Commissioner warns of 2012 recession

By Ann Cahill, Europe Correspondent

Tuesday, December 13, 2011

A RECESSION is now very likely in the EU next year, and the outcome of last week’s summit is unlikely to change this, according to Laszlo Andor, Commissioner for Employment, Social Affairs and Inclusion.

Mr Andor, has been critical of the emphasis on austerity measures and punishment for those who break the rules without a counter-balancing emphasis on transfers, growth and employment with the more active involvement of the European Central Bank (ECB) and eurobonds.

Ireland had set itself up as a hub for international business, he said, adding that "if Ireland can come out of this relatively well and sooner, the long-term balance can be positive".

Mr Andor said Ireland has a crisis every generation but has a certain capacity to manage them, with euphoria followed by national and family emergencies.

However, he warned: "Next year will be very tough. There will be a recession, and after this summit it is very unlikely we will escape this recession," adding that the outcome was too ambiguous for the markets. There was no discussion of development in the periphery countries at last week’s EU summit, which was a missed opportunity, he said.

The allocation of resources around Europe has to be reconsidered, not just the 3% deficit. "When you are there it is too late already," he said.

Instruments for a true euro area, economic policy and decision-making that goes beyond a simple application of pre-defined rules are needed, Mr Andor said.

This should include an economic government deciding from the point of view of the union as a whole.

All too often, member states’ own needs set the agenda, he claimed. Germany is constantly afraid of inflation, which is having an undue influence on the ECB. But asking the European Financial Stability Facility to manage markets at such a volatile time did not make sense.

For the likes of Spain and Slovakia, the issue is not a two-speed Europe, but the countries themselves being internally divided, with a small dynamic group moving ahead but the larger uncompetitive economy falling further behind.

However, "a good crisis can create miracles and so we have labour market reforms in Spain", Mr Andor added.

This appeared in the printed version of the Irish Examiner Tuesday, December 13, 2011