Yesterday the European Commission kicked off its 2017 economic semester – its annual cycle of budgetary surveillance introduced in the wake of the financial crisis.
But tacked on to the usual analysis of the budgetary plan of each member state was a “communique” which recommended that the euro zone embrace a policy of fiscal expansion next year, equivalent to 0.5 per cent of gross domestic product for the euro area. The aim is to avoid the “low growth, low inflation” trap.
EU commissioner Pierre Moscovici admitted the move was an effort by Brussels to respond to the climate of Euroscepticism, particularly in countries such as Italy and Spain where governments have to communicate to an increasingly sceptical public why they need to meet stringent EU budget targets.
Interestingly, the announcement coincided with US president Barack Obama's visit to Europe. While concerns about a possible shift in US foreign policy following the election of Donald Trump are likely to dominate discussions between Obama and his EU counterparts this week, the outgoing president also made clear he would be using his final European trip to deliver some economic home truths.
Prosperity delivery
"In my message to the rest of Europe I will continue to emphasise our view that austerity alone cannot deliver prosperity," he said on Tuesday, standing alongside Greek prime minister Alexis Tsipras. He also called for more debt relief for Greece, echoing calls from the International Monetary Fund which has consistently argued that significant debt relief is a prerequisite for the fund's involvement in the third Greek bailout. Within hours, Berlin shot down the idea of further debt relief, but the issue is likely to surface in meetings between Obama and German chancellor Angela Merkel on Friday.
With a series of referendums and elections looming across Europe within the next year – including Germany – most politicians are likely to endorse whatever EU financial policy sits best with their voters.
Nonetheless, the next scheduled eurogroup meeting on December 5th should be interesting – both the Greek bailout and finance ministers’ first reaction to the new policy of “fiscal expansion” will be on the agenda.
