Time to Call Southern Eurozone States to Order

France, Italy and Spain neither deserve nor need more time to bring their deficits in line with the rules.

Prime Ministers Matteo Renzi of Italy and Mariano Rajoy of Spain speak during a European Council meeting in Brussels, June 25
Prime Ministers Matteo Renzi of Italy and Mariano Rajoy of Spain speak during a European Council meeting in Brussels, June 25 (La Moncloa)

The eurozone’s laggards are at it again. France, Italy and Spain want more “flexibility” from the rest of the European Union in getting their deficits down next year.

The European Commission, which now has the power to reject national budgets, better not give in again. The more “flexibility” these countries get, the less haste they make reducing public spending.

Seven years after the start of the sovereign debt crisis, the three have yet to wipe out their deficits. Growth is lackluster. Unemployment, especially among the young, remains high.

The excuses coming out out of Paris, Rome and Madrid are all too familiar. When their economies were in the tank, they couldn’t cut public spending because it would only make the situation worse. Now their economies are showing signs of growth and they can’t cut because it would nip the recovery in the bud.

It’s like Groundhog Day, writes Tony Barber in the Financial Times, and the response from Germany and its allies in the north is the same as before: countries that share a currency must obey the same rules or the thing doesn’t work.

The European Commission says much the same thing, Barber reports.

In January it … pointed out that the EU’s fiscal rules are not so strict as to suppress all budgetary flexibility — but that rules are rules and governments ought to adhere to them. After the crisis, the commission wrote, “the existence and respect of the rules have been essential to restore trust and confidence.”

Except time and again it has given powerful nations like France and Italy more time to respect the rules.

It is time to draw a line in the sand.

Countries that use the euro must keep their deficits under 3 percent of economic output or at the very least face a fine.

Leaders in the south are defiant. France’s François Hollande says he wants a “eurozone government” — but one that doesn’t involve him taking orders from Brussels. Italy’s Matteo Renzi insists the commission cannot dictate specific tax and spending policies. Spain’s Mariano Rajoy is implicitly warning his peers not to be too strict or risk a left-wing takeover in December’s election.

The three countries may together account for nearly half the eurozone’s economy but let’s not pretend they have the upper hand.

Sure, Germany’s export economy benefits from the euro. But the southerners would be paying much higher interest rates on their bonds if they didn’t have the backing of Berlin and the Frankfurt-based European Central Bank.

For those in the north, it is a rather cruel twist of fate. Had it not been for the euro, France, Italy and Spain would probably have had to rein in their public-spending largesse long ago. As it is, they can afford to put off politically inconvenient reforms and count on their more competitive neighbors to bail them out.

Leave a reply