As foreseen, the country recommendations issued by Brussels yesterday provide for more flexibility in meeting the deficit targets and a demanding timetable for implementing structural reforms. But they flatly fail to address the key issue of ensuring more growth. With no recovery at bay, this slow pace strategy will only nurture increased frustration.
One could argue that moving away from sheer austerity into improved economic performance will sooner or late pay out. But carefully examining the reshuffles being envisaged, you come to the obvious conclusion that most of them are aimed at curtailing public expenditure. Pension and health cuts, regardless of the way you herald them, are primarily intended to bring down expenditure. Much the same applies for calls on a general administration overhaul to increase its cost-effectiveness. They might help to cut down current deficit levels but at the price of further squeezing overall demand. Increasing labour market flexibility stands as the only significant recommendation aimed at enhancing productivity.
Yet, under the current stressed situation, such a step may severely undermine consumers’ confidence, should employees face the grim prospect of being sacked or forced to work for a lower salary.
It doesn’t make much sense to enforce mandatory reforms on vulnerable economies while those enjoying ample room to deliver expansionary policies are politely asked to reflect on the need to make some effort in this area. Such a dual treatment leads Europe nowhere. So long Germany maintains a staunchly depressed environment, any plan to boost employment and growth will soon run out of steam. So long the European Central Bank sticks to its current mandate there is little hope to reduce disparities between financial markets and to overcome the credit- crunch severely hitting the less-equipped economies.
There is undoubtedly a certain merit in shelving austerity as a paramount goal no matter the damage it might inflict. But unless a common strategy for growth is forcefully implemented current imbalances will remain unchecked. Betting on structural adjustment to redress the on-going recession widely misses its target. The more so as detailed country recommendations offer a stark contrast with the vague and uncompromising assessment delivered on the Euro zone as a whole.
We know all too well that countries like Spain will face rough times unless pension costs are brought in line with receipts. But should recovery fail to materialize all efforts in trimming budgetary deficits will only fuel further depression. It’s time recommendations are addressed to the Brussels institutions for improving their appalling record in ensuring a proper overall economic governance.