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The European Council, what really is at stake

Announcements of economic recovery plans are mushrooming.

In their efforts to face the financial crisis EU Member States have mobilised 1,800 billion euro in guarantees, twice the amount put forward by the USA.

For the recovery there will not be any European economic pilot since the diversity of the local situations obscure any European effort in this direction.

However if we look a little closer the formulae used are all more or less the same, adapted to specific circumstances: urgent aid to the poorest, who are the most affected by the abrupt slowing in the economy; massive investment in infrastructures, support to key sectors – the first of these being the car industry.

Here we find the main announcements made by the European Commission which tried to overcome the lack of any true European budget by indicating a framework in the shape of recommendations – designed to provide coherence to the measures decided upon by the various Member States to a total amount of nearly 200 billion, to which it will, for its part, only add 16 billion.

One exception however, is the reduction of the VAT rate, whose effects on consumption are unquestionable do not seem to have met with the agreement of all the national governments. 

They are pleading in favour of recovery via investment rather than consumption. We should be glad of this choice if it really focuses on preparing for the future and does not look back to the past. We should be looking to optical fibre rather than new roads! But the reality of the situation is crueller. The fragility of the budget justifies this preference. Germany has caught up on its deficit thanks to a two point increase in its VAT rate. France would not be able to reduce it without worsening its own deficit dramatically. .

As for the UK which has just reduced its VAT rate by 2.5 points to 15%, did it have any other choice but to run into an 8% budgetary deficit since the financial crisis is affecting it so badly?

But how can we harmonise the EU's economic and tax policy if there is no budget worthy of the name? Rising to a total of 129 billion euro in 2008 it will even decrease in 2009 to represent a mere 0.89% of the Union's wealth!

By refusing the European institutions the political means which are demanded of them the Member States can only count on one leg to run the economic race ie the monetary policy. The crisis has demonstrated that the ECB managed its share of the burden perfectly and that the euro played an unquestionable role as shield in the turbulence. Queues in front of the banks were not something to be seen in the euro area!

Will the economic crisis convince the Member States to do the same in terms of the overall economic policy – ie the budgetary policy?

There is so much to be done to provide impetus to private research, to support those who have technological know-how, enhance the biggest consumer market in the world that represents 495 million Europeans and which has so many other significant advantages!

There has been much criticism of the French request for an economic government of the Union. Maybe this is not the right way to express this since it is difficult to differentiate between economic government and just government.

Nevertheless the question has now been openly tabled. More than co-ordination, which obviously already exists, it is unity in decision making, rapidity in executing those decisions that Europe needs with regard to economic issues. A real budget is vital to provide the Union with the ability to keep up with the others.

This is the second leg that will lead to greater integration in terms of the economic and taxation policy. This is the first lesson we have learned in this crisis.

Let us hope that the last European Council of the French Presidency – which already has a heavy agenda - can take this idea forwards.

It will take time but on 11th and 12th December the European economy will choose its future when it chooses or refuses a common response to the crisis.