In the last few days a couple of events in the EU provide some clues to the EU approach to tackle the economic and financial crisis.
The most important clue is contained in the Competitiveness Council conclusions. The Key Issues Paper “Responding pro-actively to the economic downturn” includes Council positions on several issues. The Council stresses the necessity “to achieve an open, flexible and fully functioning internal market by removing existing barriers to fundamental freedoms and avoiding the creation of new ones”. This is probably the most important message, once again repeated with view of the external direction of the internal market: “open markets, both in the European Union and globally, are crucial to ensure growth and jobs.”
This is a really important aspect of the EU policies in tackling the crisis. If we are to believe the prevailing economic theory, it was indeed protectionism and market barriers that exacerbated the Great Depression.
The Council has also addressed the auto sector claims for a financial bail-out. There it calls for the EC and the EIB Group to prepare proposals for the Spring European Council as to how to limit the liquidity gap and improve the access to finance for the industry. Again, the Council stresses on “the need to refrain from protectionism and discriminatory measures in the global car market”.
Equally important are comments by the Commission president Barroso on ideas for EU-backed government debt, or a single EU bond. He said “I don’t think it is useful to make speculations over ideas that have no chance at all of being decided”.
Barroso also dismissed the idea of fast-tracking some EU member states into the euro zone, claiming it could destabilize it.
At the same time the ECB has lowered its key interest rate by 50 basis points to 1,5%. The ECB believes that both global and domestic demand will decline in 2009 but thereafter recover gradually.
A general assessment can be made that the EU institutions view this crisis as a serious threat to the EU economy, but not as a terminal threat. However, some economic experts believe that this is not the case, and that real hardships are ahead, demanding much stronger policy measures (see this piece by Eurointelligence, as well as a devastating report by Absolute Returns Parrtners called “Europe on the Ropes”).