With the United States edging closer to recession despite reaching a deal on the so-called Fiscal Cliff, Japan heading to a multi-billion stimulus package in an attempt to avoid a severe economic crisis, and the European Union (EU) relapsing into recession, 2013 kicked off on a wrong foot. But the prospects are already quite positive!
When addressing the media, last week, the President of the European Central Bank (ECB) Mario Draghi said that there are already signs of stabilisation and described the current situation as a “positive contagion” in the euro area economy. Mr Draghi is confident that recovery in the euro area is envisaged later on this year, but insists that Europe will have to wait until the second half of the year until the EU registers improvement and growth.
The ECB head supports his projections by citing a set of indicators: cash flow into euro area banks, Spanish bonds selling at low interest rates and reduced risks on the ECB’s own balance sheets. Mr Draghi made reference to what he called “significant steps towards greater (EU) integration” indicating to the creation of a banking union.
The European Commission President José Manuel Barroso shares the same views of Mr Draghi about the banking union. In fact, during the inauguration of the Irish Presidency of the Council of the EU last week in Dublin, he stated that the banking union should be considered essential in defeating the economic crisis. He also stated that it can serve as a model for other subjects in Europe. Mr Barroso declined to reveal who will be nominated for the appointment of the Banking Union chief supervisor. However, outgoing chairman of the Eurogroup Jean-Claude Juncker hinted at a prominent female figure that would take over the post.
In his last meeting with the Economic & Monetary Affairs Committee of the European Parliament, Mr Juncker expressed his opinion on this appointment and said that he favours a French female that the media is speculating to be Bank of France official Danielle Nouy, who has established herself as a prominent bank regulator. The post in question will be run under the auspices of the ECB.
While announcing that his successor at the helm of the Eurogroup could be the Dutch Finance Minister Jeroen Dijsselbloem, Mr Juncker told the MEPs that he regrets what the EU failed to achieve and the delays in taking decisions. However, he said that the euro area was saved in 2012 and told the EP Committee that “the worst probably is over”.
Mr Juncker also added that the euro area governance needs to become more democratic and stressed that decision making must also become more inclusive of the needs of all the component parts of the euro area. In fact, he is of the opinion that the intergovernmental methods should be sidelined in order to avoid a “chaotic approach” that could split the bloc.
Rules on tighter fiscal discipline, stricter budget commitments and automatic correction mechanism came into force on 1 January of this year. The Treaty on Stability, Coordination and Governance in the Economy and Monetary Union, known as the Fiscal Compact, entered into force following its ratification by Finland on 21 December 2012.
For the treaty to enter into force, it had to be ratified by 12 of the 17 euro area member states. To date, Austria, Cyprus, Germany, Estonia, Spain, France, Greece, Italy, Ireland, Portugal, Finland and Slovenia, as well as four non-euro area countries (Denmark, Latvia, Romania and Lithuania) ratified the treaty and will be bound by the new rules.
Malta’s ratification is still in process. The treaty was presented to the House of Representatives in March of last year; however, the fate of the ratification motion will be decided after the 9 March General Election. The Parliament is currently restricted not to pass any new laws after its dissolution on 7 January.
Consensus about the fiscal compact was reached back in December 2011, with the final version endorsed by all the EU member states, except for the UK and the Czech Republic. The Pact stipulates that national budgets should be in balance or in surplus, while the annual government deficit should not exceed 0.5% of the gross domestic product (GDP). The Court of Justice of the EU will be cross-checking that the balanced budget rule has been transposed into the member states’ legal systems by 1 January 2014.
The above-mentioned changes may pave the way for a better Union in 2013, strengthening confidence in the euro area, supporting the fiscal challenges of the member states and ultimately boosting the EU economy to create growth and employment in line with the Europe 2020 Strategy. Before achieving these milestones, more convergence has to take place between the EU member states. In Dublin last week, the President of the European Council Herman Van Rompuy pointed out that “a lag between the real economy and financial markets” could prevent the EU from returning to growth and prosperity!
Norma Saliba is media coordinator within Malta-EU Steering & Action Committee