EU power grab sees creation of budget ministry
Published 17/11/2016 | 02:30
Authorities in Brussels have announced plans to develop what will become a eurozone finance ministry in an unprecedented budgetary power grab.
The European Commission has ordered a collective fiscal stimulus, or spending plan, of around €50bn for the 19-country single currency zone next year, amounting to 0.5pc of the size of the Eurozone economy.
The move was made possible under new powers the Commission gained during the financial crisis, and is in part designed to undo its reputation as a champion of austerity.
"Today is an important moment," said European Commission economics chief Pierre Moscovici.
"The Commission is, in effect, acting as a finance minister for the euro area - a collective minister," he added.
While Brussels will order the extra spending, countries themselves will have to fund it.
"What we want to do is to provide 19 member states with an overall target, striking a balance between supporting growth - which is the Commission's political priority - and, on the other hand, compliance with the rules, which is our legal obligation," he said.
Growth in the eurozone has been sluggish since the end of the crisis, coming in at an estimated 1.7pc this year and 1.5pc in 2017 - well below world GDP growth. Eurozone unemployment is still persistently high, at just over 10pc this year.
Also, despite interest rates at zero or close to zero, and large-scale European Central Bank bond buying, inflation is still only around 0.3pc - well below the ECB's 2pc target.
Critics blame this on the fact that the eurozone pursued contractionary fiscal policies during the crisis, particularly from 2011 to 2014.
The Commission believes that now is the time for a fiscal expansion, "to overcome the risk of a 'low-growth, low-inflation' trap".
But while Mr Moscovici and his colleagues have the power to order budget cuts and punish those who fail to carry them out, they don't have the same right to enforce a fiscal stimulus and have struggled to convince some countries, including Germany, to spend more.
In a report published yesterday, the EU executive said budgetary policy in the eurozone is currently a "largely random" aggregate of 19 national policies.
Mr Moscovici wants to replace this with the "political will" to align national budgets for what he said was the good of the entire eurozone.
Ireland is not one of the countries being asked to spend more, however.
Instead, the Government was told that spending increases and tax cuts fuelled by "volatile" tax revenues risk breaching EU budget rules this year and next. Belgium, Spain, Finland, France, Italy, Slovenia and Portugal are also being asked to do more to pay down their national debt, which is close to or greater than 100pc of GDP.
Spending increases will therefore rely on expansionary policies in Germany, the Netherlands, Luxembourg, Estonia, Latvia, Malta, which have "fiscal space" to do more, the EU said.
It estimates that annual public investment worth 1pc of GDP in Germany and the Netherlands over 10 years could boost growth, lifting GDP by 1.1pc and 0.9pc, respectively.
Eurozone finance ministers will discuss the proposal on December 5.