EU wants to control national economic policies

Jean-Claude Juncker having been reappointed (as predicted in the Digest in August) to a third term as the head of the Eurogroup, the Council of Finance Ministers which oversees economic policy in the euro zone has now said that it needs to have more control over the economic policy in order to manage the economy better. Calls are growing in the euro zone for more “early warning systems” to be introduced so that the policies of the euro states can be better controlled. The commissar for economic policy, Joaquín Almunia, told the German business daily, Handelsblatt, “In the Eurogroup and in the EU-wide Council of Finance Ministers, we must have more discussions about how to solve the structural problems in our economies, for instance excessive labour costs, inflation rates or budget deficits. We must talk about these things regularly in future, not sporadically as at present.” Almunia said that the euro zone had suffered brutally from the credit crunch, especially Spain, Italy, Portugal, Ireland and Greece. In these countries, he said, wage costs had risen far faster than the average euro zone rate. As a result, the international competitivity of these states had suffered and the effects of this were now clear.

The German Finance Minister, Peer Steinbrück, is also worried about the lack of coordination between euro zone states. At the last meeting of the EU Council of Finance Ministers, he called for a fundamental debate about the above-inflation rises in wages. Steinbrück said that his fear was that the weaker euro states would soon start to blame the European Central Bank for their woes, for instance presumably by demanding an inflationary increase in the money supply in order to counter the effects of the credit crunch. In other words, the old German fear that its economic policy would be determined by laxist “Club Med” states has returned, spurred on no doubt by the difficult economic times.

Germany, therefore, like the European Commission, wants the euro zone states to work more closely together on economic policy – or, to be more precise, that they follow Germany’s lead. However, the Germans naturally do not want to be seen to be pressurising the smaller states and so they want Jean-Claude Juncker, who is Prime Minister of the EU’s smallest state, to front the show. [Handelsblatt, 3 September 2008]

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