THE EUROPEAN Union has reached a “turning point” in dealing with the debt crisis, president of the European Council Herman Van Rompuy told MEPs in Strasbourg yesterday.
Speaking on the outcome of the latest European summit - which concluded earlier this month - Mr Van Rompuy said it was the first such meeting for some time that had been “positive and not overshadowed by a major crisis”.
The summit saw 25 of the 27 EU countries sign the new fiscal pact, though Ireland will have to ratify it in a referendum. Member states also agreed a deal for a new Greek bailout and to speed up the funding of the euro zone’s permanent bailout fund.
Reporting back to MEPs, Mr Van Rompuy said the traditional response of governments to economic downturns was a fiscal stimulus to boost demand, but that was not possible with many EU countries because of the deficits they had run up.
In many cases, debt levels had accumulated gradually and were not eliminated during periods of economic growth so there was “no safety margin when the crisis hit”. It was, therefore, necessary to have a fiscal treaty to ensure that issue was dealt with.
Mr Van Rompuy did not name Ireland but alluded to countries that he said had a large banking sector that was “insufficiently supervised” and had to be rescued by taxpayers. He also mentioned countries with asset bubbles that artificially boosted budget revenues.
The council president said many commentators believed it was not possible to have fiscal consolidation and economic growth. “Some people claim they are contradictory. It is our job to ensure that they are not,” he said.
He outlined a series of European-wide measures he said would boost growth, including ensuring that the banks lend to small business, exploiting in full the single market, cutting taxes on labour and dealing with tax evasion and avoidance.
He also defended the EU’s response to the Greek debt crisis: EU member states and the IMF had provided €110 billion to the Greek economy and agreed a new €130 billion bailout fund.
In addition a 70 per cent reduction in net debt owed by Greece to private investors had also been secured. In total, the EU had provided the equivalent of 100 per cent of GDP support to Greece, he said. Without such support the situation would be “far, far worse”.
European Commission president José Manuel Barroso told the parliament the euro was now the effective currency, not only of the euro zone, but of the whole of Europe following the decision of 25 of the 27 member states to sign the new fiscal treaty.
“It is a political statement,” he said. “It is a strong political message about the irreversibility of the euro, and it was very well received by investors in Europe and outside Europe.”
However, he said the situation remained fragile and the enforcement of the firewalls was an “indispensable counterpart” of the EUs economic strategy.
Mr Barroso stressed that the focus now had to be on “smart, sustainable, long-term growth”. He said he was confident Greece could emerge from the crisis, adding that he had already had talks with prime minister Lucas Papademos about taking immediate steps to boost the country’s economy. The key priorities include boosting youth employment, creating a more business-friendly environment, providing liquidity to small and medium enterprises and improving access to structural funds.
Irish United Left Alliance MEP Paul Murphy said he marvelled that both men could keep a straight face in saying that their strategy was starting to work when the outcome would be more hardship for the people of Europe.
