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Grappling for growth

Europe is currently in a recession. Only a few months after the international financial meltdown, fears of an economic slump have become widespread. The car industry has been particularly badly affected. How does the European press view the idea of a European economic stimulus package?

The world is currently sinking into an economic crisis, probably the worst in a quarter of a century, perhaps even the worst since the Great Depression of 1929, according to the Nobel Prize-winning economist Joseph E. Stiglitz writing in the Hungarian business newspaper Világgazdaság on 20 November. These sound like prophecies of doom. One thing is a fact, though: economic performance in the Eurozone declined in the third and fourth quarters of 2008 in comparison with the same period the previous year.

Photo: Photocase/ AndreasF.

The prognosis of the International Monetary Fund, according to which the economic output of all the industrialised countries taken together will shrink in 2009 for the first time since the Second World War, has further fuelled expectations of a global recession. "Now at the very latest it must be clear to everyone that the crisis is no longer limited to the financial sector”, the Financial Times Deutschland wrote on 6 November.

Car industry finished

At the same time most European newspapers reported a decline in many sectors. Having decimated the banking sector, the crisis has now spread to aviation, construction, chemicals and above all the car industry. The latter is regarded as particularly dependent on the general economic climate and therefore reacts quickly to any economic downturn. Auto manufacturers like Daimler, BMW and Porsche have reduced their production and have not ruled out job cuts. Daimler even announced that it would be introducing more short-time working in 2009. The appeals for state financial aid from the US auto concerns General Motors, Ford and Chrysler and their European subsidiaries became the focus of the media debate. "No government ... can afford the luxury of not taking action and risking the loss of a key economic sector”, the Spanish daily El Mundo commented on 18 November. The Portuguese business newspaper Jornal de Negócios on 21 November compared the fallout from the bankruptcy of car manufacturers in the USA and Europe with the collapse of the banks. "These are exceptional cases that require extraordinary measures. After that they should return to the free market as quickly as possible”.

Some press organs expressed incomprehension at the prospect of subsidies for the automobile sector, which the Italian daily La Repubblica, for example, declared to be finished. "Why should a couple of companies now be protected? And why these companies, why now? ... And how attractive is a rescue whose only effect can be to perpetuate these companies' agony for years in the belief that the automotive industry is another coalmining industry? the German daily Süddeutsche Zeitung asked on 18 November in connection with the falling sales figures for cars. And the Dutch weekly Elsevier on 20 November urged European governments not to prop up the car industry but instead to prevent it collapsing by pursuing an intelligent industrial policy. While the Austrian daily Der Standard acknowledged on 19 November that it was politicians' job to create favourable conditions for industry to avoid job losses, it added that "the state surely does not have enough funds to give every industry allegedly hit by the crisis a cash injection to ensure its survival”.

EU economic stimulus package endangers Maastricht

In order to alleviate the economic crisis EU Commission President José Manuel Barroso has come up with an unprecedented economic stimulus package to the tune of some 200 billion euros, or 1.5 percent of European GDP. Only 30 billion of this was to come from the EU budget and from the European Investment Bank (EIB). The remaining 170 billion euros was to be contributed by the individual EU states from their national economic stimulus packages. When he presented the package in Brussels on 26 November Barroso justified it by saying that this was a crisis of extraordinary magnitude.

The press, however, did not think much of the package, pointing out first of all that the high level of state expenditure would endanger the central convergence criteria stipulated by the Maastricht treaty on monetary union. "For when a government starts using money to boost the economy, public debt increases. And it is the European Commission that has the task of ensuring that countries adhere to the Stability Pact for the euro”, the Dutch daily Trouw wrote on 26 November. "It is difficult to say precisely what this 'toolbox', as Barroso called it, is supposed to bring. It is to be expected that it will contain a temporary divergence from the Maastricht budgetary stipulations”, the Slovenian daily Delo commented on 27 November. The Italian daily La Repubblica was also unconvinced: "De facto revoking the Maastricht stability pact and allowing governments complete discretion in deciding the level of the public deficit amount to a poorly concealed 'Everybody for himself manoeuvre'”!

Barroso is not Obama

Particularly the character of the package, which grants each country the freedom to decide how to implement the individual measures, raised a few eyebrows in the European press. The
Süddeutsche Zeitung expressed the view on 26 November that every country will act as it sees fit. Whether or not there is a European programme, many countries, including Germany, France and Britain, have already finalised and announced national economic stimulus packages”. It said the political structure of the EU was responsible for the package not being standardised. The Portuguese daily Diário de Noticiás also criticised the package on 28 November, saying it was not a common rescue package. Since in the EU there was no political centre that could take responsibility for a standard EU economic policy each country could choose which of the proposed measures to adopt.

Világgazdaság also thought the problem in finding a solution to the economic crisis was a structural one: "As we are all aware, the weak point in the EU's economic policy is that plans that are worked out on an EU level can ultimately only be implemented on a national one”. The German business newspaper Handelsblatt even described the EU economic stimulus package as a "programme without a concept” pointing to its American counterpart. "Barroso is not Obama, and the US Federation functions differently to the EU confederation of states. The Americans are able in an emergency to stand together as a man. In Europe, by contrast, everyone looks after their own interests. Everyone can pick and choose from the EU economic package as he wishes."

Lower taxes

Britain, for example, has chosen to reduce VAT as a special measure to boost the economy. As part of an extensive economic rescue package VAT was temporarily reduced from 17.5 to 15 percent as of 1 December 2008. The reaction of the European press to the measure, which was particularly controversial among retailers, was mainly positive. La Repubblica on 25 November called it "an act of social justice on the part of the British Prime Minister Gordon Brown”. The Irish Times thought it was a risk worth taking, given the weak state of the British economy. Looking at their own national situation some newspapers pointed out the alleged advantages of reducing VAT. "The idea is not to dry out the state, however, but to strengthen the domestic economy in the biggest economic crisis of the past 80 years”, the German daily Frankfurter Rundschau commented with respect to Germany's refusal to lower taxes.

The Greek newspaper To Ethnos praised Brown's move to reduce the tax burden on economically weak citizens in order to revive the market and contrasted this measure with the tax increases planned in Greece in 2009. The left-wing German daily die tageszeitung also thought the British government had a remedy for the short-fall of billions in tax revenues that would result from lowering VAT. "The plan is to offset the tax deficit with higher income taxes for the rich later on. That's the way to go! This would mean that at the same time you address a social imbalance”. The British daily The Guardian, on the other hand, regarded the measure as a fundamental mistake. On 25 November it commented: "The most crucial part of restoring the economy to any form of health lies not with more public spending, but with getting the banks lending again. Until then, predictions on growth or public finances are as much guesswork as analysis”.

Historically low interest rates

Bank loans are, however, dependent on interest rates. These in turn can be controlled by the interest rate of the European Central Bank (ECB). The ECB's radical interest rate reduction on 4 November by 75 basis points to 2.5 percent – the biggest since the introduction of the euro – may be interpreted as a further attempt to combat the looming recession. Other countries too, such as Britain, Sweden and Denmark, also took drastic steps with regard to interest rates. The business newspaper Financial Times Deutschland asked what concrete strategy ECB President Jean-Claude Trichet is really pursuing in the crisis. "Trichet left market actors in the dark about what would happen next. The effect is one of complete uncertainty”. Other European newspapers were not convinced about the effects of lowering the interest rate, saying it was not certain that this would be passed on to the banks' customers and investors. "In this uncertain environment, banks have excellent reason not to lend at less than punitive rates”, The Guardian commented on 5 December. And the Süddeutsche Zeitung commented: "As brave as the ECB's move is, it is likely to have difficulty convincing Europe's banks to pass on these low interests rates. As banks are in need of money themselves at the moment they no longer lend to each other.”

Beware of deflation

The reduction in the ECB interest rate was, however, also necessitated by falling prices. As the French business newspaper Les Echos warned on 20. November, these posed the danger of deflation. "Real estate prices in the US, which have dropped by almost 17 percent in one year, are also sinking in Europe. The fall in prices is now being felt in daily consumer goods. For the governments this is a new challenge. Deflation poses a far greater risk than inflation because it blocks the economy and kills classical monetary policy”. The Danish daily Politiken believed that the heads of central banks could head off the threat of recession, "but”, it said, "faced with the prospect of rising unemployment and dwindling growth, they don't want to be seen as the culprits”, adding that the heads of the central banks also know that they will soon run out of ammunition, since interest rates cannot fall below zero.

However, not everyone is writing obituaries for the global economy. The Finnish daily Helsingin Sanomat was convinced on 3 December that it was important to look ahead to what would come after this recession. "...everyone is prescribing anti-recession medication. This is astonishing, because recessions come and go. ... Far more interesting is how the global economy, businesses and politicians are accepting these changes. If boom phases can change the world, recessions can do so much more”.

Andreas Bock

Andreas Bock, born in Kaufbeuren in 1978, works as editorial assitant for euro|topics. Before joining the editorial team he worked as a cultural manager for ...
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