October 25, 2020

European Leaders Struggle to Bridge Budget Gaps

BRUSSELS — European Union leaders on Friday morning edged closer to agreeing a budget worth nearly €1 trillion, or $1.3 trillion, to support farming, transportation and other infrastructure, as well as big research projects for the 27-nation bloc.

But after 15 hours of talks, the leaders were still seeking unanimity while also attempting to satisfy the wide array of national interests demanding attention.

The budget is negotiated every seven years and involves furious horse-trading as leaders focus on getting the best deal for their own countries’ citizens, rather than emphasizing pan-European considerations.

The marathon session was the second attempt to reach a deal on the funding package, which should run from 2014 to 2020, after the first attempt collapsed in November.

Another failure to strike a deal on a sum of money that represents only about 1 percent of the Union’s Gross Domestic Product would be a severe embarrassment for the leaders, who already have spent years bickering over how to save the euro.

The European Commission, the bloc’s policymaking arm, had sought an increase in the overall budget of around 5 percent to more than €1 trillion.

Herman Van Rompuy, the president of the European Council, which represents E.U. leaders, pruned that sum to about €973 billion at the previous summit in November.

On Friday morning, Mr. Van Rompuy presented further revisions lowering the overall sum to about €960 billion but holding down the amount of cash governments pay up-front to around €908 billion.

That formula was designed, in part, to satisfy countries like Britain and the Netherlands that pay more into the budget than they receive, while also accommodating the demands of countries like France and Italy that want to maintain generous payments for agriculture and infrastructure.

Some of the deepest cuts would be made to pan-European projects to improve transport, energy, and digital services that are overseen by the commission. About €1 billion in cuts would be made to the part of the budget used to employ 55,000 people, including 6,000 translators, most of them in Brussels, who run the Union’s day-to-day affairs.

Expert national advisors were reviewing the proposals on Friday morning, and leaders were expected to reconvene for further talks.

Leaders also were wrestling over demands by some countries to renew a system of rebates that raises the costs for other countries.

One of the complications in the current round of negotiations has been the call for budgetary rigor from leaders like David Cameron, the British prime minister, who says the Union should tighten its belt at a time when many European governments have been compelled to impose stringent budget cuts.

Mr. Cameron, in particular, has earned the enmity of some European leaders by demanding a renegotiation of Britain’s treaty with the Union and promised a referendum on his nation’s membership in 2017.

Reflecting growing irritation with Britain among a number of European leaders, Martin Schulz, the president of the European Parliament, told a news conference late on Thursday night that leaders should not go out of their way to appease Mr. Cameron.

Because Britain could be outside the bloc by later this decade, there was little need to make concessions to Mr. Cameron that potentially jeopardized “the security of our financial planning,” Mr. Schulz suggested.

Mr. Van Rompuy, the president of the European Council, had intended to start the session during the mid-afternoon on Thursday to force leaders to make their complaints clear in a roundtable session rather than being allowed to break into small groups.

But his plan was derailed, and the first roundtable session was delayed until late in the evening, as leaders formed the kind of pre-summit huddles that he seemingly wanted to avoid.

President François Hollande of France was an hour late to a meeting during the afternoon with Mr. Cameron, Angela Merkel, the German chancellor, and Mr. Van Rompuy.

Mr. Hollande’s lateness was a sign of French displeasure with British demands that included strict limits on agriculture spending cherished by French farmers, according to an E.U. diplomat, who spoke on condition of anonymity because of the sensitivity of the talks.

Even if leaders eventually agree to a deal, it faces still more hurdles before it becomes law at the European Parliament, which has the power to veto the budget.

Some of the most influential figures in Parliament have already signaled that they are prepared to reject a budget that foresees spending less on Europe in the years ahead.

Guy Verhofstadt, the head of the alliance of liberals in the Parliament, called on Thursday for a full-revision clause to be inserted into the budget, so that it could be increased after three years if economic conditions improved.

Mr. Schulz, the president of the Parliament, said on Thursday that he would not approve a budget that ended up widening the overall gap between the amount of cash paid up-front by governments and the somewhat higher amounts known as commitments, which make up the overall budget.

Article source: http://www.nytimes.com/2013/02/09/business/global/european-union-budget-talks.html?partner=rss&emc=rss

Reuters Breakingviews: Euro Bonds Unlikely to Solve Problems — Reuters Breakingviews

It is not surprising that fiscally challenged governments, like Italy’s and Greece’s, are in favor of euro bonds. If they could issue debt guaranteed by all their partners in the euro zone, they would not find it so hard to borrow money. They would then be under less pressure to do unpopular things like tighten their belts and reform their economies. It is also understandable that investors are clamoring for the introduction of euro bonds, because they could then recoup the losses on their investments in the fiscally weak countries’ debt.

But there is little chance of these bonds being approved any time soon by fiscally strong countries — led by Germany, the Netherlands and Finland. The politicians and public in those nations are worried about being drowned by other countries’ debt. The bonds would also blunt the incentive for other governments, which have borrowed too much money and whose economies are uncompetitive, to put their own houses in order.

Germany may be prepared to consider approving euro bonds once current debts are under control. But that, by definition, wouldn’t be a solution to the crisis. What is more, Berlin would agree to the issue of euro bonds only if other governments accepted strict rules on how much they could borrow. Mark Rutte, the Dutch prime minister, has even suggested that a budget czar should be appointed to ensure that countries don’t break the rules in the future. The czar would have the power to fine miscreants and, in the extreme, force them to increase taxes or quit the euro zone. Once the crisis is over, other euro zone countries may not find such a loss of sovereignty so appealing.

Conventional wisdom is that fiscal unity among countries in the euro zone — of which euro bonds would be a primary element — is needed to make the monetary union a success. Both euro-enthusiasts and euro-skeptics tend to share that view, although the latter group thinks of such unity as hell rather than heaven and would prefer the single currency to be dismantled. Both camps often argue that the main reason the euro zone is in crisis is because monetary union was started without fiscal unity.

But this conventional wisdom is flawed. Governments didn’t build up excessive debts because of the lack of fiscal unity. Rather, it was because they flouted the rules meant to limit borrowing and bond investors kept lending them money. There was a failure of discipline, both by the bureaucrats and by the market.

The least bad way forward is to make the discipline of the market more effective while giving struggling governments some help to make a transition to healthier economies. Allowing controlled default, which would inflict losses on investors, would be a valuable lesson that foolish lending has consequences. So far this has happened in only a half-hearted fashion. In Greece’s case, the “pretend and extend” approach has meant that the country hasn’t been allowed to go bust despite debts that could reach 167 percent of gross domestic product this year, according to Citigroup.

The chaotic policy making is causing unnecessary suffering. Despite that, the current approach has had one big success: Greece, Ireland, Portugal, Italy and Spain have finally started to embrace reforms they have shirked for years. Labor markets are being liberalized, pension ages pushed up, corruption rooted out and tax evasion tackled. More reform is required. Ultimately these changes will result in fitter economies, although there is no denying that the short-term outlook is bleak.

A combination of such supply-side changes with the option of controlled default in extreme cases isn’t just the best way of handling the current difficulties. It is a better long-term model for the region than euro bonds and fiscal unity.

Article source: http://feeds.nytimes.com/click.phdo?i=214cc015b71239059386fe145c292451

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The Kings We Crown

When Washington anoints the wrong leaders, their provisional governments can wreak havoc on countries for years.

Article source: http://feeds.nytimes.com/click.phdo?i=a65bb497b5a25343bc3c2636977d30fb