After Juncker’s Nomination, Nordic Premiers Loom as Council President

Prime Minister Jyrki Katainen of Finland arrives for a European People's Party summit in Vienna, Austria, June 20, 2013
Prime Minister Jyrki Katainen of Finland arrives for a European People’s Party summit in Vienna, Austria, June 20, 2013 (EPP)

European leaders on Friday pushed through Jean-Claude Juncker’s nomination to head the next European Commission while the prime ministers of Denmark and Finland looked likely candidates to chair their own council.

Juncker’s nomination, which is almost certain to be approved by the European Parliament, came over the strong objections of Britain’s prime minister, David Cameron, and his Hungarian counterpart, Viktor Orbán, who fear the former premier of Luxembourg will advocate deeper political integration in the European Union as the head of its executive arm at the expense of expanding the single market, liberating trade with nations outside Europe and giving member states the flexibility to opt out of specific policies.

Juncker, who previously also chaired the council of eurozone finance ministers, had claimed the commission presidency after his European People’s Party won a plurality of the seats in the European Parliament in last month’s elections.

His appointment confirms the views of British Euroskeptics who believe the European Union is beyond reform and the island nation would be better off outside the bloc.

Cameron has promised his voters a referendum on Britain’s future in the European Union, pending an effort to adjust the conditions of its membership. After Friday’s decision, he admitted, “The job has got harder of keeping Britain in a reformed EU.”

He implicitly criticized other leaders, saying that in a Europe crying out for reform, they had gone for a “career Brussels insider.”

German chancellor Angela Merkel, otherwise keen to keep liberal Britain involved in the European Union as a counterweight to more protectionist economies in the Mediterranean, told reporters, “I believe that the conclusions that we agreed showed we are ready to take British concerns seriously. The entire strategic agenda reflects Britain’s desire, which I share, for a modern, open, efficient European Union.”

However, as recently as Wednesday, Merkel signaled that she was prepared to give France and Italy more “flexibility” to meet their budget targets under European treaty rules. The two countries, ruled by leftist parties, had conditioned their support for Juncker on less austerity.

Individual commissioners are yet to be nominated. Britain can be expected to claim a powerful post given its failure to block Juncker.

The presidency of the European Council — the regular meeting of government leaders — will also soon be vacant. The prime ministers of Denmark and Finland, Helle Thorning-Schmidt and Jyrki Katainen, are believed to be candidates to replace Herman Van Rompuy.

Katainen, a conservative, has already succeeded Olli Rehn as commissioner for Economic and Monetary Affairs — a position he is expected to keep unless he could become European Council president.

Thorning-Schmidt, a Social Democrat, is a more likely candidate. The socialists in the European Parliament are assumed to demand the European Council presidency in return for supporting Juncker. However, the Danish leader herself insisted on Thursday she was “not a candidate.”

The new European Commission is due to take office in October.

Finland’s Next Prime Minister Backs NATO Membership

Russia is almost certain to be alarmed by the likely appointment of Alexander Stubb to become Finland’s next prime minister. The conservative politician, who currently serves as the Nordic country’s European affairs minister, favors breaking with Finland’s neutrality to join the NATO alliance.

“We have to aim at maximising Finland’s national security and being part of decisionmaking and that happens best as a NATO member,” Stubb told the Reuters news agency after Finland’s ruling National Coalition party elected him as its leader on Saturday.

Stubb is expected to take over as prime minister when Jyrki Katainen steps down, possibly as early as next Thursday, to seek a European Union job. Finland is due to hold a general election in April of next year. Read more “Finland’s Next Prime Minister Backs NATO Membership”

Finland, Netherlands Block Bailout Fund Expansion

Finland and the Netherlands, the eurozone’s two most hardline creditor states, said on Monday that they would block expansion of the permanent European Stability Mechanism’s ability to buy sovereign bonds.

A European Council last week agreed that the ESM, which is set to replace the temporary European Financial Stability Facility next week, could be used in a “flexible and efficient manner” to lower the borrowing costs for eurozone governments. Highly indebted Italy and Spain had insisted that other European nations help them reduce interest rates on their debts to avert a deepening of Europe’s financial crisis.

Although the council statement gave no specifics, it was assumed that the bailouts fund would be empowered to buy government bonds which could reduce the interest rates that Italy and Spain pay on their loans. Read more “Finland, Netherlands Block Bailout Fund Expansion”

Finland, Netherlands Resist Expansion Bailout Fund

Finland’s prime minister supported a Dutch proposal to create a European commissioner for fiscal discipline on Monday and warned that Europe may have mere “weeks” left to convince markets that it can combat its spiraling debt crisis.

Prime Ministers Jyrki Katainen and Mark Rutte rejected international calls for an expansion of Europe’s bailout facility however, stressing that profligate euro nations in the periphery should enforce budget discipline according to existing treaty obligations. Read more “Finland, Netherlands Resist Expansion Bailout Fund”

Getting Back to AAA Will Be Tough

America is hardly the first industrialized nation to lose its coveted AAA status from a credit rating agency. Others lost their highest appraisal of creditworthiness and managed to regain it but only after years of strenuous fiscal consolidation. What lessons can be drawn from their experience?

Standard and Poor’s is the only major credit rater that has downgraded American debt from AAA to AA+ so far. Moody’s affirmed the nation’s AAA rating but with a negative outlook. Fitch has also warned that as America’s national debt mounts, its bond rating may come under scrutiny. All champion massive deficit reduction over the next decade and believe that some $4 trillion in spending cuts or tax increases is necessary to achieve balance in the medium term.

Once a country loses its top credit rating, it takes years to get it back. Australia needed as many as eighteen years to regain its AAA status. Canada, on the other hand, pulled it off in less than a decade.

After losing its AAA credit rating in the early 1990s, Ottawa embarked on deficit reduction effort that included budget cuts and tax hikes in a ratio of roughly seven to one. The books were balanced within six years and today, Canada is among the economically freest countries in the world. Its regulations on businesses are efficient and transparent while there are virtually no barriers to international trade and few restrictions on foreign investment.

Canada’s public debt at the end of last year equaled 34 percent of gross domestic product or $519 billion. Even this year, it’s not projected to exceed the $563 billion of debt that Canada had amassed in 1997. For comparison, America’s national debt is approaching $14.6 trillion which is almost the size of the entire economy.

Another country that saw its creditworthiness called into question during the 1990s was Finland. In the decade preceding their downturn, the Finns had assumed huge private debts which eventually led to a disastrous decline in stock market value and housing prices. Finland’s economy contracted by 13 percent and nearly one out of five workers lost their jobs.

Politicians struggled to cut spending as powerful trade unions opposed necessary labor market reforms. Finland quickly racked up a public debt equaling 60 percent of GDP before regulations on businesses and investment were finally streamlined and several state enterprises sold off.

Government spending is still high while dismissing a worker can be costly and burdensome but Finland did manage to reduce its debt burden to 45 percent of GDP last year when the state’s budget was almost in balance.

Even if Canada and Finland managed to regain competitiveness and a top credit rating, their experiences are unlikely to be repeated in the United States. Fiscal consolidation in both nations required a political consensus. Opposition parties largely agreed with the need to slash spending and increase revenue simultaneously.

Democrats in the United States by contrast are reluctant to reduce government expenditures whereas Republicans are opposed to raising taxes. Both parties fear that it might undercut a still lackluster economic recovery.

The world economy today is in a far more fragile shape than it was during the 1990s when the United States actually ran a budget surplus. Canada and Finland were able to boost trade when they removed regulatory impediments and lowered tariffs. American legislators can help commerce by enacting pending free-trade agreements but their nation would still maintain a large trade deficit with the rest of the world. Canada and Finland were able to profit from growth elsewhere. Countries in Europe and East Asia have depended on the United States for growth instead. To win back its AAA rating, Washington will have to enact reforms at home.

Cameron Brings Northern Europe Together

During a two day Nordic Baltic Summit, the British prime minister said that, “right across the north of Europe there stretches an alliance of common interests.” He believes Britain, Scandinavia and the Baltic nations can lead in European job growth and prosperity.

Political and business leaders from Denmark, Estonia, Finland, Iceland, Latvia, Lithuania, Norway and Sweden joined Prime Minister David Cameron for the summit in London. There is much the countries have in common, he professed. Read more “Cameron Brings Northern Europe Together”

European Navies Train for Coastal Warfare

In September, the navies of thirteen nations gathered at the port of Turku in Finland for Exercise Northern Coasts 2010, a two week training event meant to “improve the interoperability between participating units and countries with main emphasis on maritime operations in confined and shallow waters,” according to the Finnish military. The event was tailored for “smaller naval units, such as fast patrol boats, corvettes, small frigates and Mine Counter-Measure Vessels,” Warships International Fleet Review reported. Read more “European Navies Train for Coastal Warfare”

Fear of Change Propels Populists to Power

Throughout Europe, fringe movements have been able to maneuver themselves into the political spectrum, rallying anti-immigration forces and a renewed sense of nationalism with considerable electoral success. While the world is globalizing and Europe becoming one, millions of people, from Finland to Italy, want to have no part of multiculturalism and change. Read more “Fear of Change Propels Populists to Power”