Europe launches era of coordination

Brussels: Europe yesterday opened a crucial chapter in its efforts to end the deficits and debts plaguing the euro, with national budgets in the future to come under EU scrutiny before coming into effect.

Drawing from the costly lessons of the Eurozone debt crisis, now endangering Portugal and Spain, the European Union agreed on a series of steps in the past several months to reassure nervous markets.

Among them is the first ever "European semester," a programme kicking off Wednesday to coordinate economic and budgetary policy in the wake of fiscal disasters that led to bailouts of Greece and Ireland last year.

The initiative brings the EU closer to the elusive goal of economic governance between 27 vastly different countries, ranging from export-driven Germany to farm-heavy France and formerly communist Poland.

"Last year's developments have confirmed that piecemeal solutions are not enough: we need a comprehensive response," said European Commission president Jose Manuel Barroso, who described the new system as a "revolution."

"Europe can only be strong if it is able to act in a coordinated manner, with strong institutions, with a common governance, with stronger economic coordination," he said last week.

Public deficit

After years of loose book-keeping, Greece shook the euro to its core last year when it revealed a larger public deficit than previously reported, sparking a crisis that led to a €110 billion (Dh523.88 billion) EU-IMF bailout.

Ireland followed suit last month with a €67billion financial lifeline after the government pumped billions into struggling banks, pushing the deficit to 32 percent of national output, ten times over the limit set in EU rules.

In a signal to markets that it would shield the euro for the long run, the EU has agreed to change its core treaty in order to create a permanent financial safety net to help any country in trouble under tough conditions, replacing a temporary €750 billion fund expiring in 2013.

But to avoid being forced into shelling out more cash for spendthrift member states, the EU decided to raise the threat of sanctions against countries that run excessive deficits and debts.

Under the Union's Stability and Growth Pact, countries must keep their public deficits under 3.0 per cent of gross domestic product but most countries currently exceed the limit.

The EU will now get to review national budgets before they are adopted by legislatures.

The European semester's six-month cycle began yesterday when the European Commission unveiled an Annual Growth Survey on the impact of the crisis on the economy, employment, public debt and growth.