Three subjects dominated the Eurogroup and Economic and Finance Ministers Council and the EU-27 this week in Brussels: a European solution for setting up Bad Banks, the deteriorating budgetary position in the Member States and the alarming situation in the labour markets in Europe.
Luxembourg’s Prime Minister and the Spanish Commissioner meet the press
Eurogroup and Ecofin held a meeting in Brussels on 9th and 10th February. Following the meeting, Jean-Claude Juncker, the Luxembourg Chairman of Eurogroup, in which the 16 European Member States use the Euro as a common currency, together with the Spanish Commissioner for Economic & Financial Affairs Joaquín Almunía answered the questions of the press. The next day, the Czech Finance Minister Miroslav Kalousek and Almunía informed international journalists.

Target: a European solution for the establishment of Bad Banks
Juncker pointed out that not enough loan funds were available in the Eurozone. The problem of so-called “toxic assets”, i.e. those assets, which the banks still had on their balance sheets, but which currently were virtually unsellable in the free market had to be solved. Over the coming weeks, the Member States would continue their efforts to cooperate in order to find a European approach to this issue. The issue in question was a European solution with respect to so-called “Bad Banks”, i.e. those banks whose establishment is planned to relieve banks of their unsellable assets. Juncker pointed out that utmost care had to be applied to such a scheme, as setting up such Bad Banks could entail potentially enormous costs for the taxpayer, apart from resulting in unfair competition between the Member States. Almunía drew attention to three cornerstones for a European solution with respect to Bad Banks. Firstly, this would require a transparent method for evaluating the toxic assets, hence the question, which value is apportioned to these assets, which are unsellable in the market. Secondly, equal treatment, independent of the method used by the Member States, had to be guaranteed. And thirdly, an appropriate sharing of the burden between the shareholders of the banks and the representatives of taxpayers had to be ensured.

Deficits rise - Stability and Growth Pact, however, should nevertheless be adhered to
As a further point, which had been discussed by the Ministers, Juncker mentioned the impact of the rescue packages on public finances. The deficits of the Member States would increase and it was necessary to find an exit strategy. The Stability and Growth Pact had to be adhered to “in its spirit and wording”. One would return to this issue in the next few weeks. Almunía indicated that in the coming weeks the Commission would examine the budgetary consequences of bank and economic stimulus packages within the scope of the mechanism provided for in the Stability and Growth Pact. During their meetings on 18th and 25th February, the Commission would review the budgetary position of the majority of Member States (more than 20 of 27) and initiate deficit procedures where required.

Alarming situation in the labour markets – Commission prepares Paper
The Ministers were clearly worried by the situation in the labour markets. Unemployment would increase at an alarming rate, said Juncker and the situation would get even worse. Ministers had therefore agreed on benchmarks for employment policy, whose starting points would be the increased use of part-time and short-time work combined with simultaneous further training, said the Luxembourg Prime Minister. Almunía explained that the Commission was in the process of preparing a Paper, which would specify how the mechanics of labour markets could be improved. This Paper should also contain a list of good and bad practices.

Czech minister in fresh gaffe
On the next day, Miroslav Kalousek, the Czech Finance Ministers gave, on behalf of the Czech Presidency, a retrospective view of the Ecofin Council meeting, the assembly of the Ministers for Finance and Economic Affairs of all 27 Member States. The meeting with the European social partners had shown that the trade unions would demand a strong fiscal impulse, whilst the employers would put the impact of the credit crunch in the foreground. Concerning the question of Bad Banks, one could expect a decision by the Commission within the next two weeks. The economic support programmes would lead to significantly larger budget deficits. That is why saving measures and far reaching structural reforms would be necessary, once the crisis was under control. In addition, Kalousek mentioned that the summit on 1st March, which had been convened by the Czech Presidency, would give a clear signal against protectionism. A stir was caused by a significant slip of the Czech Finance Ministers on the “slippery Brussels parquet”: the ministers had agreed that all budgets would be consolidated again by 2012. Commissioner Almunía could not leave this official statement uncommented. There were no fixed dates yet he corrected the Czech minister.

European Union at a loss
Europe’s entire current dilemma was made clear by two questions posed by journalists. First: Did Europe’s answer/actions not come rather late, in particular if one would take into account that the USA in spite of a change of government had been quicker in presenting a plan with regard to Bad Banks? The reply of the two representatives of the Member States and the Commission was characteristic: with a lot of diplomatic tact they apportioned blame to each other. Second question: Was there not an indissoluble contradiction between the use of borrowed tax money to rescue the banks and to revive the economy and the pressure to reduce the budget deficits at the same time? Reply: None.