Book project: Next Europe

The EU’s double standards on reform agendas are hugely damaging

Once again, France got several years extra for getting rid of its excessive deficit. Once again, Greece was held up to its reform promises and given not a respite. The Commission is applying double standards on the eurozone members. This will lead to huge damage of Europe’s trust and credibility.

On February 25, the Brussels press corps got an alert from the Commission’s spokesperson’s service. Within an hour, Vice-President Dombrovskis would make an ‘urgent’ statement. Twitter exploded: was France (finally) going to be fined for violating the Eurozone’s Stability and Growth Pact (SGP), with its budget deficit of more than 4 per cent?

On the contrary. Dombrovskis, responsible for policies regarding economically ailing member states, announced that ‘France is given until 2017 to correct its excessive deficit.’ Also no ‘excessive deficit procedure’ was to be triggered for Belgium, Italy and Finland, though these countries have been violating the rules of the eurozone. Rules that have been made stricter after the euro crisis broke out in 2010.

Breaching the rules for a decade?

Now that the member states have accepted the Commission’s recommendations on France and other violators, the SGP seems quite dead. France has been breaching the rules since 2007 and had already missed two earlier deadlines, to fix its budget. Though described as ‘a complicated case’, France is treated gently because it is big.


French president Hollande with Greek prime minister Tsipras

How striking is the contrast with the member states that are on a lifeline of the EU. The Commission takes a much tougher stance on these countries, including Greece, Portugal, Spain and Cyprus. Because of the excessive deficit procedure, which the Commission calls The corrective arm, these member states have to listen quietly to the dictates from Brussels. Or else, the financial assistance may be ended. We saw the drama unfold with Greece only a few days before France was given yet another deadline. This week the head of the Eurozone group, Jeroen Dijsselbloem, told the Greeks bluntly “to stop wasting time.”

Of course countries that receive billions from other member states, cannot be let easily off the hook. But current eurozone policies can have some dire consequences. According to one influential Commissioner, the German Günther Oettinger, “the credibility of the Stability and Growth Pact it at stake” if France was going to get more time. He was joined in his criticism the former Commissioner Olli Rehn, known as the ‘budget czar’ who stated that the Commission should have had “the guts and sense” to draw a red line for France.

The risks involved

Applying double standards on member states looks like a strategy of flexibility, but it is accompanied with huge risks.

Why do we ask huge reform efforts from Portugal, Ireland and Spain and notably Greece, while the French government is given a free hand? France is big, rich and at the centre of the EU; Greece is small, poor and on the periphery. Refusing to pull the red card for France means the powerful have an advantage, and the concept of solidarity may well be a hollow one. We already saw the limits of this solidarity with the recent new demands from Greece: not Germany but the Baltic states, Spain and Slovakia were the first to push back ideas on raising minimum wages in Greece.

How will the market and investors react to these unequal treatments? They may well conclude that the eurozone governance is more or less an exercise on paper and shouldn’t be taken too seriously. And such an analysis may lead to less investments in the eurozone.

Several richer member states have gone through some serious reform efforts in the past few years, for instance the Netherlands who were told by the Comission in 2013 to increase their budget cuts with 6 billion euros. Right now they will be less inclined to put faith in the Commission’s words. Even the Belgians, who have a much higher state debt than the Dutch, are not close to being fined by the Commission. The current and past Dutch government pushed through some tough austerity measures – and now they realise that following up the orders from Brusssels wasn’t necessary at all.

Several respected EU researchers have started to conclude that the Stability Growth Pact is “dead and buried” with the latest move of the Commission. If sanctioning never takes place, how much value should we attach to the governance of the eurozone? Especially because the Juncker team has chosen to be a more ‘political’ Commission rather than just taking up the independent position that is the foundation of its power and legitimacy. What we now see, is Commissioners negotiating intensely with member states breaching the rules, instead of just sending them to the corner of the room.

Growth is slowly, slowly coming back. The extremely high levels of unemployment are diminishing month by month. But a full recovery of Europe’s economy is still far away. Bending the rules will not help this recovery: instead it will only further erode the already fragile solidarity between the member states, damage the reputation of the European Union and scare away investors. Therefore it is regrettable that the Council has accepted the soft stance to France and other breachers of Europe’s own rules. Equal treatment means we European are birds of a feather, not a bunch of separate flocks.

Joop Hazenberg is an independent EU Watcher in Brussels.