Hotspot Eurozone: Is the Crisis Over?

Thursday, 18 April 2013, 3:00pm – 4:15pm

Panelists:

  • Ali Babacan, Deputy Prime Minister for Economic and Financial Affairs, Turkey
  • Anders Borg, Minister for Finance, Sweden
  • Jeroen Dijsselbloem, Minister of Finance, The Netherlands and Chairman, Eurogroup
  • Pierre Moscovici, Minister of the Economy and Finances, France

Moderator:

  • Gillian Tett, Assistant Editor and Columnist, Financial Times

European and Turkish finance ministers consider cures for an ailing eurozone

Finance ministers from Turkey, France, Sweden and the Netherlands gathered at the 5th annual Bertelsmann Foundation-Financial Times conference to debate the travails and future of the eurozone.

Moderator Gillian Tett, assistant editor and columnist for the Financial Times, opened the discussion by outlining the stark questions facing the economic and monetary union.

Can it “actually function effectively as a single currency bloc?”, she asked. “And what further reforms are needed to not merely make the single currency system work, but also actually get growth on track?”

The first nation to be dissected was France. The country’s finance minister, Pierre Moscovici, recently acknowledged that his country would not meet its budget deficit target this year, which, by European rules, would put it at three percent of GDP.

“To what degree do you think that signals a broader retreat from the emphasis on austerity across the eurozone,” Tett asked. She also wondered about Germany’s response to the decision.

Moscovici reassured the audience that France aims to hit the three-percent target next year. He added that currently weak growth projections render the target unrealistic for 2013. An attempt to reach the three-percent goal now “would be choosing to put our own country into recession,” he said.

France will continue to pursue structural changes that will move it closer to its deficit target. But in the meantime, he said, the nation must “try to keep open the engine of growth” and must pursue a “balanced” approach toward economic reform.

As for the German response, Moscovici said he is confident that German leaders with whom he has discussed the matter understand the “logical” underpinnings of the French reasoning.

Turning to Swedish Finance Minister Anders Borg, Tett pointed out that austerity seems to have worked in his country and asked if Europe was simply not implementing that policy correctly or comprehensively.

Borg agreed that austerity had bolstered the Swedish economy but also credited a strong stimulus program. He disagreed that Europe is showing signs of backtracking from austerity. The French, he said, “did some heavy lifting in 2011 and 2012”.

Tett then turned to Turkey’s viewpoint and asked if the country’s deputy prime minister, Ali Babacan, was reassured by the European approach to the crisis.

“In the eurozone especially,” Babacan responded, “many countries have a long to-do list. [Austerity] is a very country specific question and should focus not just how a nation deals with a deficit in a particular year but on credible medium-term programs.”

“It’s about debt dynamics into the future,” and how a budget deficit will change within, at minimum, a three- to four-year timeframe, Babacan added, calling for a eurozone fiscal and banking union.

Such a union is emerging slowly, Tett remarked, before asking if Turkey would today join the single European currency.
Babacan smiled diplomatically and referred to another related issue. “We would very much like to be a member of the European Union,” he said to laughter and applause.

Borg was more direct in his approach to Sweden’s joining the Eurozone. “I voted ‘yes’ when we had a referendum in Sweden,” Borg said. But he noted that only about 10 percent of Swedes currently share his view. “It’s a little bit of a theoretical question for me as a politician.”

Dutch Finance Minister and Eurogroup Chairman Jeroen Dijsselbloem took issue with Tett’s assertion that eurozone members have made little progress toward banking union.

The second half of last year was a time of tremendous successes, Dijsselbloem said. “Already the first basic element, the single supervisory mechanism, is going to be completely sealed,” he added, referring to the creation of the European Stability Mechanism.

Cyprus then entered the discussion. Tett asked if there would be a uniform response to acute banking crises that compound doubts about the eurozone’s viability.

Cyprus’ situation is unique, said Moscovici. “Where else was there a kind of financial offshore island with such a disproportion between the size of the banking sector and the size of the economy?”

“There is no more existential crisis in the eurozone,” he said. “There is an economic crisis in the eurozone, a growth crisis in the eurozone.”