“Growth Initiative” Boondoggle

Can I write some more about that last week’s “European Council” (i.e. summit of European heads-of-state/government) in Brussels? There is at least one loose end to tidy up – interesting enough in itself to prompt an essay from Die Zeit.

There were a few other things that happened in Brussels, besides Jacques Chirac representing Germany for a day, and everybody reciting for the umpteenth time their stand on the draft Constitution. For one thing, the assembled leaders also approved the creation of a new European agency to coordinate immigration controls at the EU’s expanded borders. But of greater interest is the “growth initiative” that also constituted part of the summit’s business. That was mainly what the EU leaders talked about Thursday afternoon, after their no-progress talks on the draft Constitution of that morning.

The best news account of this is the article from last Friday in Het Financiële Dagblad, EU-Top Supports Extra Investment (subscription required). The proposal, which arose out of the European Commission, was to devote some €200 billion extra over the next fifteen years to investment in European infrastructure: roads, telecoms, railways, and research. The assembled leaders agreed to ask the European Commission to come up with a list of projects along these lines to finance, in time for approval at the December 12/13 summit in Rome. HFD solemnly lists the selection criteria they must satisfy: they must be ready-to-go administratively, must be “grensoverschrijdend” (i.e. they must “cross borders,” so I guess that means that they must involve at least two countries), must have a positive influence on the “post-expansion” EU, must contribute to environmental sustainability, and must offer the potential for innovation.

Isn’t that a great idea? Spend €200 billion and so stimulate EU economies, while at the same time building up valuable infrastructure to help propel economic growth even further and keep Europe on the technological cutting-edge.

Except where is that money supposed to come from? No politician has ever met a spending program he didn’t like, and it’s easy to see how EU leaders last Thursday morning, stuck in fruitless discussions about the Constitution, looked forward mightily to the afternoon and the opportunity to go on-record as doing something to spur European economic growth. But, according to an analysis in Die Zeit by Petra Pinzler, reality is sure to trail radically behind what has been advertised.

(That article is entitled Kamellen aus Brüssel (“Camels out of Brussels”), a title I don’t quite understand. My dictionary tells me that Kamel in German also means “numbskull,” or it can also mean “mountain” when contrasted to “molehill.” But the subtitle is clear enough: “The EU on the Way to the Day-Before-Yesterday.”)

Basically, it looks highly doubtful that that €200 billion will actually be there. Let’s remember that the governmental budgets of each of the EU members Die Zeit lists as pushing this “growth initiative” – Germany, France, and Italy – exceed the 3% budget-deficit limit enshrined in the euro’s Growth and Stability Pact. So the idea instead is to get those moneys from private investors, and from the European Investment Bank (EIB, based in Luxembourg). You can think what you like as to whether these projects will ever attract interest from private investors; on the other hand, according to Die Zeit, the EIB is good for only some €40 billion over that period.

As Pinzler points out, if EU leaders were really serious about spending to build up Europe’s infrastructure, then they have already missed the chance they set out for themselves, back when state budgets had more room for this sort of expenditure. Back in 2000, at the Lisbon summit, the EU leaders at the time formulated their “Lisbon strategy,” to make Europe the “most strong-growing, most knowledge-based economic area in the world, through not only expenditures but also market and social-security reforms.

Now budgets are tighter; that money just isn’t there. Not that the sort of reforms spoken of at Lisbon still can’t be carried out, if current EU leaders truly want to push for them in their own countries. Back in the HFD article, Dutch premier Balkenende’s incisive comment on the Brussels summit’s proposed “growth initiative” was that the real way to get solutions to Europe’s slow rate of growth was precisely via structural reforms, in the labor markets, in pensions, in social security, etc. The comment on the “growth initiative” from Dutch finance minister Gerrit Zalm – a much more hard-bitten character than even Prime Minister Balkenende – was basically “the money’s not there, not unless other EU states want to devote money to it out of their own budgets. And don’t even think about trying to raise it by raising the EU budget, i.e. the amount contributed to the Union by the individual member-state governments.”

So here’s the last bit of evidence, in case you needed more, of the sheer uselessness of that Brussels summit. Rather than stale “growth initiatives,” Europe needs to get its own economic house in order. All the more kudos, then, to Gerhard Schröder, who last Friday was truly where the battles for Europe’s future are being fought (namely at his own country’s legislature, struggling to get labor market reforms passed), rather than at the meer epiphenomenon that was this European Council summit.

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