Monday, July 13, 2015

Euro Summit Statement: A Glimmer of Sanity?

It's very odd.  The statement of the Euro Summit, issued in Brussels yesterday, could reasonably bear the title, "More of the Same -- Only More So!" (or, perhaps, "Take That, You Socialists!").  However, tucked away, in what is literally the last paragraph of the document, is this:
To help support growth and job creation in Greece (in the next 3-5 years) the Commission will work closely with the Greek authorities to mobilise up to EUR 35bn (under various EU programmes) to fund investment and economic activity, including in SMEs. As an exceptional measure and given the unique situation of Greece the Commission will propose to increase the level of pre-financing by EUR 1bn to give an immediate boost to investment to be dealt with by the EU co-legislators. The Investment Plan for Europe will also provide funding opportunities for Greece.
Stimulus spending?  To support growth and job creation?  It is almost as if someone, somewhere, has come to the realization that austerity is contractionary.   (Aside: spell-check wants to replace "contractionary" with "contradictory."  It has a point.)

Of course, there are still some important questions.  Is EUR 35 billion enough?  It's around 20% of Greece's 2014 GDP.  If it's heavily front-loaded and concentrated in the first three years, then maybe. Spread over five, it starts to look less effective.

The bigger question is how the problem of "leakage" will be handled.  That is, how can we ensure that the EUR 35 billion in spending creates jobs in Greece rather than exports in Germany?  This is one of those things that would normally be accomplished via exchange rates.  (Oh, those again.)

Still, this paragraph is about as close as we can expect to a Eurozone confession that, "Yes, our entire approach to the macroeconomics of Greece has been completely wrong-headed from the start."

We celebrate the small victories, because they may be the only kind we get.  

1 comment:

  1. By the way the 35bn do not come as additional money. it's EU funds allocated to Greece already by previous financial commitments but unspent due to a mix of lack of co-financing and lack of administrative capacity (from the Greek side) to carry out the projects.
    And yes, the EU funds flow back to net contributing countries in the form of export revenues. A lot. DG REGIO analysis shows Germany is the biggest beneficiary of the EU funds once the re-flow are considered.