The insane Eurocrats

In July 2008, the European Commission decided that the UK had an "excessive deficit" under the terms  of Article 104 of the Maastricht Treaty. Estimating that Government budgetary plans for 2008-9 would result in a deficit of 3.5% of GDP, the Commission said
The excess over the 3 % of GDP reference value is not exceptional in the sense of Article 104(2) of the Treaty. In particular, it does not result from an unusual event outside the control of the United Kingdom authorities, nor is it the result of a severe economic downturn. The Commission services' spring 2008 forecast projects UK growth to slow in 2008 and 2009 to annual rates below potential. Nevertheless, GDP growth is expected to reach 1,7 % in 2008 and 1,6 % in 2009. The excess over the 3 % of GDP reference value is also considered not temporary, with the Commission services forecasting, on the basis of unchanged policies, a deficit ratio in 2009/10 still higher than 3 % (at 3,3 %). This indicates that the Treaty requirement concerning the deficit criterion is not fulfilled.
And it told the UK government to sort itself out pronto:
- The United Kingdom authorities should put an end to the excessive deficit situation as soon as possible and by financial year 2009/10 at the latest, in accordance with Article 3(4) of Council Regulation (EC) No 1467/97, by bringing the general government deficit below 3% of GDP in a credible and sustainable manner. 
- To this end, on the basis of the Commission services' spring 2008 forecast, the authorities should ensure a structural improvement of at least 0.5% of GDP in 2009/10. 
The Council establishes the deadline of 8 January 2009 for the United Kingdom authorities to take effective action to this end.
Now, we all know what happened next, don't we?

By the time of the January 2009 deadline the UK was in recession. European Commission staff forecasts at that time envisaged a GDP fall of 2.3% in 2009, though they still thought growth in 2008 would be slightly positive. You would think that the European Commission would decide that fiscal consolidation should be postponed, wouldn't you? Not a bit of it. In April 2009 the Commission reviewed the UK's progress against the targets for deficit reduction set in July 2008, and concluded that:
The United Kingdom has not taken action in response to the Council Recommendation of 8 July 2008 within the period laid down in that Recommendation. 
And despite acknowledging that the exceptional measures taken by the UK government in response to the financial crisis were in line with the European Economic Recovery Plan agreed in December 2008, the insane Eurocrats simply extended the deadline for the fiscal adjustment by six months:
On 27 April 2009, acting upon a recommendation by the Commission that took into account the Commission services’ January 2009 interim forecast, the Council decided that the UK had not taken action in response to the Council recommendation of 8 July 2008. In accordance with Article 104(7) and on a recommendation by the Commission, it addressed new recommendations to the United Kingdom with a view to bringing an end to the excessive government deficit situation by 2013/14. In its recommendations, the Council established the deadline of 27 October 2009 for the UK government to take effective action. 
Needless to say, the UK failed to comply with this deadline too. The European Commission's economic forecasts proved wildly optimistic: the UK economy collapsed by 4% in the fourth quarter of 2008 and shrank by nearly 6% in 2009.

The GDP fall itself increased the deficit in relation to GDP. Automatic stabilisers and a serious fall in tax receipts further increased it, and the fiscal stimulus under the EERP also added to it. By the time of the second deadline, far from reducing, the projected deficit for 2009-10 had increased to 13% of GDP.

So what did the Eurocrats do? They did at least acknowledge that the UK government's failure to meet its targets was due to "exceptional circumstances". But then they insisted on fiscal consolidation starting in 2010, with a view to eliminating the "excessive deficit" by 2014-15:
The United Kingdom authorities should bring the general government deficit below 3% of GDP in a credible and sustainable manner by taking action in a medium-term framework. Specifically, to this end, the United Kingdom authorities should:  
(a) implement the fiscal measures in 2009/10 as planned in the 2009 Budget, avoiding further measures contributing to the deterioration of public finances, and start consolidation in 2010/11 in order to bring the deficit below the reference value by 2014/15; 
(b) to this end ensure an average annual structural budgetary adjustment of 1¾% of GDP between 2010/11 and 2014/15, which should also contribute to bringing the government gross debt ratio back on a declining path that approaches the reference value at a satisfactory pace by restoring an adequate level of the primary surplus; 
(c) further specify the additional measures that are necessary to achieve the correction of the excessive deficit by 2014/15 cyclical conditions permitting and accelerate the reduction of the deficit if economic or budgetary conditions turn out better than currently expected 
This casts the austerity measures implemented by the Coalition government on coming to power in May 2010 in a different light, doesn't it?

The Coalition's austerity measures met with the approval of the Eurocrats:
On current information it appears that the United Kingdom has taken action representing adequate progress towards the correction of the excessive deficit within the time limits set by the Council. In particular, the measures announced in the June 2010 Emergency Budget will further increase the size of fiscal consolidation in 2010/11 and also significantly strengthen the planned pace of deficit reduction over the medium-term. 
And on that basis, they decided no further action to force persuade the UK to deal with its deficit was needed. Kudos to Osborne for getting Brussels off his back, yes?

Not quite. The story doesn't end there. Fast forward to May 2015 - yes, the month of the UK's latest General Election, in which the Conservatives won outright. The UK was supposed to have brought its budget deficit below 3% of GDP by then, so the European Commission reviewed the UK's progress against this target. This is their conclusion:
Despite the fiscal consolidation programme set out and being implemented, the United Kingdom did not put an end to its excessive deficit by 2014-15. Furthermore, the United Kingdom did not adhere to the average fiscal effort of 1¾% recommended by the Council on 2 December 2009. Overall, the response by the United Kingdom to the Council recommendation according to Article 126(7) TFEU of 2 December 2009 has not been sufficient, 

And their latest recommendation follows on, of course:
(1) The United Kingdom should put an end to the present excessive deficit situation by 2016-17 at the latest. 
(2) The United Kingdom should reach a headline deficit of 4.1% of GDP in 2015-16 and 2.7% of GDP in 2016-17, which should be consistent with delivering an EN 5 EN improvement in the structural balance of 0.5% of GDP in 2015-16 and 1.1% of GDP in 2016-17, based on the updated Commission 2015 spring forecast. 
(3) The United Kingdom should fully implement the consolidation measures incorporated into all budgets and Autumn Statements up to and including the 2015 budget to achieve the recommended structural effort, with any modifications being fiscally-neutral in relation to the current plans. The United Kingdom should further detail the expenditure cuts in the upcoming Spending Review. These are necessary to ensure the correction of the excessive deficit by 2016-17. 
(4) The United Kingdom should accelerate the reduction of the headline deficit in 2015- 16 and 2016-17 if economic, financial or budgetary conditions turn out better than currently expected. Budgetary consolidation measures should secure a lasting improvement in the general government structural balance in a growth-friendly manner. In particular, further cuts in capital expenditure should be avoided. 
(5) The Council establishes the deadline of [15 October] 2015 for the United Kingdom to take effective action and, in accordance with Article 3(4a) of Council Regulation (EC) No. 1467/97, to report in detail the consolidation strategy that is envisaged to achieve the targets. 
And for good measure, it adds a requirement for the UK to commit to "comprehensive structural reforms", which is code for "take 5,000 lines and a detention". Teacher is not pleased.

But actually this whole saga is hilarious. The European Commission has no power whatsoever to force the UK to implement its austerityfest. The original European Council "excessive deficit" recommendation from 2008 somewhat shamefacedly admits this (my emphasis):
Pursuant to point 5 of the Protocol on certain provisions relating to the United Kingdom of Great Britain and Northern Ireland, the obligation in Article 104(1) of the Treaty to avoid excessive general government deficits does not apply to the United Kingdom unless it moves to the third stage of economic and monetary union.  While in the second stage of economic and monetary union, the United Kingdom is required to endeavour to avoid excessive deficits, pursuant to Article 116(4) of the Treaty.
And the UK government robustly reinforced this in its response to the 2015 European Commission review (my emphasis):
The UK is not a member of the single currency and cannot face sanctions under the EU’s SGP. The UK’s obligation under the SGP is to “endeavour to avoid an excessive government deficit” as a result of its Protocol to the EU Treaties (Protocol 15).
Nonetheless, the European Commission undoubtedly is pressuring the UK government over deficit reduction. After all, it is trying desperately to whip a set of recalcitrant Eurozone members into shape, including - most importantly - France, which is resisting every step of the way. How on earth can the European Commission coerce France into "fiscal responsibility" when its neighbour across the Channel is blithely ignoring the Stability and Growth Pact?

So Osborne, having successfully got the Eurocrats off his back in 2010, has tried the same trick again. He has produced plans that actually exceed the latest fiscal targets. Though from the tone of the Commission's report, it does not seem that they will be quite so relaxed about progress monitoring this time round. But they won't want to rock the boat ahead of Britain's EU referendum.

Or - will they? I'm not so sure. After all, they are insane.


  1. They my be insane but are following the logic of capitalism to its conclusion (it is a market state and not a managed national capitalistic state after all)
    Their simple objective is and always have been to increase costs at all costs.

    Its come to its final conclusion now.
    The resident euro population cannot afford to reproduce so the capitalist managers burn down the entire south and east periphery to stock up on essentially unneeded labour anyhow.
    Don't tell me the UK and France are not at the center of this.
    During the the 70s boom Irish births peaked in 1980. ( unlike core euro inflationary countries of the 70s) - this was obviously a result of the Irish not propagating in England in the same numbers.
    Once the Sterling link was broken the scale of the capitalistic system was extended.
    Ireland went into a immediate first euro depression.
    Birth rates halved by the mid 1990s........currently there is surprisingly few Irish born people in their early 20s world wide.
    The solution is to wreck and concentrate yet more wage automans in the slums of the London , Paris and of course the oldest of slave trading towns Dublin.

  2. History of the British Isles vol 3.

    Fiscal expansion in the core makes perfect capitalistic sense.
    This crisis has been scripted for some time.
    The euro functionaries are performing what needs to done for connected capital - rape the periphery.
    The good old liberal British will concentrate them in camps.....ehh sorry cities.

  3. The main problem seems to be that the European Commission is following the wrong (German ordoliberal?) model of how an economy works or should work. Apparently they really believe all government deficits are bad (crowding out private investment etc), government debts are bad, etc.

    1. Nope. The European commission is following the instruction of an AI made of legal documents. It's what the European integration project is all about : the destruction of politics and its replacement with automated decision making by way of automated reglementation. Which of course means that the ones who wrote the rules can rule the continent for all eternity.
      Basically, it's Terminator with Skynet recast as a network of law codes.

  4. It is worth mentioning that the new ESA 2010 rules, particularly those referring to treatment of PPPs and concessions, make the deficit (and debt) targets almost unreachable, particularly for EU Member States with low credit ratings.
    Since ESA is in fact SNA (and as such an international standard) it seems that the only solution is the revision of Maastricht treaty.

  5. How I hate the term "Fiscally Neutral". As if you believe Government spending and taxation is decoupled from economic activity.

  6. A rise of UK fiscal deficits in the context of the wider austerity Europe and mercantile Asia will possibly suck in 10s of millions of people on a ever more crowded island.
    These people will not have access to higher energy density per capita.
    Capitalistic efficiency will merely increase as it burns more people up inside the urban zoo.

    Yee guys somehow fail to understand that the UK is merely London’s green belt now , its days as a industrial hinterland is over.
    Its impossible to engage in productive jobs under present circumstances.
    All production is now outside of the UK and is likely to remain so.
    But it cannot be said that the UK has become de -industrial as it still consumes industrial products. (It is not a agrarian society but a burb society pretending to be agrarian )
    Please get your little auld heads around the concepts of the bleeding obvious.
    A sense of capitalistic scale is needed.

  7. The population density of England is high because that is where the money goes.
    Resources are not local
    Resources will be directed into Mordor.
    Real resources will be lost in its transmission to the core creating mass poverty in the periphery
    Fiscal expansion is classic capitalistic expansion.
    It does not benefit people.
    We will be witness to a epic consumer battlefield .

    Always remember what capitalism is.
    It is simply concentration.
    Sometimes it wears liberal clothes , sometimes it is communistic .
    It does one thing very very well.

  8. People on these islands have been in full scale retreat from this seemingly unstoppable force for the best part part of 500 years.
    If it has to eat its own tail then it will.

    It certainly will not stop .

  9. Talk about the pot calling the kettle black: every year, the EU's net contribution member states, such as the UK, have to bail out the Eurocrats.

    1. The EU budget is required, by law, to balance every year, so I'm not sure what you're on about. The fact that contributions from Member States are one of the sources of income for the EU doesn't really have anything to do with anything.

  10. Here is the fragment from cycle known as "austerity success story" from major European media Euronews:

    Featuring Portugal and Latvia. Notice how the price paid by Latvians are masked behind bureaucratic jargon of "structural reform". No mention about massive emigration of Latvians nor GDP gap.

  11. God save UK of the Comission and all these monsters.

  12. As an assiduous reader of your excellent pieces, I wonder whether you haven’t gone a bit off the rails yourself in calling Eurocrats ‘insane’. You’re right that their focus on deficits and debt in the current economic situation doesn’t make any sense.
    But you have chosen the wrong target. Blaming ‘Eurocrats’ maybe easy, but it’s lazy. It’s easy, because no-one likes any kind of ‘bureaucrat’ and many people fall for the plot where the real villains are the unelected officials slavishly following mad rules which they impose on everyone else. It’s lazy, because it obscures the real problem and therefore makes a solution more difficult. In attacking the wrong target, you are providing no more of a service than the doctor who blames the symptom and not the cause.
    The real problem is the austerity dogma followed by many national governments in Europe. Unfortunately, the majority of them. Many of these people truly believe in balanced budgets. But they are elected people, not bureaucrats. They are responsible to their voters. They have to answer publicly for the policies which have wrecked the economy. And so they can be thrown out and changed.
    The ‘Eurocrats’ are public officials responsible to elected people. In a democratic system, we don’t want them making up the rules and imposing them on us. We expect them to follow what democratically elected leaders - in national governments or the European Parliament - have decided.
    But that’s what happened. The deficit and debt rules in the Stability and Growth Pact were decided by elected people. Since then, they have been subject to extensive debate in 28 national governments and in the European Parliament and have been voted on. Unfortunately, the rules have been made worse, more rigid and more bureaucratic. But this was a democratic choice.
    By all means blame the Eurocrats for stupidly applying rules. Or for being over-zealous in applying them, politically naive, rigid, pig-headed or whatever But it’s the rules that are stupid. Focusing on the Eurocrats lets the real villains off the hook.


Post a Comment

Popular posts from this blog

WASPI Campaign's legal action is morally wrong

The foolish Samaritan