Oh Great…A European Ruling On Competitiveness
Monday February 7th 2011
Maybe being British, and somewhat out of the heart of the great (or nor so!) European project my free enterprise head begins to ache and I have to reach for the Paracetomol when I hear that the great leaders of this continent discuss such crazy notions … do they not ever get it that competitiveness is not a gift of the state, it is a genetic trait of the market.
France and Germany, those two leading nations of the European Union have proposed a European “competitiveness pact”. They aim to reduce or maybe even eliminate all policy differences that have weakened the 17-nation Euro Zone.
The pact could mean Euro Zone governments following Germany’s example by making it a constitutional violation to exceed limits on national debt. Now hold on there just a moment. I thought that when the Euro was born in 1999 that was the objective of the much abused “Stability and Growth Pact” (SGP)? As we all know only too well, the adherence to the SGP has proven to be a blinding failure…even from day 1 in 1999, Italy as a senior member of the Euro Zone was in flagrant breach.
Why do they think a new round of Brussels bureaucratic legislation is going to make things any better? German Chancellor Angela Merkel told other EU leaders that the euro must be defended as a political project. Right…that is a clear signal that the European ambition is not just to foster a strong and open market for goods, services and labour. It wants to integrate the European nations into one amorphous mass that will clearly seek to have a single European Tax Policy.
Is it any wonder that the plans met resistance during talks on the sidelines of a Brussels summit? Let’s face it. The test of a product or item is how well it fairs under stress. Almost every single rule regarding the Euro and indeed the strictures of the European Central Bank (ECB) has been broken in two as anything possible was done to prevent Greece then Ireland having to exit the Euro. Loans have been set up and then repayment terms extended. ECB President, Jean Claude Trichet said on one week he did not want the IMF involved…the next week he was applauding their engagement. The ECB was never meant to acquire junk paper from nations such as Greece but buy it has. Even with a massive haircut, the ability to continue an immunization process has to be questioned. Why even the asset book of the ECB could be bought into question.
One of Merkel’s ideas is to see the retirement age in Europe rise. Well, last May we saw well that idea went down with the public and we are now hitting a crisis point as the elderly population want to hang up their hats and enjoy their retirement. Looks like they will not be able to. Nor will such a bold Germanic proposal play well in France. The French workers didn’t agree when Sarkozy proposed it so one be sure they will hate it if it smacks of a German assault on the French way of life!
Other ideas that will float like a lead weight will be the scrapping of index-linking salary increases to inflation – a custom in Belgium and Portugal. Is it not clear by now that packing the homogenous mass called Europe into a one size fits all policy has been a failure. This drive will ultimately take away any fiscal policy levers a sovereign nation has. It can be seen in what Chancellor Merkel said that she covets political union.
”…What we want to establish is a pact for competitiveness, and in so doing we want to make it very clear that we intend to grow together more closely on a political level,…We want to take the best practices as a benchmark, and in order to achieve that, we want to agree on particular measures. …”
President Sarkozy also called for more convergence and integration of European economies. Here at Spotlight we just cannot comprehend how the leaders of the most powerful nations in the Euro Zone believe that they can make underachieving nations become competitive if the follow Franco German practices. The European Union was fine as a market place to foster free trade. Of course within that certain products had to confirm to accepted standards, but surely there is a line in the sand when a sovereign nation says “Stop!”.
Forcing Franco Germanic work practices onto Southern Europe is the wrong policy tool at the wrong time. Yes, the softness of the Euro has given German exports an excellent cost advantage. Half of the reason for the success has been because Germany is well established in producing the very products that the rapidly developing world needs to acquire. It is just plain daft to suggest that if struggling Spain suddenly adopts a German attitude it will rise off its knees and succeed.
The laughable thing about this is that the initiative came at a Brussels summit that was intended to focus on energy and innovation. Only the Europeans could arrange a summit (we are very good at those) aimed at one policy area and then deliver a hair brained scheme in another area.
Stephen Pope ~ Managing Partner
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