Economic Recovery Wach 14 January 2010


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Economic Recovery Wach 14 January 2010

  2. 2. Centre For European Studies ECONOMIC RECOVERY WATCHLast updated on 14/01/2010 To view full articles click on hyperlinks. “Watchtower” Happiness vs. GDP Foreword by CES Head of Research Don’t buy even for a minute all the nonsense about ‘spaceship Brussels’ and ‘faceless bureaucratsdistant from real life’ that many a Eurosceptic would like you to believe about Europe’s capital. No,Brussels is a very real place. For example, it sports trends and fashions like all other capitals. The latestfashionable trend is discarding GDP as a measure of economic performance, and replacing it by ahappiness index, or, as some would prefer, an index on well-being. According to the adherents of thistheory, mere quantitative economic output, measured in the market value of products and services,belongs to the 20th century. It is not only inhumane inhumane and imprecise (because it leaves out thegranny taking care of her grandchildren without pay, for instance), but socially and ecologicallyunsustainable (because it includes CO2-belching factories as well as the hazardous gambling of theturbocapitalists, and all their bonuses to boot). There was a precursor debate to this around 2006, but that was more limited to academia. Youmight even go back to 1972, when the then King of Bhutan, Jigme Singye Wangchuck, includedhappiness into the kingdom’s Constitution as a goal of state. Among other things, this was to beachieved by five year plans, and television was forbidden until 1999. More on the moderate end of thescale, the EU Commission recently published a report about ‘GDP and Beyond’ and French PresidentSarkozy prominently invited Joseph Stiglitz and Amartya Sen to make recommendations on shifting thefocus of measuring economic performance. In any case, today, in Brussels, in seminars andconferences, the happiness index is back with a vengeance, largely due to the twin scourges of theturn of the decade: climate change and the financial and economic crisis. First of all, we need to see the seriousness of the challenge. This is no mere semantic problem. Infact, the happiness index is intended to pave the way for a ‘paradigm shift’ in the way EU decisionmakers think about economics: away from the focus on economic growth, away from the ‘Washingtonconsensus’. Actually, the renewed attack on GDP as a measure of performance is the attempt toregain what the Global Left considers a lost opportunity: to question the market economy as such,when the crisis was still fresh in 2008 and 2009. They say ‘Washington Consensus’ and they meancapitalism. This has to be exposed. The truth is and remains: GDP is, of course, no guarantee ofhappiness. But with all its flaws, GDP tells us pretty exactly what we want to know about economicperformance. Certainly more exactly than any index based on very subjective feelings. Moreover,material goods and a decent income can be great catalysts of a successful existence – contrary topoverty. And the globalisation that was begun in the 1980s has lifted hundreds of millions out ofpoverty and into a new new middle class in countries like India and China. The crisis hasn’t even comeclose to reversing that process.
  3. 3. Centre For European Studies ECONOMIC RECOVERY WATCH And concerning climate change: the world is not going to get anywhere without incentives toinnovate. Those incentives can be strengthened by government action, but in the end it will bepersonal gain (or, as the Fathers of the US Declaration of Independence called it: the pursuit ofhappiness) that is most effective here, and therefore makes the difference. Working for a betterpersonal future, improving and expanding, is deeply rooted in human nature. And Smart GreenGrowth is still growth! What will count in the end, however, and determine the further development of this debate, arethe universal economic solutions proposed by the happiness gurus, such as Richard Layard in 2006:higher job security, lowering growth by raising taxes, reducing mobility, government control oftelevision and advertising to stop improper role models, etc. I would call that socialism by anothername. So far, it has remained one of the great successes of Europe’s Centre Right that the marketeconomy did not fall victim to the crisis, only its speculative excesses that can and should be put understricter controls. But if we don’t watch out, this fad may linger for a longer time than fads usually doin the corridors of power in Brussels. And if higher taxes, less economic freedom, media control andfewer working hours are to follow the talk about replacing GDP with happiness or well-being, it will beto the detriment of humankind. Which is what we should keep pointing out.P.S. The CES is working on a policy brief critically analyzing the efforts to replace GDP, to be publishedin March. Its prospective author is Johan Norberg from the Stockholm based think tank TIMBRO.
  4. 4. Centre For European Studies ECONOMIC RECOVERY WATCHLast updated on 14/01/2010 To view full articles click on hyperlinks.EU Member StatesAustriaAustrias unemployment rate rose to 8.6 per cent of the workforce in December. Austrias centralbank and its financial market regulator have put Österreichische Volksbanken, the countrys topcooperative bank, on a watch list and asked it to find a new strategy. Austrias finance minister sayshe wants his countrys central bank to be fully nationalised to make financial supervision moreefficient. The federal government currently owns about 70 per cent of Österreichische Nationalbankscapital. An investigation has been launched to clarify the circumstances surrounding the near demiseof troubled financial institution HGGA. Austria nationalised HGGA on 14 December, a unit of Germanpublic-sector bank BayernLB, to prevent it from sliding into a bankruptcy fueled in part by bad loans —most of them in Eastern Europe. Austria agreed to a full takeover of HGGA and will inject as much as450 million euros into the troubled lender in the country’s second bank nationalidation since the startof the financial crisis. The European Commission said it had approved for now state aid involved in therescue of HGGA, but demanded that the Austrian bank presents a restructuring plan by the end ofMarch 2010. Austria may drop its opposition to tax deal. Resistance from Austria, with its strongtradition of banking secrecy, held up the agreement until now. Austria’s concern focus on thecompetitive disadvantage its financial centres could face against Switzerland, Liechtenstein and othernon-EU countries with light fiscal controls.BulgariaA total of 95 per cent of Bulgarian firms saw their sales decline in 2009 as a result of the globaleconomic crisis, according to the fifth annual survey of the Bulgarian Industrial Association (BIA).The BIA forecasts that by the end of 2010 the unemployment in the country will be 16,4 per cent. Thefigure arose from adding 5 per cent of “unofficial” or unregistered unemployment to the governmentforecast for an unemployment rate of 11,4 per cent. The BIA Chair said export-oriented sectors suchas the machine building and shipbuilding sectors, as well as the construction and transport sectors, aredoing worst. The food industry, agriculture, and production of pharmaceuticals are doing better butthey are oriented mainly towards the domestic market. He called 2010 a year of survival, andrecommended that companies limit their investments, and in some cases switch to other products.CyprusCyprus’s EU-harmonised inflation stood at 1.6 percent. Over the year, the harmonized index ofconsumer prices (HICP) tracker was running at 0.2 percent, pushed down by lower fuel prices. It wasthe lowest annual rate of change on record, following a 4.4 per cent HICP inflationary spike on highcommodity and fuel prices in 2008. In 2009, the sharpest increases were recorded in healthcare costs,at 6.6 per cent, followed by a 4.9 per cent increase in education. The most pronounced drop was a 7.6per cent decline in fuel-related utility bills and transport costs at 7.3 percent..
  5. 5. Centre For European Studies ECONOMIC RECOVERY WATCHLast updated on 14/01/2010 To view full articles click on hyperlinks.CzechcRepublicThe Czech 2010 budget projects a record deficit of 163 billion crowns (about 5.3 per cent of GDP).Additional financial transfers, as pushed through by the left before the budget´s approval inDecember, raise the deficit by 12 billion crowns. The Czech Green Party (SZ) will not back the left-wingproposals raising the budget deficit and said that it is up to the finance minister to decide on thepreservation of the 2009 level of maternity benefits demanded by the Christian Democrats (KDU-CSL).The maternity benefits have been reduced since 1 January within a package of austerity measuresadopted by the parliament. The next session in the lower house will also discuss the left-wing parties´proposals for the distribution of an extra monthly pension, for the abolition of health fees and for thereintroduction of sickness benefits paid to patients in the first three days of illness.DenmarkDespite inflation rising by 1.3 per cent in 2009, economists believe consumers will benefit this yearfrom a number of financial incentives. Danske Bank estimates that salary levels rose by 2.9 per cent for2009, with wages rising by about 1.6 per cent. With the tax relief and drops in interest rates , livingstandards are expected to improve even more in 2009. However, the bad news is that budget deficitsin city hospitals have forced a number of them to cut staff, leaving patients with longer waiting times.Herlev Hospital in North West Copenhagen has been forced to introduce mass layoffs as a result of thehospital’s 200 million kroner budget deficit. Other hospitals in the Capital Health Region have alsobeen hit bybudget deficits .EstoniaEstonia, despite being in recession, hopes to meet the key economic targets on inflation and budgetdeficit set by the EU and adopt the single currency at the start of next year. By law, if the evaluation ispositive and backed by the EUs 27 finance ministers, Estonia could become the euro zones 17thmember next year. However, economist Heido Vitsur says that if Estonias unemployment rateexceeds 25 per cent, the state would become non-competitive which could restrict Estonia’s potentialentry to the euro zone. Vitsur added that based on the data of the Unemployment Insurance Fundwhich show that about 2,500 people registered as unemployed every week, Estonias unemploymentrate must be over 20 per cent already now. Mart Laar, chairman of IRL, also believes that growingunemployment could cause that budget revenues to fall short of the target and that this could becomean obstacle for Estonia securing its place in the euro zone. But the good news is that Estonia’seconomy will grow 1.5 per cent this year and 4.5 per cent in 2011 according to the Swedbank.According to the International Monetary Fund (IMF), Estonia must focus on investment, closing taxloopholes and boosting revenue to ease the recession. The IMF called for changes to the pensionsystem, broadening the tax base and eliminating poorly targeted exemptions.FranceIn December French business confidence reached its highest level since March 2008. It is a clear signthat Europe’s third largest economy is recovering from the recession. Forecasts are indicating at leasta 1 per cent growth – from the current 0.75 – in the French economy in 2010.
  6. 6. Centre For European Studies ECONOMIC RECOVERY WATCHLast updated on 14/01/2010 To view full articles click on hyperlinks.GermanyGermanys centre-right Cabinet approved a 2010 budget plan on 16 December 2009 that includesrecord levels of new debt and higher government spending as the country seeks to safeguard itsrecovery from the recession. The budget puts spending at 325.4 billion euros, a 7.3 per cent increaseon this years planned outlay of 303.3 billion euros. It foresees new borrowing of 85.8 billion euros—about 48 billion euros more than this year, and the largest figure since World War II. However, thenew government has placed an emphasis on tax relief as it tries to stimulate the economy. GermanChancellor Angela Merkel said the economic crisis is not yet over and there will be tough negotiationsahead to agree on the international timing of an exit strategy. Germany’s economy stagnated at theend of 2009, after contracting by 5 per cent in the year as a whole – its worst recession in post-warhistory. Germanys IMK economic institute raised its forecast for the German economy, saying itexpected growth of two per cent in 2010. Opel car sales may fall as much as 5 percent in 2010, astentative signs of economic recovery are offset by the end of scrapping incentive schemes. AlsoBeiersdorf AG, Nivea skincare maker, posted a steep drop in full-year operating profit as its industrialadhesives business took a hard hit from the global recession.GreeceA European Union inspection team has asked Greece for a more specific three-year plan to shore upthe countrys ailing finances. Greece has pledged to cut its double-digit budget gap to below 3 per centof GDP limit by 2012. Meanwhile, the Spanish EU Presidency said that there were "limits" to theamount of support Greece can expect from the European Union in its fight to contain its ballooningbudget deficit. Greece’s socialist government revealed the budget deficit would reach 12.7 per centof GDP in 2009 and that Greece is also set to become the EUs most indebted country this year, withdebt rising to 124.9 per cent of GDP according to EU data. The Greek government has alreadyannounced a series of measures, including a 10 per cent cut in supplemental public sector wages, anda 10 per cent reduction in social security expenditure this year. However, financial markets questionwhether the government can introduce such drastic austerity measures without sparking labourunrest and social disorder. The civil servants’ union already announced a one-day strike on 10February to protest against the measures. Amid financial and political turmoil, Greece now also facesaccusations from the European Commission that figures on the countrys public debt are unreliableand belie the countrys true debt burden. Separately, an International Monetary Fund technical teamalso went to Athens in response to a Greek request for help with a radical overhaul of the tax systemdue to be completed in March. The mission will advise the Greek government on pension reform, taxpolicy, tax collection and budgetary controls but will not have any role in developing or vettingGreece’s fiscal consolidation plan. Even the limited IMF involvement is highly sensitive because ofmarket speculation that Greece may ultimately require a joint bail-out from the IMF and the EuropeanUnion.HungaryHungary could join the euro zone in the next four years if the new government formed after electionsdue in April remains on the track of tight fiscal policy set by the current cabinet, Prime Minister
  7. 7. Centre For European Studies ECONOMIC RECOVERY WATCHLast updated on 14/01/2010 To view full articles click on hyperlinks.Gordon Bajnai said. The country has missed several euro entry dates in the past and currently meetsnone of the criteria needed to adopt the single currency. It does not have an official target date foreither ERM-2 or euro zone membership. According to the latest polls, markets expect Hungary toadopt the single European currency in 2014. Hungary’s budget deficit came in about HUF 75 billionlower than expected in 2009, according to the latest (cash flow based) data. The InternationalMonetary Fund (IMF) on December 18 completed the fourth review of Hungary’s economicperformance. The completion of the review makes about 788 million euros available, but theauthorities do not intend to draw this amount. The availability of Fund resources will help to provideinsurance against the impact of any unforeseen deterioration in external financing conditions. Thetotal amount disbursed under the program remains about 8.27 billion euros. Other news is thatimports continued to decrease more than exports but the contraction of both slowed as the sharpdecline which started with the crisis in October 2008 entered the base. Hungarys motor vehiclemarket is expected to stabilise from the second half of 2010, and the Hungarian Association of VehicleImporters (MGE) sees full-year sales rising 7.4 per cent to 85,200.LatviaLatvias gross domestic product (GDP) contracted 19.3 per cent in the third quarter of 2009,compared to the second quarter. This was the largest GDP decrease in the EU in the third quarter of2009. Latvia’s industrial production fell in November at the slowest pace in 17 months as thecountrys wood, metal and chemistry industries increased output. Latvian economy contracted 19 percent in the third quarter, the steepest downturn in the EU, as consumer spending slumped, creditevaporated and manufacturing dropped. In 2009, there was a record decline in prices for all segmentsof the Latvian real estate. According to Global Property Guide only in Riga for this year the cost persquare meter of the real estate has fallen to 59,7 per cent. The decrease in consumption, as well asthe withdrawal of foreign investments and pessimistic expectations on the part of the populationdetermined the collapse of the property prices in 2009. The decline in the market was accompanied bya sharp deterioration in the economic situation of the country, by the liquidation of the mortgagemarket and by the real impoverishment of the population. All this has further deepened the economicdepression and reduced tax collection. It would seem that such a development would inevitably leadto a further collapse in real estate prices and the exodus from the market of remaining foreigninvestors. However, since September 2009, the market began to show first signs of stability, and thencautious, but sustained growth.LithuaniaAccording to Statistics Lithuania, seasonally adjusted retail sales in November 2009 were 27.8 per centlower than in November 2008. On a more positive note, in 2010 the Lithuanian economy will recovermore rapidly than the majority of Lithuanian and foreign analysts expected, life insurance and pensioncompany Aviva Lietuva forecasts. The Baltic Course reported that, according to the company, exportgrowth will be one of the main engines for recovery. It said that while July 2008 – April 2009 exportsfell 43 per cent, in April 2009 – October 2009 export volumes increased 23 per cent.
  8. 8. Centre For European Studies ECONOMIC RECOVERY WATCHLast updated on 14/01/2010 To view full articles click on hyperlinks.PolandPoland continues to be the statistical leader of the EU member states in terms of economicperformance. The country’s GDP grew by 1.7 per cent (according to the Polish Central StatisticalOffice) in the third quarter of 2009 compared with the same period in 2008. Polish Minister of FinanceJacek Rostowski will soon unveil a two-year public finance consolidation plan which will tackle theproblem of country’s growing public debt. The plan is based on the gradual phasing out of specialpension privileges for certain professional groups, the raising of the retirement age, the reform ofopen pension funds, the acceleration of privatisation and the introduction of new fiscal discipline, aswell as the “expenditure rule” limiting the increase of state spending.RomaniaA joint team of European Commission and IMF visited Bucharest during 14-16 December 2009 tocontinue discussions under the multilateral assistance programme. Discussions focused on fiscalpolicy issues. The mission found that good progress had been made to reach the 2009 budgetarytarget of a cash deficit of 7.3 per cent of GDP. Yet, tight expenditure control remains essential.Regarding 2010, the mission set of fiscal consolidation measures amounting to about 2.5 per cent ofGDP, mostly on the expenditure side of the budget. Taking into account the better than expectedmacroeconomic outlook for 2010, these measures seem sufficient to achieve the government cashdeficit target of 5.9 per cent of GDP set in the programme. Provided these developments areconfirmed, the Commission hopes to successfully conclude the review by end January 2010. Thiswould release a tranche of 1 billion euros under the EU balance of payments assistance programme.SlovakiaIn one sense, 2009 was the year of the economic downturn in Slovakia, but it was also Slovakia’s firstyear using the common European currency, the euro. A year after the switch, it seems that Slovakshave got used to to the euro without major problems and that the majority of the population feelspositively about the euro. Exchange-rate stability, lower conversion costs and, after theunprecedented reduction of ECB interest rates, more favourable monetary policy conditions, whichhave fed through into lower interest rates for new corporate loans, have positively impacted theeffects of the global recession on the Slovak economy. The first days of 2010 were marked by thelaunch of the electronic highway toll collection mega-project– with a price tag of over 850 millioneuros. The mega-project received extensive negative publicity when the contract to construct anationwide satellite-based system was awarded to the sole remaining bidder, SkyToll – the successorcompany to a consortium which had made the most expensive bid. The European Commissionsubsequently asked for more information as to why three bidders had been eliminated from the finalround of the high-value tender. While its operator calls the launch of e-toll collection successful andproblem-free, transporters and truck drivers lining up in 10-hour queues at border crossings call theproject a chaotic failure. Highway transporters have been calling on the state to suspend the system’soperation for six months, saying it has not been sufficiently prepared. The Union of Road Carriers(UNAS) launched a petition on 4 January demanding that the state cut its excise tax on fuels as well asits road tax as a form of compensation for what they call far too expensive highway tolls.
  9. 9. Centre For European Studies ECONOMIC RECOVERY WATCHLast updated on 14/01/2010 To view full articles click on hyperlinks.SloveniaEconomic activity continued to strengthen gradually in the third quarter in Slovenia, given that GDPincreased by 1.0 per cent, but its year-on-year drop (-8.3 per cent) remained among the largest in theEU. GDP growth was largely propelled by stronger exports and export-oriented manufacturingactivities. Investment activity, on the other hand, remained weak. The crisis in construction isdeepening. Labour market indicators continued to deteriorate in the third quarter, given that thenumber of employed persons declined further and that in November, the number of registeredunemployed was more than half higher than last year. Altogether 95,446 persons are unemployed,50.6 per cent more than in November 2008. In November, the year-on-year inflation rate increased(1.6 per cent) as expected after fluctuating around zero for several months. The college of deputygroup leaders called for 20 January and emergency session dedicated to proposal from the strongestopposition party to discuss cronyism in business and a package of crisis measures.SpainSpanish Economy Minister Elena Salgado said the reduction of budget deficits in Europe should begradual in order not to harm the economic recovery. Spains budget deficit has risen sharply due to theeconomic downturn and the country is so far lagging the recovery that has begun in many places inEurope. Spains budget deficit is expected to reach about 10 per cent of gross domestic product in2010. The national Statistic Institute reported that Spanish industrial output fell 5.7 percent inNovember year-on-year. The continuing industrial contraction came despite a massive public worksprogramme that is helping to push Spains fiscal balance, towards a deficit of 10 per cent of GDP in2009. Spains gross domestic product will record quarterly growth through all of 2010 but thegovernment still expects an annual contraction of 0.3 per cent for the year. Consumer prices rose inNovember after falling for eight consecutive months, but deflation concerns lingered in an ailingeconomy showing little sign of recovery.UnitedcKingdomAccording to the British Chambers of Commerce the UK economy will soon exit from recession.Improvements have taken place mainly in the manufacturing sector, and stores saw their bestDecember growth for eight years. However even though the level of economic confidence is improvingand exports are strengthening, the economy will have to struggle hard to enter the recovery phase inthese difficult and uncertain trading conditions.WORLDWIDEArgentinaArgentina’s government is seeking to use $6.5 billion of its central bank reserves, which amount to$48 billion, in order to cover an international debt of $13 billion. This plan was masterminded by thePresident of the Latin America’s third-largest economy Cristina Fernández de Kirchner. It caused
  10. 10. Centre For European Studies ECONOMIC RECOVERY WATCHLast updated on 14/01/2010 To view full articles click on hyperlinks.severe political tensions between the president and the Congress, because the central bank president,Martín Redrado, was first dismissed and then reinstated. Even though Argentina’s financial market isin turmoil, the world markets responded positively to the announcements on restructuring $20 billionin foreign debt from the 2001-2002 default.ChinaChinese central bank has raised short-term interest rates and withdrawn liquidity from the market.The weekly sale of three-month central bank bills inched up to 1.3684 per cent from the previous1.328 per cent. This decision has been considered a turning point in China’s monetary policy. Due to asurge in lending by government-controlled banks Chinese government investments, real estateconstruction and consumer spending have been rising for the last 6 months.The Chinese economy is expected to achieve a 9.5 per cent growth thanks to real estate investmentsand mild inflation in 2010. Moreover, the state media have reported that China’s exports rose to 17.7per cent in December 2009 suggesting the country has overtaken Germany as the worlds largestexporter. According to China’s Association of Automobile Manufacturers, the world’s third-largesteconomy has overtaken the U.S. in car sales. Approximately 13.6 million vehicles were sold in China in2009 compared with 10 million in the U.S.IcelandIceland is considering withdrawing a foreign depositor bill and renegotiating the accord tocompensate the U.K. and Dutch governments for settling depositor claims stemming from the failureof Landsbanki Islands Hf in October 2008. Most polls forecast that voters will reject the current bill inthe forthcoming referendum. Repayment of the $5bn debt is considered to be harmful for theIcelandic economy, forcing taxpayers to pay for bankers’ mistakes. Iceland’s president Olafur Grimssonstated that no matter the outcome of the referendum the country will honour its obligations.IndiaThe country’s industrial production has achieved its highest level in 25 months. Output at factories,utilities and mines rose by 11.7 per cent in November 2009. This is likely to encourage India’s centralbank to raise interest rates in the first half of 2010. If Asia’s third-largest economy’s growth quickensto 10 per cent in a couple of years, it may exceed the Chinese growth level as early as 2014.JapanNewly appointed Japanese minister of finance, Mr Kan, called for a weaker yen, saying that it wouldhelp the world’s second-largest economy to battle the threat of deflation and a public debt of 200 percent GDP. Moreover, Japan’s bank loans fell for the first time in four years in December. Demand forfunds is said to be weak regardless of the size of companies. GDP is therefore forecast to expandmodestly in 2010, mainly due to foreign demand.
  11. 11. Centre For European Studies ECONOMIC RECOVERY WATCHLast updated on 14/01/2010 To view full articles click on hyperlinks.UnitedcStatesAccording to the Federal Reserve Bank the situation on the U.S. labour market is improving and theunemployment rate is due to fall in 2010. 7.2 million jobs have been lost since the recession began inDecember 2007. The improvement is mainly due to an increase in domestic consumption and astabilisation in the housing industry. The American economy’s recovery from the worst recession sincethe Great Depression is also being influenced by increased growth on Asian markets.INSTITUTIONSEU Special Summit on EU Economic Policy: EU leaders will meet in Brussels on 11 February todiscuss a multi-annual plan to boost the EUs economic growth. The meeting has been called byHerman Van Rompuy, the president of the European Council, who wants the meeting to influence theEuropean Commissions preparatory work on the plan. José Manuel Barroso, the president of theCommission, launched a consultation on the plan, known as EU2020, on 25 November. It is billed asthe successor to the Lisbon Strategy – the series of policy initiatives and targets agreed by EU leadersin 2000 to turn Europe into the worlds “most competitive and dynamic knowledge-based economy”by 2010. Leaders will also have a more general discussion on Europes recovery from the economiccrisis. On 8 January, Commission President Barroso and Van Rompuy went to Spain – the currentholder of the EUs rotating presidency – to prepare the summit with José Luis Rodríguez Zapatero,Spains prime minister.European Union (EU): Eurozone unemployment jumped to an 11-year high in November and islikely to rise further this year, adding to the instability of an economic recovery now based on fickleinventory rebuilding and exports. Unemployment across the 27 EU member states is set to worsen in2010, and may not begin to fall until 2011, the European Commission said in its annual JointEmployment Report on 15 December. According to the latest Commission forecasts, unemploymentwill worsen over the course of 2010, peaking towards the end of the year at approximately 10.3 percent. This would mean that a total of 28 million Europeans should be out of work in a years time.European Parliament (EP): The European Parliament on 15 December gave the go-ahead for ascheme to help unemployed people to set up their own businesses. The scheme makes a 100 millioneuros budget for 2010 to 2014 available to national, regional and local financial institutions throughthe European Investment Bank. Its aim is to guarantee small-scale loans for setting up businesses. Theeconomic crisis could also present an opportunity to harmonise taxation policy across EU memberstates, according to officials at the European Parliament who contributed to a major report on thefuture development of the EU. Unified corporate tax rates, a long-standing target of Europeanfederalists, is set out as an objective. This will cause controversy in some corners, not least in Ireland,
  12. 12. Centre For European Studies ECONOMIC RECOVERY WATCHLast updated on 14/01/2010 To view full articles click on hyperlinks.which last year was given assurances by European leaders that the Lisbon Treaty would not affect itsrelatively low corporate tax regime.European Commission (EC): Europes economic recovery depends on greater fiscal co-ordinationand speaking with a single voice at global economic fora, Olli Rehn, the EUs incoming economic andmonetary affairs commissioner, told MEPs at a parliamentary hearing on 11 January. Two concretepoints to emerge from the hearing were Rehns insistence on the adoption of the EUs new financialsupervisors and the creation of a single EU representative to participate in international economicfora like the G20. Rehn said he would be issuing a recommendation for a single representative in thecoming months.European Investment Banks (EIB): In 2009, the EIB provided 2.5 billion euros in 16 credit linesfor financing the investment projects (1 955 million euros) and local authorities (545 million) in Spain.These credit lines are managed by Spanish financial institutions, which, under agreements signed withthe EIB, match the amount provided, bringing the total made available to SMEs and local authorities to5 billion euros.International Monetary (IMF): The IMF is launching a consultative process as it begins toexamine policy options for how governments can recover public money that was used to supportbanks and other financial institutions during the current crisis. Some form of financial sector tax is oneof the options under examination.World Bank (WB): The World Bank, the European Bank for Reconstruction and Development andfund manager CRG Capital said on 11 January that they had launched a fund to buy toxic assets inCentral and Eastern Europe hit by the global financial crisis. The CEE Special Situations Fund will raisesome 200 million euros to buy or invest in corporate distressed assets in the region to aid its recoveryfrom deep recession.EPP ViewsJoseph Daul believes that the Commissioners-Designate will be judged "on their Europeancommitment, which must be beyond doubt", but also "on their ability to manage their respectiveportfolios." At a time when unemployment in Europe is greater than 10 per cent, the Commissionneeds experts. This should be ensured at the Hearings and throughout the mandate of the Barroso IICommission.Following several months of negotiations managed by rapporteur László Surján, the EU Budget for2010 was adopted with clear support from the European Parliament at the Strasbourg plenary sessionon 17 December. The EPP Group considers this result as a great success, as the budget will provide
  13. 13. Centre For European Studies ECONOMIC RECOVERY WATCHLast updated on 14/01/2010 To view full articles click on hyperlinks.further support for Europe in the economic recovery. In order to manage the crisis and to stimulatethe economy, the 2010 budget provides significant funds to support the recovery. The EPP Groupwelcomes the fact that several programmes, initiated by Members of the EPP Group, wereincorporated into the budget. On account of these efforts, the budget, for example, ensures financialsupport for creating a European Microfinance Facility programme that will provide micro-credits tosmall businesses with the aim of improving social inclusion and job-creation. The 300 million eurosinfusion in the dairy industry in order to manage the milk crisis is also an achievement of the greatestimportance. The budget includes the completion of the financing of the European Economic RecoveryPlan, out of which 1.98 billion euros will be spent on energy projects, and 420 million euros dedicatedto rural development.The European Parliament adopted a Resolution on “the prospects for the Doha Development Agenda(DDA) following to the Seventh WTO Ministerial Conference” reflecting the strong input of the EPPMembers of the International Trade Committee. The EPP Group reiterates its commitment to themultilateral trading system and the WTO as the guarantor of a rule-based trade system which has akey role to play in ensuring better management of globalisation and in stimulating worldwideeconomic recovery after the financial and economic crisis. The second day of the EPP Groups StudyDays began with a debate on helping political and economic integration and social cohesion in thenew Member States.OUR COMPETITORS’ VIEWSS&DThe S&D spokesman for Economic and Monetary Affairs, Udo Bullmann, commented after a three-hour hearing at the EP in Brussels that the nominee for new EU Economic and Monetary AffairsCommissioner “lacks ambition and vision”. He added furthermore that: "We took note of hiscommitment to a framework for services of general interest and also that he is open to demands forthe introduction of Eurobonds and a financial transaction tax. We share the key priority of relaunchinggrowth and employment - and we will support his efforts to fight tax fraud and evasion. However, hefailed to provide sufficient detail in his responses, for example on the exit strategy in the recession.”The S&D Group believes that an effective and reformed multilateral trade framework is needed tobuild a more balanced and fair economic system as part of new global governance at the service ofdevelopment and the eradication of poverty. Therefore the S&D Group reaffirms the indispensible roleof the WTO and the need to improve multilateral trade rules. S&D leader Martin Schulz mounted an attack on “the money-driven economy” , pledging to controlfinancial markets, close tax havens, curb uncontrolled speculation and tackle climate change in aserious way. He roused delegates at the Party of European Socialists’ Congress in Prague with a call for
  14. 14. Centre For European Studies ECONOMIC RECOVERY WATCHLast updated on 14/01/2010 To view full articles click on hyperlinks.defense of working people’s interests, solidarity with the poorest people in the world and action toensure that no jobless young person “is left by the side of the road”. Mr Schulz attacked bankers fortheir failure to use the public funds they received during the financial crisis to make loans to smallbusinesses.ALDEThe Alliance of Liberals and Democrats for Europe is satisfied with the results of the negotiations withthe Council on the budget for 2010 which will allow financing of the last section of the European planfor economic recovery. ALDE group leader, Guy Verhofstadt, presented the strategic priorities of theLiberals and Democrats for the incoming members of the European Commission who face a series ofhearings in January before being approved. Verhofstadt said that the next five years will be criticaland the current economic and environmental situation requires a fundamental rethinking of how westructure our economy and our society. The ALDE group believes the EU should focus its efforts onfive broad priorities, amongst them: tackling the economic and financial crisis and rethinking the EUbudget and system of own resources.FROM THE BLOGOSPHERE…The Growing Role of the EIB: Roberto Foa comments on the significance of the European InvestmentBank for the EU.Do Europeans want a dynamic economy?: The Economist’s Charlemagne columnist analyses failure ofthe Lisbon StrategyEnjoy the cheap money while it lasts: Hamish McRae states there is a troubling possibility that risinginterest rates will choke off the recoveryUPCOMING EVENTSEvent: Meetings of finance ministers - Eurogroup and ECOFINDate: 18 – 19 January 2010, BrusselsEvent: EU Special Summit on EU Economic PolicyDate: 11 February 2010, Brussels
  15. 15. Centre For European Studies ECONOMIC RECOVERY WATCHLast updated on 14/01/2010 To view full articles click on hyperlinks.Editor: Roland FreudensteinffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffResearch Assistance: Katarína KrálikováccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccAdditional Assistance: Xochil Guillen, Diana Wasilewska, Patricia MurraybbbbbbbbbbbbbbbbbbbbbbDesign: José Luis FontalbacccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccQuestions and comments: