French President François Hollande, whose election campaign was hallmarked by his proposals for tackling the economic crisis by countering austerity measures with growth-led initiatives, has made his support of the European Union’s ‘Compact for Growth and Jobs’ one of the pillars of his policies in Europe.
The Compact, agreed by EU leaders in Brussels on June 29th, includes a raft of measures aimed at fuelling economic recovery amid the perverse effects of strict budgetary discipline policies championed by German Chancellor Anglea Merkel. The Compact allows for a total of some 120 billion euros (1% of EU-wide GDP), levered via the European Investment bank, to be assigned to specific areas within the continent’s most needy economies. Hollande was one of the project’s most active supporters, insisting on its creation ahead of any deal on a ‘fiscal compact’ to rein in public deficits.
But now the French socialist government is coming under attack for what is perceived by kinder commentators as a somewhat schizophrenic approach to the European economy, and appraised as contradictory by the harshest. For while outwardly promoting growth, Paris is joining Berlin in limiting an increase in payments to the EU’s 2013 budget to less than half that proposed by the European Commission (EC) itself, and which will reduce aid otherwise available to a number of struggling economic sectors.
Enlargement : Illustration 1
But already before the ink of signatures was hardly dry on the deal, the Compact came in for a barrage of criticism, mainly from Left-leaning European political parties and economists, as being insufficient. “It’s good news, but the least one can say is that it is not much,” commented Jacques Le Cacheux, an economist with the Paris-based independent French Observatory of Economic Activity (OFCE) a research centre of the Paris political sciences school ‘Sciences Po’. “The bottom of drawers are being scraped where they can be, a maximum possible of private investment is brought in, but in the end it remains totally insufficient.”
Rebecca Harms, co-President of the European Parliament’s Green coalition, dismissed the Compact as illusory. “While we urgently need to move beyond the narrow austerity focus, the ‘growth compact’ lacks any credibility,” she said. “The overall amount is a drop in the ocean. Worse, it is reliant on the recycling of existing funds and fairytale assumptions on leveraging, with no social or environmental conditionality.”
The Appalled Economists, a French-based association of leading academics, warned in their latest essay on European economic policies, published in June, that “The budgetary pact will have such massively depressive effects that they will not allow for a counter-balancing by simply ‘corrective’ measures, taken in accompaniment and in the opposite direction, on a European scale. A vitamine C pill cannot save a terminally ill patient, to whom a dose of lethal poison has just been administered. There is no alternative to researching a true alternative.”
Now Hollande is under attack over his support for limiting a yearly increase in payments to the EU’s 2013 budget to well below the 6.8% the European Commission proposed in April. While the 2013 budget negotiations will only be completed in November, most European governments have already defined their positions, which they will present at a joint meeting to be held in Brussels this Thursday.
France has joined with Germany and six other member states in insisting that an increase in payments of 2.7%, as validated by a European Council meeting July 11th, was a non-negotiable ceiling - while the UK, Sweden and the Netherlands even judged this to be too much.
'Paris must return to a political approach'
"I am baffled,” commented Financial programming and Budget Commissioner Janusz Lewandowski, in a statement released earlier this month. “On budget 2013, the Council is calling for the exact opposite of what the 27 heads of state and government of the EU agreed on barely two weeks ago. On 29 June, the European Council called for investment to boost competitiveness, and adopted the 'Compact for growth and jobs' stating that the EU budget must be a catalyst for growth and jobs across Europe.”
“Yet, today, the Council wants to slash over 5 billion euros off the Commission's proposal for the 2013 EU budget, 3.5 billion euros of which concentrate on the heading dedicated to sustainable growth! The Council calls for a mere 1.5% increase for the competitiveness for growth and employment heading, less than the inflation rate; is this really investing in growth and jobs? How can Member States call for investments in growth and jobs one day and then recommend cutting investments in the same area two weeks later?”
The EC argues that its proposed 6.8% increase in payment contributions to the 2013 budget is indispensable if the EU is to be able to answer financing needs of its member states, notably those which require help from the structural funds of the growth and jobs compact.
Former French junior budget minister and member of the European parliament for the French conservative UMP party, Alain Lamassoure, who heads the European parliament’s budget committee, estimates that the proposal to limit an increase in budget payment contributions by just 2.79% will result – in comparison to the Commission’s proposed 6.8% increase - in a 15% cut in the EU’s research funding, and a whopping 28% of funds allocated to help struggling small- and medium-sized businesses.
“It is totally contradictory,” commented Lamassoure, 68. “You need to know what you really want. In the conclusions of the European Council at the end of June, we are told about a growth pact, and no more than five days later its conclusions are made a mockery of and the Commission’s budget project is scaled down. It is an incredible sham.”
Another European parliament member, François Alfonsi of the French Green party EELV, described Paris’ support of the limited increase in payments as “quite preoccupying”. Describing it as a pure product of French finance ministry calculations, he said “it has the only aim of maintaining the objective of having a public deficit by the end of 2013 that sits under 3% of GDP.”
“That is in danger of placing France in a position of weakness with regard to its European partners,” he added. “Paris must return to a political approach in its management of the issues.”
However, Estelle Grelier, a Socialist Party member of the French parliament, and a former European MP, dismissed the attacks. “Firstly, this rise of 2.79% will be well above the forecast inflation rate by about 2%,” she commented. “Furthermore, growth policies will also be led by national budgets, for example via recapitalization of the European Investment Bank. Finally, the setting up of a financial transactions tax could provide leverage for funds for the European budget, I hope as early as next year.”
Meanwhile, the EC is keen to point out that the EU structural fund payments to member states increased year-on-year by 8% in 2011 (when 32.9 billion euros was allocated). However, it should be noted that the rise is largely caused by the fact that the financial engagements made by states at the beginning of the budgetary period 2007-2013 are just now reaching the doors of the EC, allowing for the rise in funding.
In a statement issued June 27th ahead of the growth and jobs compact agreed on June 29th, the EC announced that “Europe 2020 is the EU's long-term growth strategy which was proposed by the Commission and endorsed by the European Council two years ago. This strategy basically identifies the engines of EU growth for the decade, focusing on new solutions and structural reforms. Based on the principles of smart, sustainable and inclusive growth, Europe 2020 sets out five key targets in the areas of employment, research and innovation, education, poverty reduction and climate/energy. This strategy remains valid and should help Member States to pull in the same direction for the benefit of all.”
Whether that optimism can survive history will be clarified after negotiations begin for the 2014-2020 financial commitments, and which, on the basis of the ongoing 2013 budget controversy, promise more fireworks ahead.
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English version: Graham Tearse