain’s EU membership
Ukip leader says ‘I’ve spent years being told I’m a nutcase. I’ve got to say yes’, after Lib Dem leader proposes head-to-head. Read more…
Cameron’s EU referendum ‘timebomb’ could undermine UK position say lords
Former cabinet secretary Lord Armstrong says PM should follow Thatcher’s example by being patient in EU negotiations. Read more…
Strong services data signals UK growth on track to outstrip rest of Europe
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Obama tries to ease NSA tensions and insists – Europe spies on US too
President says intelligence services all over the world use spying programs but admits US could be damaged by revelations. Read more…
President of the European Central Bank rebuts criticisim of his Outright Monetary Transactions programme, ahead of data showing how Europe’s manufacturers fared in May
Plan A is now acknowledged to be a failure; yet it remains the default option, just extended far into the future
The economist Yanis Varoufakis has an apt metaphor for Europe’s latest approach to its economic crisis. Imagine, he says, that your neighbours demanded you do a 100m sprint in under 10 seconds. They whip you, and threaten dire sanctions for flunking. But as August looms and with your times getting worse not better, your taskmasters change the regime. The target remains in place, the threats are just as grave – but the deadline is extended to December. So, have your neighbours loosened their grip? Of course not, says Mr Varoufakis, they have simply extended into the future their “maddened misanthropy, making a virtue out of abject policy failure”.
So it goes in the EU too. The European Commission has confirmed what was already widely suspected: that France, Spain, Portugal, the Netherlands, Poland and Slovenia will all be allowed extra time to complete their austerity plans. In some quarters this was greeted as “Europe in retreat”. It is nothing of the sort. There has been no relinquishing of the actual budget targets, let alone a move towards replacing the cuts with other economic policies. Put at maximum strength, this decision allows Paris and the other capitals to bring in the automatic stabilisers: to spend more on unemployment and other benefit bills, which are rising fast amid this ferocious economic slump. That tweak alone will help take the edge off the pain of the crisis, but it will do nothing to resolve the underlying crisis. It is a palliative, and no more.
The policymakers of Europe have now formally adopted the same position as George Osborne’s Treasury. Plan A is now acknowledged to be a failure; yet it remains the default option, just extended far into the future. For the sake of fairness, we should concede that such a policy is better than some of the alternatives, and certainly better than trying to double down on austerity and cutting even harder. Neither Mr Osborne nor the top brass in Brussels are foolhardy enough to do that; and should they ever be tempted they can merely look down to Athens to see the political, social and economic turbulence it can cause.
And yet the European economy is in a deep enough hole already. For evidence of that, just look at the OECD’s grim assessment of the continent’s prospects. The thinktank of rich nations expects the eurozone’s GDP to shrink by 0.6% this year, a sharp downgrade from the 0.1% contraction predicted just six months ago. Even that is an average across the 17-member club and so masks just how bad the recession is in some countries, especially along the southern periphery. Joblessness across the euro-area is expected to keep rising from its current rate of 12%. Compare these dismal figures with those projected for the austerity refuseniks. Having adopted extraordinary stimulus measures, Japan’s forecasts have improved sharply. Six months ago, OECD economists expected it to rack up growth of 0.7%; now they’ve chalked it up for 1.7%. The US is predicted to continue its weak recovery and clock up 2%. From this shaming contrast, one might expect the OECD to call for imaginative policies to get the coalition out of its deep rut. Sadly, its policy prescriptions were cautious and conservative. They will not upset any politicians’ apple carts; nor will they help ease the crisis.
European leaders acknowledge the scale of the problem. This week, French president François Hollande called on fellow leaders to “act urgently”. “Six million youngsters are out of work in Europe,” he pointed out. “Close to 14 million are without work, study or an apprenticeship.” The chorus was joined by Wolfgang Schäuble, the German finance minister. He warned of “catastrophe” if jobs were not found for Europe’s young. “We will lose the battle for European unity.” Fine words and all the better for being plausible. Polls show that Europeans are increasingly mistrustful of the EU. No surprise there. A grand political project increasingly resembles the interwar gold standard: a mechanism for increasing social suffering and hobbling the economy.
There can be no solution to the European Union’s crisis without restructuring economic and monetary union
Economic prosperity and social progress are key European Union goals. But for the past five years it has delivered neither. It has been in a double-dip recession since mid-2011, with unemployment now at a record high of 11% and no tangible improvement in sight.
The crisis has lasted longer in Europe than in the US or the rest of the world mainly because of poorly designed monetary union, without an appropriate framework of rules for banks and other financial institutions or sufficiently robust budgetary instruments.
So far the EU has only deployed the minimum collective response necessary for the euro’s survival: conditional emergency loans to troubled countries, conditional bond-buying by the European Central Bank, tougher economic policy co-ordination, and tighter restrictions on governments’ debts to assure markets of countries’ responsibility.
However, the reality of today’s eurozone is far too many people out of work, falling internal demand, increasing polarisation within societies – and a yawning chasm dividing relatively prosperous core countries from a periphery destined for depression. Without boosting macroeconomic demand, making labour markets more flexible in troubled EU countries – while often necessary – will not in itself create sufficient jobs.
Moreover, the pressure to make far-reaching “adjustments” often means that there is limited time to discuss reforms with trade unions and employers’ organisations before they are introduced, undermining reforms’ sustainability and sometimes leading to social unrest. Many citizens feel increasingly disconnected from national politics, and even more so from European decision-making, over which they feel they have little influence.
The real economy is being stifled by debt incurred by poorly regulated and supervised banks and other financial institutions in the pre-2008 age of easy money. As banks need to shrink their balance sheets, they are reluctant to lend to companies in the real economy. Meanwhile, the recession is pushing more households and companies into serious financial difficulties. All in all, Europe has not yet succeeded in eliminating uncertainty, and its people have paid a high price for this. The conclusion is clear: we will not recover through incremental steps that just appease the financial markets for a few months.
In the past year the EU policy debate has rightly shifted towards growth, as opposed to “austerity only”. But we still lack a robust recovery strategy worthy of the name. Such a strategy would require a new policy mix based on the following elements.
First, we must urgently set up an EU-level banking union to restructure or close down failed banks. Companies need access to more credit, under better conditions, to invest and grow. Europe’s financial sector must cut its debts faster, including through greater debt write-offs and shaking up banking structures.
Second, consolidation in weaker member states needs to be balanced by higher consumption in stronger EU countries. The monetary union cannot rely solely on squeezing troubled countries, which depresses overall demand. “Symmetrical rebalancing” requires structural measures in stronger countries, such as allowing wages to catch up with productivity and adequate minimum wages to prevent in-work poverty.
Third, if weaker member states are to regain competitiveness while keeping the euro, they need investment in the real economy. This must be based on sophisticated industrial policy and support for entrepreneurship, so that restructuring produces sustainable business models. If used wisely, EU funds such as the European social fund can be a major source of financial support, together with the European Investment Bank.
Fourth, Europe’s monetary policy must become more expansionary. The ECB has bought Europe time through its bond-buying pledge, turning itself into a conditional lender of last resort. That is to be welcomed. But it is becoming increasingly clear that Europe’s financial crisis cannot be overcome in a deflationary environment, so a different inflation outlook is necessary. We must rethink the ECB’s role and powers.
Fifth, Europe must invest in human capital – creating opportunities for people. EU ministers have agreed a youth guarantee, to ensure that every young person gets a job, apprenticeship or learning opportunity within four months of becoming unemployed. Now individual member states must put it into practice. Similar “social investment” must be boosted across the board – for example, through the provision of quality childcare and the re-skilling of older workers. The target must be full employment.
European leaders should focus on finding a systemic, long-term solution to the crisis, restoring each country’s growth potential and convergence within the monetary union. Europe should convene a Bretton Woods-type conference to put in place an economic and monetary arrangement for the coming decades.
For such a lasting arrangement, a grand bargain between surplus and deficit countries is needed, ensuring a sustainable economic future for each. Some pooling of government debt, and cross-country automatic stabilisers (where, for example, the costs of cyclical unemployment are shared between the member states by using common European funds) should be seriously considered for Europe’s monetary union.
Rebalancing through aggressive reduction of government spending and similar measures in deficit countries (under the euphemism “internal devaluation”) is, without higher domestic demand in the surplus countries, a recipe for long-lasting recession and disintegration. There is no solution to the crisis without reconstructing Europe’s economic and monetary union, and without shifting the focus on to people’s needs and potential. Austerity could only ever bring us so far. We must now move to the next stage.
Ivo Josipovic says British exit would have negative impact on trade bloc, as Croatia prepares to become 28th member state
The president of the EU’s newest member, Croatia, has urged Britain not to leave but instead to help reform Europe from the inside.
“The reason for us to enter is the same as yours is to stay,” Ivo Josipovic told the Guardian during a visit to London before Croatia’s formal accession on 1 July, when it will become the 28th member state. “It is a great opportunity. I always ask the critics what Greece would look like without the EU. I am a Euro-optimistic.”
Josipovic said his meeting with David Cameron on Thursday left him convinced that Britain would not abandon the EU. “Looking at situation here, I don’t think its going to happen. I heard the prime minister … and I read about the plans of your government. It’s not anti-European,” the Croatian president said.
He added a British exit “would be negative for Europe and for Croatia as well, because UK is an important country with an important economy, with important resources of all kind: the democratic tradition, historical, cultural. So definitely a break with the EU would not be a good thing … I would not like to see it.”
Since Croatia applied for EU membership in 2003, the fortunes of both have fluctuated and are experiencing a downturn. Croatia is in recession with an unemployment rate of over 18% and, in the short term at least, membership could worsen the economic situation.
Croatia will erect a tariff wall between it and some of its major Balkan markets to the east. It will mean that many tourists, Russian and Turkish for example, will require a visa to spend their holidays on the Croatian coast, and it could accelerate a brain drain if the nation’s best and brightest seek work across Europe.
However, Josipovic argued that EU trade and investment would outweigh the downsides to membership, and he pledged to do more to make it easier for European firms to invest in Croatia.
“It is complicated to come to do business – complicated because of the old mentality and the wish to put everything under norms. But the government is doing its best to change these things,” he said. “There are obstacles but day by day we are making it easier.”
Josipovic indicated that Croatia would side with the UK in seeking to focus the EU on its basic functions: maintaining a common market, promoting democracy and peace, while cutting back on what he saw as excessive Brussels bureaucracy.
He also said Croatia would be in favour of lifting the arms embargo on Syria “because in our history we were under aggression and couldn’t obtain weapons. So equal chances should be provided to both sides.”
Croatia has been criticised for the fact that there have been no convictions for the war crimes committed in 1995, when hundreds of Serb civilians were killed during and after Croatia’s Operation Storm offensive.
Josipovic argued that investigators faced obstacles looking into crimes committed nearly 20 years ago, especially as previous nationalist governments had been reluctant to prosecute. But he added that the prosecutors would not give up.
“The war crimes investigations will never be suspended. There are no time limits,” he said, adding that none of those responsible for the war crimes “will sleep peacefully”.