Not punishment but persuasion


It was very revealing how the European Commission on Wednesday tip-toed around the fact that it is sanctioning Hungary for its excessive deficit.

The various commissioners and spokespeople delivering the message made all sorts of qualifying statements to accompany the decision.

This is “not a kind of punishment” but an “incentive.” “This is not about the Hungarian government.” “This is about implementing the rules.” “It is dissuasive” and can be reversed.

Under the decision, broadly given the go-ahead by member states earlier this month, Hungary will lose €495 million of EU cohesion aid commitments from 1 January next year.

It is the first time this clause in the Cohesion Fund – a fund to be used for environment and transport infrastructure – has ever been used.

It is also a useful highlight of the difficult juncture that the EU finds itself in. For years, there has been much discussion about the fact that the old rules underpinning the euro were never properly enforced (France and Germany had a get-out clause by virtue of being France and Germany) while the old set-up meant that by the time sanctions were being considered, the problem was already far too entrenched.

The rules have since been revamped. The six-pack of legislation, which came into force last year, gives Brussels far greater surveillance control over national budgets. Meanwhile, two further laws given the first ok by finance ministers on Tuesday, would essentially put into law many of the suggestions that have caused so much controversy with regards to Greece.

Designed only for eurozone countries and containing clauses for those countries in “severe” financial difficulties, the laws would effectively remove the troubled country’s discretionary spending power and allow the commission to unilaterally decide to send in a taskforce to monitor decision-making.

All eight laws are part of an overall response to make sure a eurozone debt crisis  can never occur again.

The rules were drawn up in remarkable time. And they represent a huge shift in relations between Brussels and national capitals. Before the onset of the crisis, the measures contained in the new rules would have been unthinkable.

Now there are here. But no one has, in fact, done much thinking about them.

When Belgium received its ‘do this, or else’ threat from the European Commission late last year, Paul Magnette, the country’s enterprize minister, reacted by demanding who exactly EU monetary affairs commissioner Olli Rehn is.

“Who knows Olli Rehn? Who knows where he has come from and what he has done? Nobody. Yet he tells us how we should conduct economic policy.”

Belgium did actually do as Rehn requested. But the points raised by Magnette – admittedly rather late in the day  – are bound to be raised in the future too.

Hungary, a non-euro member, can get out of the punishment at any time by falling into line (although by 2015, the money will be lost for good). But euro countries get warned earlier on in the process and with tougher financial consequences.

“Prevention is always cheaper than correction,” a spokesperson said Wednesday. That may be so. But it is one thing hearing about belt-tightening from a government that you think you will have a hand in booting out at the next election.It is another hearing it from the European Commission. (Belgium, it should be noted, opted for the slightly more palatable spending freeze rather than actual cuts in response to Rehn’s demand.) We’ll soon know. There will be many more such letters from the commission to national capitals in the future.

  1. #1 by Victor on February 22, 2012 - 8:11 pm

    The belt tightening is being demanded by markets. So it would be imposed one way or another. The problem is the markets either react late or overreact.
    The citizens for their part seem clueless and don´t react at all. And when they do it is usually to elect a populist politician who lies about the sacrifices required (the only notable exception so far being Latvia).
    There is no discretion in running your debt above the size of your economy.
    At least Europeans will be able to self-supervise. The rest of the world has to live without bailouts and with the IMF and financial markets breathing down their necks.
    And from a legal and legitimacy point of view, EU countries committed to not run such large deficits and have such large debts. Everything in the EU is a quid pro quo. This is how civilization works.

  2. #2 by Marcel on February 22, 2012 - 10:12 pm

    The arrogant unelected undemocratic Eurosoviet Politburo strikes another blow against democracy.

  3. #3 by caribbean charter on May 11, 2012 - 12:12 pm

    The rules were drawn up in remarkable time. And they represent a huge shift in relations between Brussels and national capitals. Before the onset of the crisis, the measures contained in the new rules would have been unthinkable.

  4. #4 by yachts mediterranean on May 15, 2012 - 1:03 pm

    Belgium did actually do as Rehn requested. But the points raised by Magnette – admittedly rather late in the day – are bound to be raised in the future too.

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