Stability Pact

Doomed to Fail

epa05337825 Jean-Claude Juncker, President of the European Commission delivers a speech during the (EPP) European People's Party's 40th anniversary at the European Convention Center in Luxembourg, 30 May 2016. EPA/CUGNOT MATHIEU +++(c) dpa - Bildfunk+++
Jean-Claude Juncker, President of the European Commission, telling it like it is.
  • Why it matters

    Why it matters

    Critics feel that when it comes to the E.U. economic stability pack, some members are more equal than others.

  • Facts

    Facts

    • Jean-Claude Juncker has been president of the European Commission, the E.U. executive body, since 2014.
    • He was prime minister and finance minister of Luxembourg and headed the Eurogroup of eurozone finance ministers.
    • The E.U. Stability and Growth Pact sets rules aimed at preventing excessive budget deficits or excessive public debt burdens among member states.
  • Audio

    Audio

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Jean-Claude Juncker is always good for a bon mot.

“Everything has an end. Only the sausage has two,” the Luxembourger said when he stepped down as president of the Eurogroup of eurozone finance ministers in 2013.

Less harmless was another comment that slipped out when Mr. Juncker was prime minister of  Luxembourg. In front of TV cameras at the height of the euro debt crisis in May 2011, he said: “When it becomes serious, you have to lie.”

This sentence raised considerable doubts about Mr. Juncker’s credibility – even though at that moment he was more honest than normal for top-ranking politicians.

It is much the same with the latest silly thing Mr. Juncker has said.

All of the 19 euro nations are equal before the Stability Pact, just some of them are more equal than others.

“Because it’s France,” was the answer he gave to the question about why the European Commission never takes disciplinary action against French breaches of the European Stability Pact.

Now the waves of outrage are once more crashing down on the head of the European Commission – even though, or because of, the truthfulness of this statement. Mr. Juncker was only openly admitting what critics had long suspected, namely that all of the 19 euro nations are equal before the stability pact, just some of them are more equal than others.

So, you catch the little guys and let the big ones go. Or even worse, because the European Commission wants to let big countries get off scot-free (last year France, this year Spain), it can’t penalize little Portugal. Otherwise this blatantly unequal treatment would be far too noticeable. So the euro zone is keeping steadfastly to old habits. It has never imposed sanctions due to excessive budget deficits and probably never will.

This reinforces the impression that the political leadership of the monetary union is leading citizens down the garden path in a particularly brazen way. What haven’t government heads, finance ministers and European commissioners promised?  They will learn the lessons of the debt crisis and more strictly apply the austerity rules of the Stability Pact. Not only will they systematically reduce the deficits but also the overall national debt. Stricter rules were introduced to this end with much ado, and yes, an intergovernmental treaty called the European Fiscal Compact was even signed. Now people are asking themselves whether the politicians ever believed what they wrote down in the compact at all. Maybe it was all a big show from the beginning.

The Stability Pact isn’t helping politicians escape their debt dilemma. The European Commission might be boasting that not only the deficit quota but most recently also the total debt of all euro states will be reduced on average. But this doesn’t apply to the three largest euro states after Germany; France, Spain and Italy still haven’t gotten their public finances under control.

Germany’s finance minister, Wolfgang Schäuble, and the current president of the Eurogroup, Jeroen Dijsselbloem, both blame the European Commission president for this – and they are partially right.

Mr. Juncker’s concept of a “political” commission has reached its limits here. If the authorities in Brussels don’t monitor compliance with the E.U. treaties, then nobody else can do it. Then the Stability Pact will become a waste of paper, and political wheeling and dealing behind closed doors subject to no democratic control at all will replace the rules.

But what Mr. Schäuble and Mr. Dijsselbloem are now proposing as a counter-concept is equally useless. The two ministers think a politically “neutral” body should take over the budget monitoring in the euro zone in place of the European Commission. An entity with political neutrality is a fantasy. Fiscal policy, as the name already implies, is always political and can never been purely based on and bound by rules.

The Stability Pact is doomed to failure in the long run. The set of regulations is not suited to be a substitution for a lack of political leadership. The monetary union needs a finance minister who merges the fiscal policies of the member states and gives it by and large a direction. To do that, the finance minister will need a budget, a source of revenue and monitoring by a parliament. It is the task of the eurozone states to reorganize the monetary union accordingly.

That has been clear to most finance ministers and heads of state for some time. Nevertheless, they keep putting off the necessary reforms because they are afraid of right-wing and left-wing populists. And because the leaders are stuck like a burr to their national powers.

If things keep on this way, Mr. Juncker’s adage may soon apply to the whole of the monetary union:

Everything has an end. Only the sausage has two.

 

The author can be reached at: berschens@handelsblatt.com

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