Crisis forces Europe to break economic taboos

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BRUSSELS, Nov 30 (AFP): The growing severity of the economic downturn is forcing the European Union to break its taboos about letting deficits swell and loosening up state-aid rules.
On October 16, the head of the Eurogroup of eurozone finance ministers Jean-Claude Juncker, considered a hardliner on fiscal discipline, ruled out a "generalised" recovery plan because of the risks to budget rigour.
However, a month and a half later, the EU was scrambling last week to coordinate a wide-ranging economic stimulus package in the face of a severe slump.
The European Commission, usually the guardian of budget discipline in Europe, actively encouraged member states to ramp up spending and give consumers targeted tax breaks as part of a 200-billion-euro EU package.
"That would have been unthinkable only a little time ago," said economist Jean Pisani-Ferry, director of Brussels-based economic think tank Bruegel.
"The commission, long sceptical about budget policy, acknowledges that it has a role to play," he said.
Officially, the commission says that it will still police member states to make sure their deficits do not spiral beyond an EU limit of three per cent of output, enshrined in the bloc's Stability and Growth Pact.
However, it has also stressed that it will give as much flexibility as possible in its interpretation of the rule, which allows for some leeway in tough economic times.
"The European Commission is the enforcer of the rules of the Stability and Growth Pact and has taken a relatively tough line on the public finances in the past," said economist Jennifer McKeown at consultants Capital Economics.
"The fact that it is now encouraging extra expenditure is certainly a turnaround, highlighting just how bad the economic outlook has become," she added.
Likewise, a 2010 deadline that eurozone countries set themselves in 2007 for balancing their budgets has quietly been put off indefinitely. MORE/BM/910 HRS
The shift in attitude has been music to the ears of leftwingers, who have long criticised the Commission's usually hardline on government spending.
"The taboo has been broken. The guardians of dogma are having to face up to reality," said Francis Wurtz, president of European United Left, which groups Communists and reformed Communists in the European Parliament.
French President Nicolas Sarkozy, who holds the EU's rotating presidency, has raised the pressure on Brussels to take a softer line not only on fiscal discipline but also competition policy.
"I think that has helped" change the tune coming from the European Commission, a French official said on condition of anonymity, adding that the EU executive's arm had "understood the message".
In the wake of the banking crisis, the commission also showed flexibility in its reviews of state bailouts of troubled banks. It also assessed such rescues much faster than it normally would so that no time would be lost.
However, some countries want the commission to do even more. A German government spokesman said last week that "we see possibilities to speed up the procedures."
Meanwhile, some politicians are eager to see EU state aid rules permanently watered down.
However, Pisani-Ferry said that that was unlikely. "Once the economic situation improves, the commission won't hesitate to make sure that governments don't use the crisis to shower companies with subsidies or other privileges."