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It is time for debt busters

The night from 9 to 10 May 2010 will long stay in the memory of EU’s finance ministers. The more so that just until Friday 7 May everything seemed to be going according to plan.

The Greek government had adopted a three-year austerity plan. It pledged to cut the budget deficit from 13.6 % in 2009 to 8.1 % in 2010, and to cut it lower still to 4.8 % in 2013. An extraordinary meeting of eurozone leaders rubber-stamped financial aid to Greece amounting to 80 billion euros.

But a serious situation on the financial markets forced the leaders to convene an extraordinary meeting of finance ministers of the whole EU-27 and to quickly set up a new stabilisation mechanism on EU level.

Suddenly, it was not just Greece that was at stake.

The talk was of Spain and Portugal, with the names of more eurozone countries „hanging“ in the air. The main aim was to prevent a fall of the euro, the likes of which the EU has not seen since the common currency’s launch in 1999.

The agreement was reached just before 2 am on Monday morning not least because of the fact that the Japanese stock exchange was just waking up. The world markets needed to be sent a message that the EU has agreed on a package to preserve financial stability in Europe and created the European financial stabilisation mechanism in the volume of 500 billion euros. Thanks to the involvement of European Central Bank and International Monetary Fund, the sum total readied for financial aid and loan guarantees reached as much as 750 billion euros.

Quick aid must be followed by unpopular and painful measures. As of June, Spain will cut wages in the civil sector by 5 %, and by 15 % in case of government ministers. On 12 May 2010, the European Commission unveiled its proposal on strengthened economic coordination. The proposal calls for a more stringent supervision of EU Members States’ budgets as well as a much stronger emphasis on deficit reduction, and it proposes sanctions and more enforceable rules.

It also makes provisions for the so-called „European semester“. That means EU Member States should submit their preliminary budget proposals to the European Commission and the Council of the EU. If there is a threat of a significant budget deficit, they should amend their budget proposals before their finalisation and submission to the national parliaments. In eurozone countries, supervision should be enhanced with a more thorough analysis of financial outlook. The aim is to uncover threatening imbalances soon enough and to find solutions to structural causes of problems.

The proposal, and especially the „European semester“, caused controversies and will surely cause more as the proposal is debated. But no matter what the final compromise is, it is clear that, as the saying goes, no-one can have their cake and eat it too. We live in a globalised world and if we want to benefit from the single market, we need to realise that our own budgets concern other EU members.

Responsibility is a less attractive side of freedom. There is no gain with no pain. We cannot eat more than we earn. And new strategies and proclamations are not enough. By far, it is not only Greece, Spain or Portugal that are at stake. It is not only the euro that is at stake. It is time for debt busters. After them, the debt collectors often knock on the door. And they are much tougher, they will not be stopped.

In Brussels, 17 May 2010

Photo: Thierry Monasse