Monday, January 21, 2013

Inactive Europe, Leonardo Domenici, MEP, Italy – former Mayor of Florence

The European crisis has its roots in the financial sector, which caused the whole global crisis as well, but some EU member states (via the European Council), together with the European Commission, deepened it and brought it into recession.

This crisis isn't, in fact, only a debt crisis, so the huge cuts and higher taxes imposed by austerity measures are generating unemployment and social unbalances. Of course, some European countries should be more responsible when managing their balances, but focusing on these points only means going straight to recession.

The Commission and other Member States, often forced other countries to apply these austerity measures on theoretical principles detached from reality and without objectives actually coherent with the economic cycle. If we slow down the economy with austerity, the tax income will be lower so it will impossible to meet the objectives.

These policies are hurting the whole EU and the Eurozone members, but the most damaged countries are those in the South of Europe. The German growth model, with low inflation, high exports (even in the eurozone), salary containment (even they are higher than most EU countries) and low interests rates in order to finance the public debt, is not the ideal model for all European countries and should not be exported without keeping in mind the specific economical and social aspects of a country. Doing otherwise means worsening the situation, like it's happening in the European South.

The point is that the Commission and the Council are determined to keep their austerity measures in place, even if the presidents of both institutions, Mr José Manuel Barroso and Mr Herman Van Rompuy, and some commissioners, like Mr Olli Rehn, say that more flexible policies are needed. Sadly, even if sometimes they create expectations, these are just empty words and nothing is really done to stimulate investments, to fight unemployment and social unbalances.

The feeling that the European institutions want to change their policies as little as possible, even when dealing with the financial sector, is something that I experienced personally on my work on the Credit Rating Agencies Regulations (CRAs). CRAs and their ratings are the main source of the political and financial earthquakes for the United States and, especially, for the European Union. Today, three CRAs are influencing the 90% of the entire market, and the Eurozone crisis clearly demonstrated that these agencies have too much power over the financial market, so much that they can even change the political agenda of some EU countries. But the Council was even against some proposals for CRAs regulation made by the Commission, maybe because the CRAs are useful for what they say or what they do: they can be blamed if their ratings are clearly partial and inaccurate, or they can be praised when they give good news. This behavior is a plain example of a weak political will, a lack of a long-term vision on how Europe and the EU should be. Though, to overcome the crisis, we need the European Union, because the single member states are too small if placed in the context of the globalization. We need EU level policies for growth and development.

A more active role of the EU would be easier with an independent budget that could be financed by instruments like the Financial Transaction Tax (FTT). This FTT could also be a way to regulate the financial market by discouraging and slowing down high-frequency trading. But, like with the CRAs regulation and the financial sector regulation in general, the EU fails to take concrete action.

We need to be clear, honest and speak the truth to the European citizens: the crisis isn't over yet. We need to relate with the financial actors in the same way though, because, being too positive when we actually still have a long way to go, could make the markets overreact. #thesouthintalk

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