Draghi’s Growth Pact: Austerity Backlash Unites European Leaders

Published on Spiegel Online International, by Stefan Kaiser, April 27, 2012.

Be it austerity queen Angela Merkel or Socialist François Hollande, European politicians are suddenly in agreement with ECB President Mario Draghi’s proposal to round out the European fiscal pact’s austerity measures with a “growth pact.” But many seem to have a different idea about what this means.  

It’s so nice to see Europe in agreement once again. Whether it’s German Chancellor Angela Merkel, European Commission President José Manuel Barroso or French presidential candidates François Hollande and Nicolas Sarkozy — everyone seems to think a “growth pact” for the continent is a good idea. But it is precisely this agreement that should make one skeptical — because all the vague phrase really does is verbally lump together Europe’s tremendous conflicts of interest.

The suggestion came from European Central Bank (ECB) President Mario Draghi. “We have had a fiscal compact,” Draghi told the economic and monetary affairs committee of the European Parliament on Wednesday, referring to the treaty European governments signed in March, pledging to toughen their spending rules. “What is most present in my mind now is to have a growth compact.”

Since then, the concept has garnered acceptance from all sides. “Growth is the key, growth is the answer,” European Commission President Barroso said in a speech. In France, where the presidential campaign continues, both conservative incumbent Sarkozy and his Socialist challenger Hollande saw affirmation of their own positions on the issue. Hollande said it went in the same direction as his earlier policy suggestions, while Sarkozy said that a policy based on austerity alone would be a mistake.

Devil in the Details: … //

… Austerity Backlash:

Opposition to this austerity dictate is growing — and it’s not just the French who want to renegotiate the fiscal pact. The Dutch, who have so far been viewed as dependable supporters of Merkel’s euro policies, are also threatening to veer away from the path of savings.

At the beginning of the week, Prime Minister Mark Rutte’s government resigned after failed austerity talks. Before it goes, his government wants to ensure that all austerity measures it has already agreed to are implemented, but it remains questionable whether it can succeed with those efforts. With the country locked in a recession since last summer, criticism of the budget consolidation policy has grown increasingly loud in the Netherlands.

In crisis-burdened countries like Italy and Spain, as well, grumbling over the fiscal pact has also intensified. In April, Italian Prime Minister Mario Monti announced his goal of achieving a balanced budget in the coming year. “Everything, everything, everything that we are doing now is aimed at helping growth,” he said.

At first glance it appears that Draghi supports such efforts with his “growth pact.” But a closer inspection revels that the ECB chief doesn’t want to go that far. The heavily indebted countries must cut their deficits, he said, calling it “unavoidable.” (full Text).


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