WASHINGTON: The chairman of eurozone finance ministers proposed yesterday a new growth deal for Europe which would reward governments reforming their economies with cheap European funds for investment and leeway on budget consolidation targets.
The proposal comes at a time as Europe is on the brink of another recession and is desperate to boost economic growth to reduce almost record high unemployment and huge public debt.
The European Central Bank has already cut its interest rates to almost zero and will start asset purchases to inject cash into the moribund economy and reduce the risk of deflation.
“We should try to formulate a new Growth Deal for Europe,” Jeroen Dijsselbloem said in an interview.
The plan would link monetary policy of the European Central Bank, the evaluation of budget policy of eurozone governments, progress on structural reforms and investment plans.
“We look at budgets, reforms, what the ECB is doing, we are thinking how to strengthen investments. Now these policies are separate, I would like to link them” Dijsselbloem said. “It would be worthwhile to bring those four strands together and have a political agreement on how they interconnect.”
He said that governments that embark on reforms which bring back trust in the economy, make it more competitive, attract investors, raise the level of research and development and the quality of the workforce should be rewarded with more wiggle room with budget consolidation targets.
They should also be given access to cheaper funds for investment, for example from the European Investment Bank, for concrete projects that would help economic recovery.
“Let’s try to interconnect them and make them work to strengthen each other,” Dijsselbloem said of monetary policy, investment, structural reforms and budget consolidation.
Dijsselbloem, who is Dutch finance minister, chairs monthly meetings of the powerful group of eurozone finance ministers, the Eurogroup, which sets economic policy for the 18 countries that share the single euro currency.
“It is going to take a political breakthrough to look at these strands together,” he said. “Some say let’s do more investment, others let’s do more budget discipline and structural reforms are left in the middle. If we connect these three, it could be a strong mechanism.”
Because of weak growth in France and even a recession in Italy, the eurozone’s second and third-largest economies have been pushing hard for more leeway on budget consolidation targets set for them by EU finance ministers, arguing that cutting government spending would hurt growth even further.
But Dijsselbloem defended the rules. “They become an important political reflection of trust, not just the trust of the outside world in the euro zone, but the trust between countries,” Dijsselbloem said.
“It is crucial that if you have a monetary union and stronger economic cooperation that you preserve the trust and over the course of the sovereign debt crisis we have invested heavily in that,” he said referring to those governments that had to implement painful reforms.
“Many countries have invested heavily in this monetary union. My role is to make sure we do not damage that trust.”
Dijsselbloem said that more government spending now would not fix the problems that France and Italy were facing.
Reuters
