28 June 2013

KAS: A Summit of good news?

In the short term, this summit demonstrated decisive European action which sent an important signal to the financial markets. However, it is alarming that the will to implement sustainable reforms and work on the renewal of the framework for EMU in some Member States is either already weak or dwindling.

Translated from the German

The main topics of European Council meeting were short-term measures against the economic and financial crisis, i.e. fighting youth unemployment and financial support for the European economy.

In the short term, this summit demonstrated decisive European action in crisis: the rapid mobilisation of funds for the fight against youth unemployment, the agreement on the Multiannual Financial Framework, the agreement on a common banking resolution policy - all good news and an important signal to the financial markets as well as to citizens.

The support of private investment by European Commission and EIB is very useful if on the open market. However, keeping the AAA rating by the EIB - which is completely justified -  will assure that we are not going to see a sudden massive expansion of lending. Given the fact that the effects of structural reforms are usually only visible over time, the focus on short-term instruments is natural. However, this should not be a substitute for medium and long-term measures. It is alarming that the will to implement sustainable reforms and work on the renewal of the framework for EMU in some Member States is already weak or dwindling.

The agreement on a directive on banking resolution shortly before the summit was undoubtedly an important signal - although the mechanism has yet to prove effective under strain. Before the European elections in 2014, the other elements of a banking union should be put in place in order to avoid an EU credibility crisis. The basic problem is that there is still no consensus on the design of economic policy coordination.

Full report (in German)

© KAS - Konrad Adenauer Stiftung