Guest blog from Julian Priestley: ‘A word of caution’

What a good idea it must have seemed to have a European Council which was not just about the sovereign debt crisis and the euro. That was the intention for the most recent meeting at the beginning of February. And it was good that at least part of the discussion was about security of energy supply; and innovation. Although the conclusions were very general, at least certain lines of action emerge. And it was inevitable but quite appropriate that the heads of government should take stock of the situation in Cairo, even if events took their more dramatic turn after the meeting had closed. Regrettably however there was no clear line about engaging with new democratic forces in North Africa; and no decision to move forward on the idea of a special summit on economic and political cooperation with the region as it enters this new era.

In the media of course there was barely a word about the substantive points on the Council agenda. It was all about the ‘row’ over the Franco-German, or more precisely, the Germano-French initiative for a ‘competitiveness pact’ for the Euroland countries. And how could it be otherwise when the French president and the German chancellor held a joint press conference to announce their proposals, almost as the meeting was about to begin? This was a hi-jack, pure and simple.

Of course one can be positive about some aspects of the initiative. It is good to see Germany coming forward with policy ideas to bolster economic governance in the EU. It is sensible to have a debate about guarantees to strengthen the credibility of commitments about spending. It was inevitable there would have to be some extra conditions to make the existing temporary bailout mechanism both stronger, and from 2013 permanent. And some of the squeals about particular proposals seem somewhat exaggerated- is it really unthinkable in the globalised economy for Belgium and Luxembourg to move away from wage indexation? And, perhaps above all, it is reassuring to see Berlin and Paris working together. Over forty years some of us can remember the gripes when the French and the Germans have been portrayed as imposing their will on smaller, weaker or more marginal member states. But when they do not cooperate, nothing happens.

But the ‘Competitiveness Pact’ is a misnomer. Greater European competitiveness will not be achieved by depressing public spending, wage deflation and reducing purchasing power. Yes, public spending must be brought under better control, but competitiveness also requires more and better training, higher levels of educational attainment, far greater R&D expenditure (public and private) and modernising much of Europe’s increasingly decrepit infrastructure. On these issues the French and German leaders were rather more reticent. And as yet they frontally oppose any effort to strengthen the EU’s resources to meet the competitiveness objective.

In terms of consensus building to get a quick agreement on the Germano-French proposals so that the euro might be bolstered, the shock and awe tactics were almost entirely counterproductive. So Herman van Rompuy once again is dragooned into service to try to get some package together by the end of March- first at a Euroland summit in early March, and then at the next European Council before the end of the month. Continue reading Guest blog from Julian Priestley: ‘A word of caution’