Editorial
By THE EDITORIAL BOARDPublished: May 4, 2013
Economic conditions in Europe, especially in troubled nations like
Spain, Portugal and Italy, have deteriorated sharply in recent months.
Worse, new data released last week
provides no hope for a recovery soon. The unemployment rate in the 17
countries that use the euro hit a record of 12.1 percent in March, up
from 11 percent a year earlier. In Spain and Greece, more than half of
the labor force under 25 is looking for work.
The good news, if it can be called that, is that a barrage of negative
economic data appears to have stirred European leaders and senior
officials at the International Monetary Fund into finally acknowledging
that the Continent’s austerity policies are imposing unnecessary pain and suffering on average Europeans while doing little to lower debts and deficits.
José Manuel Barroso, the president of the European Commission, recently
declared that austerity “has reached its limits in many respects.” And
David Lipton, the first deputy managing director of the I.M.F., recently
called on Europe to adopt “more growth-friendly”
policies and encouraged the European Central Bank to use unconventional
measures like bond purchases to increase credit and stimulate the
economy. This awakening is fine as a start. But real change will come
when European leaders start reversing damaging budget cuts and
restructuring their fragile banks. That means changing the status quo,
no easy task. For starters, countries that use the euro have committed
to maintaining fiscal deficits no higher than 3 percent of their gross
domestic product as part of a “fiscal compact” with one another. And
despite the fact that France, Portugal and several others are already
struggling to meet that cap, even after raising taxes and slashing
spending, nations like Germany and Finland remain committed to
austerity. This is not smart. Enforcing these limits in the middle of a
deep recession will not lower labor costs, increase competitiveness and
reduce debt. On the contrary, it will simply perpetuate the downward
spiral that weaker countries are stuck in and foster widespread anger
without providing any meaningful economic payoff.
Meanwhile, a promising effort to deal with troubled banks appears to
have been sidetracked or at least slowed. In December, the European
Union agreed
to centralize the supervision of large banks under the European Central
Bank by March 2014 as a first step toward a banking union. But Wolfgang
Schäuble, the finance minister of Germany, recently suggested that E.U.
members first renegotiate changes to the union’s treaties to clearly
separate the monetary and supervisory functions of the central bank.
Wrangling over technical amendments could easily delay the broader
effort to put the whole financial system on sounder footing.
At a meeting later this month in Brussels, E.U. leaders plan to discuss
ways to improve the currency union, but they do not anticipate changing
basic policies. In fact, analysts expect no major action until after
Germany’s national elections in September. The conditions of 26.5
million unemployed Europeans who need help right away should not depend
on an election that may or may not change anything.
