Editor's note

Helping hand to the Baltics

Concluding a two-day summit in Brussels, EU leaders also sought to strengthen market confidence in central and east European economies by doubling the size of an EU balance of payments facility fund for non-eurozone countries to 50bn euro ($68bn, £47bn). This amount goes primarily to the Baltic Sates and other central and eastern European member states.

The EU leaders took their decisions two weeks before the EU, the US, China and other advanced and emerging countries to take place in London on April 2 for a global Group of 20 states’ summit on reforming the world’s financial system. José Manuel Barroso, the European Commission president, said that the EU countries had reached a common position, now it is the US turn, so a common “global approach” would be sealed at the G-20 summit in April.

EU pledged fresh 75 bn euro to fight present crisis; in this way the EU enters the global battle against the global economic crisis affecting Europe as well. This amount is a new contribution to the International Monetary Fund, in part, to forge a deal with the US on stricter financial market regulation.

With the additional stimulus agreed, the EU “package” presently almost equals that of the US. Now it is, correspondingly, 5,5 per cent of the US GDP and about 4 per cent of the EU-27 GDP. 

But with two different approached to development on both sides of the Atlantic, these figures do not have to be equal. Main distinction lies in the European welfare system based on substantial social protection, which is generally lacking in the US. Putting more resources into social security than the EU, the latter allocates more resources to social spending. This was the reason that the EU officials often resisted the EU appeal to increase economic stimulus.   

Tax havens

Barroso rejected suggestions that EU policymakers, who are preparing tougher measures against tax havens, hedge funds, private equity groups and executive pay, were cracking down on “easy targets” that had not been the fundamental causes of the crisis.

“For more than 30 years the Commission was trying to get co-operation from non-co-operative jurisdictions. And now they’ve moved”. It was not an easy solution, he added, referring to tax havens such as Andorra, Liechtenstein and Switzerland, as well as to some “operating” territories in the EU countries.

Mr. Barroso, however, said the US had been as determined as the EU to use the global crisis as an opportunity to make Switzerland and other countries with bank secrecy rules open up their systems.

Efficient European energy

The EU leaders approved several initiatives on this regard, e.g. to cut long-term dependence on Russian energy, to diversify sources of supply and transit energy routs, and increasing energy efficiency in Europe. The EU currently energy import consists of Russia’s 33 per cent oil and 36 per cent gas. By 2030 the gas figures would climb to 60 per cent if nothing radical were done.  

The EU leaders were forced to find a compromise on a Commission proposal, blocked about 3 months ago, to allocate additional 5-bn euro on technology issues connected to energy and broadband infrastructure programs across Europe. Germany lifted its objections on condition the money is spent by the end of 2010. About 200 mln euros of the funds will go to the Nabucco pipeline project, aimed at bringing gas from the Caspian Sea to Europe using routes avoiding Russian territory.

First of all, implementing financial regulations need better coordination. The Union is split by two “systems”, i.e. euro-area with more strict financial and monetary rules and other member states with less coordinated monetary approaches. 

Besides, Germany and France see a deal on stricter financial regulation as a priority for the G20 summit. They suspect that once the summit starts, the UK too (though being in favour of tougher rules, rejected strict regional approach) will lean to the US position because of the importance of London and New York as world financial centers. Hence, the UK plan is often rejected by other EU members.

Second, implementation measures, in general, are complicated enough; they are definitely full of problems being mostly of the inherent regional nature. Thus, the Commission’s president argued that the obstacles are in the nature of European countries’ regional models. “While I recognize certain differences in legal and financial culture between the so-called Anglo-Saxon and continental European models in development, what I see as a trend is convergence, and not at all that there’s some big fight”, Mr. Barroso said. This sounds quite optimistic, though it might be still difficult to overcome.

The third is the EU member states’ intentions to “sub-regionalism”, i.e. various recent EU’s “presidencies” have explored that: during French one –towards Mediterranean region and during Slovenian’s – towards EU neighbors on the East. No doubt that the coming Swedish EU presidency for the second half in 2009, tends to be towards “Baltic Sea Strategy”! 

On top of this, there are political forces that are feeding strong intentions of economic nationalism and protectionism. It was important too to rein back excessive executive pay, which had become a question of business ethics and moral.

Something for the conclusion. Sooner or later the recession is over and immediate challenges would again confront political leadership in the EU and the member states. Thus, prosperity in European states can come, as global capitalism through last two decades has shown, mainly from sources, which are not at present, really, the Europe’s best advantage, to say the least. These are first of all such spheres as business activity innovations, labour productivity, allocations for R&D and education. So far the mood in Europe is against economic liberalism favoring active protectionism, which means more active role of state and public institutions, whereas more dynamic entrepreneurial approaches are needed. All these things are too important to be neglected.