c.2014 New York Times News Service
c.2014 New York Times News Service
BRUSSELS — Top European Union officials on Monday warned France and Italy to do more to reform their economies to prevent a rerun of problems that fueled the region’s debt crisis and nearly destroyed the euro currency union.
The major concern is that some large countries in the euro area are not moving fast enough to overhaul their economies, reduce debt and prune budget deficits. Officials in Brussels had already granted France extra time to meet the targets that all member countries have agreed to.
As part of a closely watched annual review of targets and goals laid down by the authorities in Brussels, Olli Rehn, the EU’s commissioner for economic affairs, reserved his toughest warnings for France and Italy, which are the second and third largest countries in the euro bloc after Germany.
“In France the deterioration of the trade balance and competitiveness over the whole of the last decade calls for sustained political action,” Rehn said at a news conference. The government in Paris, he said, needs to “go into greater detail about the measures which it intends to take to achieve” its previously agreed goal of reducing its deficit to 3 percent of gross domestic product by 2015.
Turning to Italy, Rehn warned that the government in Rome could still face the wrath of bond markets if it failed to lower its towering national debt.
“Market confidence has been restored, and Italian bond yields are currently at a record low,” Rehn said. “But betting on continued benign financial market conditions may be risky. Market sentiment can change quite swiftly as we know, and debt levels can often be the factor to spark such a change.”
The report released Monday covered 26 of the 28 member states of the EU, excluding Cyprus and Greece, which continue to receive rescue payments and are already under special, closer scrutiny.
The reviews come at a delicate moment for the leadership in Brussels. Officials are under pressure to reduce their intervention in member states’ national affairs, given the big gains that various anti-EU parties made in May’s elections to the European Parliament in a number countries — and in France in particular.
José Manuel Barroso, the president of the European Commission, the executive arm of the union, sought to buck up governments that have been weakened by insurgent parties, saying at a news conference Monday that the “fundamental challenge for the EU now is political” to “keep up support for reform as the pressure of the crisis recedes” even in the face of blistering opposition.
Politicians, he said, must “show leadership and summon the political will to see reform through, even if it is unpopular.”
But for the French members of the Socialist bloc at the European Parliament, Barroso’s approach was a sign Brussels was more out-of-touch than ever.
“Following the European elections, José Manuel Barroso sought to smooth over” the way the bloc’s authorities are perceived, the lawmakers said in a statement. “But, down deep, nothing has changed,” it continued, and “austerity and neo-liberalism remain the ideological pillars of an exhausted European Commission.”
The wave that swept populist and protest parties into the European Parliament was partly in response to deeply unpopular debt-slashing policies pushed by Barroso’s commission. Those policies have been aimed at saving the bloc’s flagship economic project, the euro currency union, while minimizing the burden paid by big member states like Germany.
The authorities in Brussels have already begun easing the toughest austerity requirements that have caused so much hardship in countries like Greece, Portugal and Ireland. In the past year, Brussels has instead emphasized the need for governments to make their economies more competitive through structural overhauls in areas like employment policy.
Much of the attention on Monday was expected to have been on France, which has been slow to revamp an economy plagued by weak growth and high unemployment. Even before Monday’s review, the commission had warned Paris that France did not seem likely to meet its deficit deadline.
A crucial factor in France is whether the inroads made by the far-right National Front during the May elections will make it harder for the Socialist government of President François Hollande to carry out plans that include both pro-business tax cuts and a reduction in state spending.
Last year Hollande warned the European Commission against trying to dictate pension reforms. But Paris’ reaction Monday was comparatively subdued. In a statement, the French finance minister, Michel Sapin, rather than address the commission’s warning, asserted that the government had taken an “ambitious” approach.
Italy was also in focus Monday following a strong showing in the European parliamentary elections by the Democratic Party led by Matteo Renzi. Despite his resounding victory, Renzi still faces the task of devising a strategy to prune the country’s towering debt — which Morgan Stanley said could rise to 134 percent of GDP this year — while maintaining his popularity.
A danger for Italy is that weak growth, feeble competitiveness and worrisomely low inflation mean that its primary budget surplus “isn’t yet sufficient to stabilize government debt,” according to a report by Daniele Antonucci, a senior European economist for Morgan Stanley.
On Monday, Rehn said that some finance targets for Italy would be loosened only if the economy performed worse than expected.
“Should the expected recovery in Italy fail to materialize and the country fall back into recession” then “the rules would allow for an automatic reconsideration of the required adjustment path,” said Rehn, referring to the possibility that the country’s structural deficit goals could be eased under those circumstances.
But “postponing the achievement of the medium-term budgetary objective does not put Italy in a good position vis-à-vis the rules that it has subscribed to and indeed inscribed in its own constitution,” Rehn said.
Pier Carlo Padoan, the Italian minister for the economy and finance, acknowledged on Twitter that Italy “must accelerate reforms and privatizations” to reduce its debt “in a sustainable manner.”