Left with few choices, the EU Commission has given crisis-struck countries more time to reform. Now it's up to member states, especially France, to use the time to implement these reforms, says DW's Bernd Riegert.
It was report card day in the European Union. The EU Commission looked into the economic and financial polices of all 27 EU members and soon-to-be member Croatia and gave its recommendations to national governments. It's a task the Commission undertakes once a year. Following a series of reforms undertaken in the light of the debt crisis and designed to control budgets and to integrate economic policy, the Commission's reports carry weight. This year's results are partly sobering and partly hopeful
It's particularly disappointing that France, as the second-largest EU economy after Germany, is not getting anywhere. New state debt is too high and the French economy is not competitive. The Commission calls for reforms that the French government is hesitant to put in place. The EU Commission has been accommodating, and has given France more time to reach its deficit goals; in response it wants to see a long overdue reform of the French pension system.
The extra time needs to be put to use
Spain, Slovenia, Portugal, Greece and the Netherlands also got more time - it's the only way governments in these countries will be able to avoid more punitive deficit proceedings. Strictly speaking, these countries should not be allowed to circumvent the deficit rules, but the actual situation in the countries has forced the EU Commission to be more lenient. It didn't really have a choice as the deficit enforcement measures would have only made the crisis even worse.
The fundamental problem, namely the high level of debt in government budgets and private households, however, is far from being solved. Debt levels in the 17 eurozone countries will soon reach 100 percent of the bloc's annual economic output. Euro rules place the limit at 60 percent. And debt levels continue to rise. Only a handful of countries have curbed their debt. One of them is Germany, which has thankfully proved to be resistant to much of the crisis. But in most member countries the message has still not been received, EU Commission President Jose Manuel Barroso correctly complained. The reform process is taking too long and is being sluggishly implemented.
ECB is not all powerful
There are still 20 states breaking the EU's deficit rules, which limit new debt to 3 percent of GDP. But Italy, Hungary, Romania, Latvia, and Lithuania have been able to escape the deficit process. Italy's new debt level has fallen below the 3 percent hurdle, but the crisis still has the country tight in its grasp. Unemployment has reached record levels - as it has across southern Europe. Italy's total sovereign debt amounts to 130 percent, a level that cannot be financed over the long term. Countries currently struck by the economic crisis do have some room to maneuver as they can still get credit from financial markets at low enough interest rates to meet their needs. But it's room that the European Central Bank gave to them when it promised to print money to save indebted countries. It's a guarantee that won't work forever and real reforms and economic development will have to follow.
Meanwhile, it is becoming clear that having the European Central Bank turn on the printing press is not an answer that companies in the real economy are happy with. Other than Germany, small and medium-sized businesses are getting fewer loans from their banks. The credit crunch is a serious problem. Trust is lacking and that's not something the ECB can supply to order.
Where is the political will?
The EU Commission only sees light on the horizon in 2014 or 2015. The main point of concern is not Greece, Cyprus or Slovenia, but France. The future of the eurozone will be decided in Paris. If France doesn't do its homework, it could rattle the rest of the common currency area. German EU Commissioner Günther Oettinger's assessment that France is not capable of reform is too harsh. But Oettinger's comment that "Europe needs a thorough reconstruction" put his finger on the problem and forced a necessary discussion.
Experience has shown that it's real pressure - and not just words - that gets countries to take action. In June, the EU heads of state and government will endorse the EU Commission's reports. Whether they then put the recommendations into effect remains to be seen. The reports from 2012 sounded similar, but not enough has happened since. It's in Europe's interest for that to change.
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