EU Summit: veni, vidi,vici?

Not by  a long shot. They EU leader came, they saw each other, had a nice dinner but they did not conquer anything. One thing that I liked from the whole outcome is the shift to a rules-based fiscal policy, something I proposed for Romania only few days ago.
Before I begin with the document, there was one issue that bothered me at the summit and it was the dinner. When the EURO is hours from falling apart, as we were told again and again, who the hell has time to sit around and chat. That to me showed that the things are gravely exaggerated and that EURO will not disappear yet. I said yet.

Now, back to what was decided.  In a nutshell nothing new, but I will point to the most interesting parts from the statement in my view.

“The stability and integrity of the Economic and Monetary Union and of the European Union as a whole require the swift and vigorous implementation of the measures already agreed as well as further qualitative moves towards a genuine “fiscal stability union” in the euro area.” – They do use words like swift and vigourous to show their determination but then they undermine them with the truth that they are still only moving towards a genuine fiscal union. They are not there yet, and I am sure that do not know how to get there. But as I expected they know this is what the market want to here and they will deliver it.

“…we agreed today on a new “fiscal compact” and on significantly stronger coordination of economic policies in areas of common interest.” As you can see they agreed on something called “fiscal compact”. WHAT THE HELL IS A FISCAL COMPACT???? And most importantly how is it going to help me (the taxpayer)  and maybe the EURO if that is the optimal solution for the EU.

“This will require a new deal between euro area Member States to be enshrined in common, ambitious rules that translate their strong political commitment into a new legal framework. ” Ahh, here it is, the secret “fiscal compact” is requires a new deal between euro zone members. This is going to be interesting, especially when we see the details of the “fiscal compact”.

“We commit to establishing a new fiscal rule, containing the following elements:
• General government budgets shall be balanced or in surplus; this principle shall be deemed respected if, as a rule, the annual structural deficit does not exceed 0.5% of nominal GDP.” This makes me happy!!! I just proposed a rules based fiscal policy for Romania few days ago (Rules Based Fiscal Policy..). If this is the direction EU is going than my proposal has better chances of being implemented. Furthermore, I am even tougher with my proposal for Romania as I want  0% structural deficit.

“The rules governing the Excessive Deficit Procedure (Article 126 of the TFEU) will be reinforced for euro area Member States.” This is not new, it has always been the case that countries in breach of the 3% deficit will suffer some sort of consequences.

” …euro area and other Member States will consider, and confirm within 10 days, the provision of additional resources for the IMF of up to EUR 200 billion (USD 270 billion), in the form of bilateral loans, to ensure that the IMF has adequate resources to deal with the crisis. We are looking forward to parallel contributions from the international community.” This I do not get and I am sure it will not really work. Where would the money come from? This is the part I do not like and is the one that will get the most press. However, I hope TV “talking heads” will keep asking the question where does this money come from.

All in all, I am disappointing but I was expecting to be. I am however, surprised by the weakness of the measures agreed upon here. I like the fiscal rule as a concept though, I am not sure if it will be approved in the end. Hopefully I can do my part to get it approved in Romania. The last thing, the biggest weakness of this document is that it just offers proposals not real solution. That is because in the current set-up of EU this is the best they can do. But as we know from recent history those proposals have a totally differnt and  more diluted form if they ever get to be implmented.

Here is the official statement.



4 thoughts on “EU Summit: veni, vidi,vici?

  1. I’m sorry, but I find this thing a sharade.
    Deficits are not the cause, they are the effect of bad policies. The real issue is that the eurozone is not an optimal currency area. When those countries gave up on their national currency they where suppose to have some adjustment tools available to use when confronted with assymetrical shocks. One efficient tool is the fiscal policy (if don’t want automatic transfers). But then again you have the magical 3% deficit rule, making automatic stabilizers inefficient and determining a pro-cyclical policy. Furthermore you have no efficient immigration policy to account for eurozone areas where wages are not in line with productivity (such as Greece, Portugal, Ireland, Latvia etc).

    And to top everything troubled countries like Greece, Portugal, when compared to Germany have totally different economic structures and business cycles.

    None of these issues have been discussed, which makes me believe that things will not improve and the EU summit was nothing more then a fancy dinner.

    1. I totally agree. The only outcome out of those meetings is higher bill for the taxpayers. Every time they add another 200 billion Euros like is just change.
      How about Romania? We were just talking here on this blog about rules based fiscal policy.:) No reaction. Then EU proposes the same thing and we jump on it without even thinking about it.
      Romania has the rare opportunity to reform and spring ahead in EU while the others are busy saving themselves. But no, we need to join them in their misery.

  2. I don’t believe in rules, mostly in economics and business, as rules are not natural, while these are natural processes. But, fortunately, the rules will speed up the imbalances, and will get you to the sort of collapse that you will not be able to avoid, so you will actually need to change. Of course people could change in other manners, more clever than that, but the human nature has a talent in searching for trouble, and for rules, they can’t deal smartly with uncertainty, so the theory of constraints seam to be the only chance for a change.

    This IMF shit is very funny to me. They give money to IMF to save them. They probably believe the markets could trust more the IMF than them, but I wouldn’t long this one if I were them, or that the control that the IMF could exert on the debtors could be stronger, which I personally suppose is closer to their real interest (I mean the big guyz in the ez).

    And, at the same time, they seam to dream at an international bailout for them, by bringing the IMF into question, and hoping that the other IMF members, outside the ez, will follow the lead and donate some money also, for them to be saved. They already agreed with Brazil. Again, really funny to me. Brazil saving Germany and France. Because today this is what we are talking about, saving Germany, France, and Holland, from a massive loss of money from some defaults :). China already said “fold” a couple of times.

    This is pathetic and is only making my expectation that euro will become history sooner rather than later, next year or 2013, the latest, for instance. As it is very clear that they are fu**ed, proper fu**ed, and there’s no way to go for them, actually.

    That fiscal compact probably refers to a sort of common fiscal policy, which is actually stupid (not like this would be something new from them) when you have different countries, with different economic structures, from a lot of points of view. An extra reason for me to stop following the “euro zone debt crisis”, as for me the ending point is more clear than ever :).

    1. even if you know the end point, is still worth to enjoy the ride. 🙂
      Now on the serious stuff, it is impossible today to have a worlds free of governments. In order to move on we have to think of solutions that improve the current set-up. And rule based polices are superior to discretionary ones. Of course I think Romania should go at it alone as I am sure different rules will apply to its economic structure than the ones working for Germany.

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