A look inside the EU debt prison

While the Greek government is struggling with their creditors, the European Parliament has published a study on how the crises affects fundamental rights in seven EU member states: Belgium, Cyprus, Greece, Ireland, Italy, Spain and Portugal. The study, which is done by Milieu consultancy in Brussels, cowers the right to compulsory education, right to healthcare, right to work, right to pension and the right to access justice.The freedom of assembly and freedom of expression were also loooked into.

The main conclusion seems to be that austerity undermines fundamental rights across the EU. EurActiv gives a summary of the report:

Education systematically slashed. All countries cut the number of teachers in their schools, while the number of pupils rose. Some schools in Greece are not heated, hygiene standards no longer respected in Italy. More inequality because of lack of books and other equipment.

Health costs transferred from state to citizen. The report states that "in Greece, the bail-out agreement shifted the burden of healthcare from the State to the patient, with an increase in user fees and co-payments for certain medicines", which has led to a series of damaging consequences for the population. Across the member states there is an explosion of waiting times. There is a reference to an article in The Lancet which says that "the predominant response [from the Greek government] has been denial that any serious difficulties exist, although this resonse is not unique to Greece; the Spanish Goverment has been equally reluctant to concede the harm caused by its policies". The article gives the counterexample of Iceland, which decided to maintain its existing health policies even when confronted by the IMF after the 2008 financial crises.

Critical shrinking of employment, pensions and justice. The crises cost EU around 50 million jobs whilst increasing the number of job seekers by 80 million, resulting in mass unemployment in several member states. Belgium, Greece, Spain, Italy and Portugal have all raised the pensionable age, and most countries have reduced the amount they pay out in pensions each month. Legal aid has been cut. Belgium and Greece have introduced VAT on lawyer´s fees.

Horizontal budget cuts. The report highlights that the spending cuts introduced during the crises were rarely specifically targeted at the wasteful uses of public resources. Rather, it seems that many of the imposed measures were horizontal, indiscriminate cuts across policy areas they targeted, in order to meet financial savings that were determined in advance. The abolition of Greek public television is one such horizontal measure, which is seen today as inefficient and potentially dangerous.

Looking inside the EU debt prison one can easely get the impression that austerity is punishing the poor for the mistakes of the rich.

Horizon haircut boosting 2 mill new jobs ?

The International Labour Organisation, ILO, backs Juncker´s € 315 bn investment plan and says it has the potential to create more than 2 mill new jobs. Using a small amount of public money to lever in private capital can complement the monetary measures recently announced by the European Central Bank.

Parts of "the small amount of public money" will come from a haircut of EU´s research and innovation programme Horizon 2020. Research organisations don´t like this part of the investment plan at all. The European Association of Research and Technology Organisations  have published a statement expressing deep concerns about the proposal and says it offers little reassurance that the investment plan projects will effectively aim at supporting R&I activities.

The Council and the European Parliament will decide on details of the investment plan later.

Syriza - changing the debt puzzle ?

During the days after the Greek election 25 January there have been statements from the new Greek government and from the Union and other member countries that might seem to be incompatible. Most important was perhaps German chancellor Merkels statement that she does not envisage a fresh debt cancellation. But there are also clarifications and additional statements which indicate willingness to have a new common look at the pieces of the puzzle. For example by the end of the week PM Tsipras said that no side is seeking conflict, and it has never been their intention to act unilaterally. Greece, he said, would not renege on its debt.

And Greece is not alone with their criticism of the negative consquences of the austerity policy. The French finance minister Sapin said on Friday that though the Greek debt should not be annuled, it also appeared legitimate to him that the Greek government would like to discuss ways to reduce the weight and reimbursement of the debt. To day EU observer reports that US president Obama has entered the debate by urging the eurozone to look at how the US returned to growth: "Fiscal imprudence is important. But what we´ve learnt in the US experience .. is that the best way to reduce deficit and return to fiscal soundness is to grow". "You cannot keep on squeezing countries that are in the midst of depression", he told CNN.

Some of the pieces in the puzzle that will be looked at are probably:
-repayment terms  -  the Union has said it is willing to do that
-repayment of debt tied to economic growth, not Greek budget  -  may be
-write-off of debt  -  less likely
-structural reforms inside Greek  -  likely

In the longer term it will be necessary to improve the Unions regulations for economy management. Andrew Duff, president of the Union of European Federalists, said in an interview with EurActiv last week that more federalism not necessarily means one-size-fits-all policies. "Common economic policy combining monetary, fiscal and economic measures would not be a single policy for the whole of the EU.  It would obviously be tuned to regional and cyclical varieties, but it would be accountable and representative and responsible, whereas the present set up is essentially driven by national prime ministers on a part time and intergovernmental basis. This has proven not to work."

The Juncker fund - if implemented, which projects ?

The new € 315 billion European Fund for Strategic Investments (EFSI) will use € 21 billion EIB/EU money to trigger other public and private contributions. Still the result seems to be only questions.

Will public and private actors contribute as intended ? The signals are  unclear. Germany´s finance minister Schauble said ealier this week that his government is not in favour of national contributions to the fund. However, the German government would contribute through state-owned development bank KfW. No member state has formally announced its intention to contribute to EFSI. If public co-financing will be excluded from calculations of budgetary adjustments, this can make participation a bit more tempting for some of them.

How will the management of the fund be organised ? The Commission proposes that member states  contributing will have a seat at a steering board for the fund. But now several of the finance ministers say that governments should refrain from being represented in the steering board and should not entail voting rights. And why is there need for a steering board, can´t EIB do the job ?

Will the fund be in accordance with the state-aid regulation ? EIB president Hoyer wants more clarity.

Will the fund be of interest for private investors ?  The carrot is that public money work as guarantee, if projects make losses the publicly-funded portion would be first in the line to suffer financial losses.

Will the new fund influence the functioning of the Structural funds and the research programme Horizon 2020 in a negative way ?

And what about the projects ? Will there be enough good proposals ? That is of course a crucial question. The idea is to send project proposals from member countries through a "pipeline" system to EIB. The European Union´s investments task force has already identified 2000 projects waiting for funding across the 28-nation bloc. But how many of them are economically viable and can foster European competitiveness ? Baden-Wuerttemberg´s Minister for Europe, Peter Friedrich, is not impressed. He tells that the nearly 60 projects Germany is pursuing, together meant to boost investments in Germany with € 90 billions, include outdated ideas and dead ends. The list needs a reworking, otherwise regions and others will lose out.

The Other Europe with Tsipras ?

How will the parliament election and new government in Greece affect EU policy ? Concerning debt and austerity the first statements from EU and Syriza suggests willingness to negotiate, and that is of course no surprise. But beyond a willingness to discuss payment conditions, is the EU open for some creative thinking about debt relief ? It is very hard to say how the negotiation process will proceed, because the member states have different views reflecting their own economic situation. Even if the statements from the most relevant Commissioners have been very cautious so far, the French European Commissioner for Economic and Financial Affairs, Moscovici, sounded perhaps a bit more openminded than Commission President Juncker and others. But the Unions economic recovery policy is so far not very successful, and there might be or occur opportunities for changes. Perhaps Syriza, a coalition of left wing parties in government with a right wing party, has some extraordinary possibilities to form broad alliances across the traditional party constellations ? A symbol of this possible broad backing is an Italian party named L´Altra Europa con Tsipras (The Other Europe with Tsipras), which has 3 MEPs belonging to the same group in the European Parliament as Syrizas 6 MEPs (GUE/NGL) .

There are obiously other policy areas where the new Greek goverment might influence EU politics. For a  Union struggling to develop a more common foreign policy, Syrizas pro Russia attitudes will undoubtedly create challenges. Syrizas pro Palestinian policy will perhaps be more welcome.

It will be interesting to follow the new Greek government.

The Juncker plan - a supranational try

Unemployment, bailouts, austerity, growing eurosceptisim - EU needs investments to foster growth and economic recovery. But how ? In November last year the Commission presented a new tool they had invented. A € 350 billion investment plan - "The Juncker Plan". Compared to the Cohesion funds the Juncker plan is different in several ways.

Firstly the plan will use EU money as guarantees for risky investments, while the Structural Funds are about project-financing. The European Investment Bank (EIB) will be central to the implementation of the plan, and Werner Hover, President of the EIB, just said the intiative "marks a paradigm shift in the use of limited public resources, away from grants and subsidies, towards loans and guarantees."


The new investment plan will also have a more supranational management than the Structural funds. A steering board will take alle the decisions on the overall direction, the investment guidelines, the risk profile, strategic policies and the distribution of assets of the fund. From the beginning, the board will consist of members from EIB and the Commission - the founders of the fund, and when other contributors appear, they will have votes defined on the basis of their contributions. The decisions will then be taken via simple majority.

Another difference from the Structural funds is that the Juncker fund will not have earmarking for certain sectors or regions. The selection-criteria are still not ready, but will be created together with investments guidelines for approval of projects when the fund is established.

Bulgarian "InEurope" has a good review of the new fund by Adelina Marini.

EFSI-consequenses for Regional policy

Juncker´s investmentplan (EFSI) has an unusual mildness concerning member states co-financing of projects, in that co-financing of EFSI-projects will be excluded from calculations of budgetary adjustments under the Stability and Growth Pact. This can be perceived as a sort of debt relief for countries with an austerity scheme, and there is also a question of consequences for Regional policy projects - where there is no such mildness concerning co-financing. EurActiv writes that this certainly gives the Juncker plan a competitive advantage over the Cohesion Policy when it comes to attracting money from the member states.

Commissoner for Regional Policy, Corina Cretu, talked to the Committee of Regions 5 December 2014, and said that the Juncker plan funding would complement the Cohesion Policy, without eating away structural funds. She said that "during the discussions, some representatives expressed concerns that the Investment Plan for Europe could divert money away from the EU's existing cohesion policies and I want to resolutely dispel these concerns: there is no overlap between the new European Fund for Strategic Investments and the European Structural and Investment Fund".

There seems to be uncertainties on how the complementarities between EFSI and Regional policy will function. It is not entirely inconceivable that to counteract collateral damage also co-financing of Regional policy projects will be excluded from calculations of budgetary adjustments.