More words and still no action in Europe?

European economies are struggling to get their finances in order. They have implemented all sorts of austerity measures and are cutting back on spending causing widespread mayhem. Many Europeans are now questioning the wisdom of just cutting back without having a clear plan as to how to grow the European economy.

European Union leaders are doing what they always do; they just talk! They have already met at two summits this year to start discussing on how to “jumpstart” growth and create jobs. The problem with this is that politicians have no idea how jobs are created. The only thing they know is how to create red tape (and the well paid non-jobs that go with it) to slow down any initiative that might produce real jobs.

The last few years have been a massive PR exercise to convince the markets that Europe is actually doing something about the deficit. They have bailed out Greece, Ireland and Portugal and have introduced unpopular budget cuts and structural reforms in the hope that the financial markets will believe that Europe is getting rid of excessive deficits and debts.

On top of that, 25 of the 27 EU states have signed a German-driven fiscal pact that will force European countries to balance their budgets. Portugal has already ratified the agreement, but it needs 12 ratifications to come into force. It might become a European law, but we’ve seen this before with the 3% rule, where countries weren’t allowed to go over budget by more than 3%. If they were they were supposed to pay a fine. The moment Germany and France breached the rule it was cast aside!

The frontrunner in the upcoming French presidential election, Socialist candidate Francois Hollande, already wants to renegotiate the new fiscal pact if he is elected in order to insert a growth agenda into the treaty. This is causing alarm bells to go off all over Europe.

What is most likely to happen is that after his rhetoric he might get the presidential job, but he will have to water down his demands and stick to the “party” line set out by Sarkozy. Talk as usual….

There are no real visions about growth in Europe. The various EU governments are divided as to how to tackle the problem. In the past the EU didn’t need to talk about growth stimuli as they simply opened their borders, so companies from member states could trade more easily.

Now twelve nations, led by Britain’s Prime Minister David Cameron and his Italian counterpart Mario Monti, claim that the path to growth lies in further opening the single market and reforming labour markets. The Franco-German team of Merkel and Sarkozy see the solution through deeper integration of fiscal policies.

It’s the old debate between a socialist (French/German) and a liberal (UK/Italy) approach. Does Europe want more (French/German) or less (UK/Italy) government? Given how the EU is structured the Franco-German approach will probably prevail and we’ll all be sucked into a European fiscal super state.

Be prepared for more red tape, more rules, more government jobs and less economic activity. If only the EU was as bold as the governor who transformed Hong Kong from a small fishing village into the modern day economic power house. All it took was a hands off approach, instead of the EU’s favoured approach of meddling in everything.

Things won’t look up unless the EU gives the economic initiative back to the people.

What’s your view?


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