Slugger O'Toole

Conversation, politics and stray insights

Euro crisis: “The expectation, however, must be for a fudge.”

Mon 5 March 2012, 5:30pm

When 25 of 27 EU leaders signed the “fiscal compact” [pdf file] designed to enforce budget discipline within the eurozone there was a rare, and unexpected, mood of optimism in the corridors of Frankfurt Brussels.  An enthusiastic editorial in the Irish Times today calls for widespread political debate about the required new economic and political architecture.

…the euro zone will not be stabilised without putting some such new economic architecture in place.

A new political structure will also be required to ensure the accountability of such large-scale economic arrangements. It should reassert the role of the EU institutions, strengthen national parliamentary scrutiny and experiment with new federal ways to enhance democracy. This is also a time for political innovation and renewal.

But, even before the recent opinion polls are close to being tested by a referendum in Ireland, there are signs of more problems ahead.

Greece has only a few days to convince Frau Bundeskanzlerin that they can secure sufficient private investor involvement in their deal.  And show “more proof that it would implement hastily agreed spending cuts and reforms” to secure the further release of more than half of the latest €130billion bail-out. [some free reg required]

Perhaps more worryingly, Spain’s new Prime Minister Mariano Rajoy unilaterally declared on Friday that “his government, which came to power at the end of 2011, will prepare a 2012 budget that aims to reduce its deficit to 5.8% of gross domestic product, far in excess of the 4.4% target his predecessor, José Luis Rodríguez Zapatero, had committed to.”

Earlier this week, the government said Spain’s 2011 budget deficit stood at 8.51% of GDP, compared with a target of 6%.

Mr. Rajoy said he hadn’t announced Spain’s new budget target at a meeting in Brussels Thursday and Friday where EU leaders signed off on new fiscal rules. “This is a sovereign decision made by Spain, that I am announcing now, to you,” he said at a press conference.

Today, EU Economy Commissioner Olli Rehn’s spokesman Amadeu Altafaj said there was “serious, grave” gap in Spain’s figures.

Analysts worried that the Spain case was a sign of “backpedalling” by leaders who “may have signed off more sovereignty than they have prepared their electorates for,” in the words of Sony Kapoor, head of economic consultancy Re-Define.

Altafaj said Rehn already asked Spain for “clarity” on the figures during talks among eurozone finance ministers last Thursday and is still waiting.

“It’s clear we need these hard figures, validated, in order to do a full assessment,” he said.

As a eurozone state, Spain risks a cash fine worth between 0.2 percent and 0.5 percent of GDP depending on the severity of the circumstances under new laws meant to tighten budgetary discipline that came into force at the start of the year.

“Once we have clarity,” Altafaj said of the detailed figures and analysis wanted in Brussels, “we will do our analysis and make our recommendations.

Rajoy has argued his new 5.8-percent goal was a “sensible” position to adopt, and two senior EU diplomats have suggested that Madrid could be allowed to postpone some of the toughest decisions on cuts to 2013.

One of these diplomats said to expect Madrid to slash its deficit from 8.5 percent of GDP to 4.4 percent as planned in one year would be “a rather steep reduction — probably simply not possible.”

This source said that Spain had indicated the problem lay with its autonomous governments, such as Catalonia or the Basque Country.

However, he also noted that “an underlying issue is that you shouldn’t have different rules for small and bigger countries.”

The Telegraph’s Ambrose Evans-Pritchard salutes the “Spanish rebellion” [Ya basta! - Ed]  Indeed.

This then is the fermenting mood in the fiercely proud and ancient nation of Spain in Year III of depression, probably the worst depression the country has seen since the 1640s – or have I missed a worse one?

As for the “Fiscal Compact”, it is rendered a dead letter by Spanish actions.

Gracias a Dios. If the text were enforced, the consequences would be ruinous. It enshrines Hooverism in EU law, and imposes contractionary policies without the consent of future parliaments – including any future Bundestag. Indeed, it probably violates the German constitution.

But it won’t be enforced in any meaningful sense because the political realities of the EU are already intruding, and will intrude further. A president François Hollande of France will rip it up.

The Latin Bloc is awakening.

Maybe…  The BBC’s Europe editor Gavin Hewitt has a more sober assessment

Its actions underline a simple truth. Governments can sign pacts, but in the end they are elected to act in the best interests of their voters, rather than officials in Brussels.

There were hints today that Spain could be at risk of fines and sanctions for a “grave” breach of budget limits.

But as austerity deepens and recession looms other countries too will baulk at meeting deficit targets set by Brussels. As Sony Kapoor from the Re-Define think tank said, “this could be the shape of conflicts to come”. Governments locking horns over budgets with EU officials.

The mood in Brussels is stubborn. They are aware that if they start negotiating with Madrid the financial markets and others will question what all the summits and new regulations were for.

Some officials believe that the EU’s credibility is on the line and want to move to infringement proceedings. How suspending EU grants would help Spain is hard to explain.

The expectation, however, must be for a fudge. Spain is too important a country to be in dispute over its budget, but if it is allowed to postpone some of its toughest cuts it sends out a clear signal that bilateral deals can be done.

In the meantime, “the political trilemma” remains unresolved [and under-discussed? - Ed].  Which is where the Irish Times editorial came in…

Share 'Euro crisis: “The expectation, however, must be for a fudge.”' on Delicious Share 'Euro crisis: “The expectation, however, must be for a fudge.”' on Digg Share 'Euro crisis: “The expectation, however, must be for a fudge.”' on Facebook Share 'Euro crisis: “The expectation, however, must be for a fudge.”' on Google+ Share 'Euro crisis: “The expectation, however, must be for a fudge.”' on LinkedIn Share 'Euro crisis: “The expectation, however, must be for a fudge.”' on Pinterest Share 'Euro crisis: “The expectation, however, must be for a fudge.”' on reddit Share 'Euro crisis: “The expectation, however, must be for a fudge.”' on StumbleUpon Share 'Euro crisis: “The expectation, however, must be for a fudge.”' on Twitter Share 'Euro crisis: “The expectation, however, must be for a fudge.”' on Add to Bookmarks Share 'Euro crisis: “The expectation, however, must be for a fudge.”' on Email Share 'Euro crisis: “The expectation, however, must be for a fudge.”' on Print Friendly

Comments (14)

  1. cynic2 (profile) says:

    “but in the end they are elected to act in the best interests of their voters”

    how naiive!!!! In the best interests of themselves surely

    What do you think?
    (Log in or register to judge or mark as offensive)
    Commend 0
  2. cynic2 (profile) says:

    ” The expectation, however, must be for a fudge. ”

    Yeah. The markets wont notice. Honest. Euro is 83p and falling. Watch this space.

    What do you think?
    (Log in or register to judge or mark as offensive)
    Commend 0
  3. joeCanuck (profile) says:

    Front page says Frankfurt Brussels. Problem with strikeout?

    What do you think?
    (Log in or register to judge or mark as offensive)
    Commend 0
  4. Pete Baker (profile) says:

    Sceptical not cynical, guys.

    Pay attention to the detail.

    As Gavin Hewitt points out

    The mood in Brussels is stubborn. They are aware that if they start negotiating with Madrid the financial markets and others will question what all the summits and new regulations were for.

    Some officials believe that the EU’s credibility is on the line and want to move to infringement proceedings.

    But Spain is not Greece. That’s why this latest development is of interest.

    Add in the fact that one source said that “Spain had indicated the problem [with its missed deficit target] lay with its autonomous governments, such as Catalonia or the Basque Country.”

    And it becomes very interesting indeed.

    What do you think?
    (Log in or register to judge or mark as offensive)
    Commend 0
  5. Greenflag (profile) says:

    ‘But Spain is not Greece. That’s why this latest development is of interest.’

    Which is why this ‘ latest ‘development is of interest too . Did Goldman Sachs have any fingers in Catalonia or even the Basque country ?

    After all Harvard University, Alabama’s Jefferson County and the German city of Pforzheim all have found themselves on the losing end of the one-of-a-kind private deals typically pitched to them by securities firms as means to improve their finances.

    http://www.bloomberg.com/news/2012-03-06/goldman-secret-greece-loan-shows-two-sinners-as-client-unravels.html

    What do you think?
    (Log in or register to judge or mark as offensive)
    Commend 0
  6. Mick Fealty (profile) says:

    Greenie, may I be so bold as to ask what on earth has any of that to do with price of fish?

    What do you think?
    (Log in or register to judge or mark as offensive)
    Commend 0
  7. Zig70 (profile) says:

    Interesting yes, but I’m more interested in your opinion Pete. How do you think it will play out? Will Spain get a fine? Often in this crisis we get narrative but no predictions.

    What do you think?
    (Log in or register to judge or mark as offensive)
    Commend 0
  8. Pete Baker (profile) says:

    Zig70

    “Often in this crisis we get narrative but no predictions.”

    “Anyone who claims to know what is about to happen to Europe is a fool.”

    What do you think?
    (Log in or register to judge or mark as offensive)
    Commend 0
  9. Greenflag (profile) says:

    @ Mick ,

    Nothing directly with the price of fish but unless ‘western governments ‘ rein in the ‘buccaneers ‘ in the financial services sector and unless the banks which are now bigger than they were in 2007 are broken up so that they can no longer be too big to fail then what has happened -is happening in Greece, Spain , Portugal , the USA , Ireland will continue ad infinitum until eventually even the price of fish will be beyond the means of consumers .

    The Greek crisis is’nt over and already markets are targeting Spain and Portugal .It’s as if there are sections of the ‘market’ who are can hardly wait for a Greek or Portuguese or Spanish or ‘Euro’ collapse so they can collect on their ‘futures ‘ i.e financial futures . As for any impact on the citizenry or governments of all the affected countries ? Well that’s not the concern of our for want of a better word -banksters .

    But as you and I know such continuing impacts may well have political consequences of a kind that nobody interested in maintaining a civilised democracy would want to see in place.

    What do you think?
    (Log in or register to judge or mark as offensive)
    Commend 0
  10. Pete Baker (profile) says:

    See what I mean, Zig?

    What do you think?
    (Log in or register to judge or mark as offensive)
    Commend 0
  11. Zig70 (profile) says:

    Don’t worry Pete, I’m not expecting you to be right. I’d just like to read your opinion on what you think will happen and what should happen. I think Spain will get fined and pay it and the Spanish will just think wtf. Morally it’s all nuts. Fining the poor for not paying their bills after they got robbed.

    What do you think?
    (Log in or register to judge or mark as offensive)
    Commend 0
  12. Pete Baker (profile) says:

    Well, Zig, as I thought I’d indicated in the original post, I think Gavin Hewitt is probably right in predicting a fudge.

    But that would bring further doubt about the new ‘rules’…

    What do you think?
    (Log in or register to judge or mark as offensive)
    Commend 0
  13. Pete Baker (profile) says:

    But, in Spain’s case, it wouldn’t be “Fining the poor for not paying their bills after they got robbed.”

    They agreed deficit targets – towards levels which were always there in the EU.

    They now say they can’t meet those targets. And there’s an, as yet, unexplained gap in their figures – which some are blaming on those internal “autonomous governments, such as Catalonia or the Basque Country.”

    Or, it’s a case of

    Analysts worried that the Spain case was a sign of “backpedalling” by leaders who “may have signed off more sovereignty than they have prepared their electorates for,” in the words of Sony Kapoor, head of economic consultancy Re-Define.

    What do you think?
    (Log in or register to judge or mark as offensive)
    Commend 0
  14. [...] have been some choice quotes flying around as the Greek government neared the 8pm deadline for securing sufficient private sector creditor involvment in their bond swap deal [and convincing [...]

    What do you think?
    Judge it
    (Log in or register to mark as offensive)
    Commend 0

Leave a Reply

You must be logged in to post a comment.

Copyright © 2003 - 2014 Slugger O'Toole Ltd. All rights reserved.
Powered by WordPress; produced by Puffbox.
76 queries. 0.640 seconds.